Nike has launched a new distribution strategy, which is great for its own name but may cause a major rift for small and medium redistributors.
Nike is one of the world’s most successful athletic retailers, securing 31 per cent of the global athletic footwear market. As the number one brand in the sporting goods industry, it also sits at 14th most valuable brand in the world.
Together with Adidas, Nike makes approximately $94 billion in sales globally. In mid-October, Nike made the decision to alter its distribution strategy – a move that’s supportive of its international growth, but one that may stunt the growth of smaller distributors.
What’s the Deal?
Nike has made a bid to create a tighter control of its brand power by altering its distribution model. The strategy, which once allowed independent retailers to sell the Nike stock freely, has now been changed so it can focus on its consumer channels.
According to Forbes, the new strategy includes an increase of minimum annual spend that retailers need to secure to sell the goods wholesale. Moreover, this deal also means the end of its supply agreements – an outlet that independent retailers relied on to sell Nike goods.
This is all part of Nike’s 2017 ‘Triple Double Strategy’, also known as ‘2X’. This plan aims to bolster further growth and double its ‘cadence and impact of innovation’. Moreover, 2X hopes to doubles Nike’s speed to market and its ‘direct connections’ with its consumers.
Nike’s plan behind the 2X strategy hopes to also gain at least 50 per cent of its sales via its brick-and-mortar and e-commerce platforms – something that has been stagnant for the brand recently.
The Good News for Nike
This is a smart move for Nike, as it cuts out the middleman and instantly improves its profit margin.. In 2018, Nike’s gross margins rose by 44.7 per cent. The move ultimately removes the chance of smaller retailers from selling and re-selling Nike products, giving customers the only chance to purchase via the brick and mortar stores and online.
Aside from giving its site and foot traffic a boost, this change also gives Nike the chance to retain control of its customer experience and relationship. Nike doesn’t just sell shoes and workout gear, it sells a lifestyle. When the brand is in full control of its CX, it can continue to build strong relationships between its branding and products. Using third-party companies that re-sell their products, brands like Nike, Adidas and other major layers run the risk of losing money via discounts and bad customer experience.
“Nike continually evaluates the marketplace and competitive landscape to understand how we can best serve consumers. As part of this, from time to time we do make adjustments to our sales channels, in order to optimise distribution,” Nike said in a statement.
The Bad News for Retailers
Of course, as one retailer grows stronger, others may drag behind. With the introduction of Nike’s 2X strategy, small retailers that distribute the iconic swoosh may halter in growth or crumble completely.
“All those companies that built a business on the back of Nike and Adidas are toast – there’s no way they can replace that [business],” explained a source to the Sunday Times. The previous strategy that Nike held now ‘no longer aligns’ with the brand’s core ideals – meaning that the SMEs that bought and sold wholesale products won’t have that option anymore. Retailers such as Sports Direct in the UK, are already feeling the pinch from this move by Nike.
“The sports industry has long been dominated by the must-have brands such as Adidas [and Nike],” said Sports Direct in a statement. “These must-have brands hold an extremely strong bargaining position vis-à-vis the retailers within their supply networks and use their market power to implement market-wide practices aimed at controlling the supply and, ultimately, the pricing of their products.”
The access to these products will dissolve within the next two years, giving retailers a short amount of time to decide how to approach the future within the industry.
So, What Now?
Retailers fear that this won’t be the last brand to make the move – Adidas may be the next brand to follow suit. In 2013, Adidas allegedly withdrew its replica Chelsea FC football shirts from the Sports Direct stores, ‘simply refusing to supply key products at all with no apparent justification’ said the retailer.
“The consumer is at the heart of our strategy and everything we do has the objective in mind to even better serve our consumers. In an increasingly digital marketplace, the consumer decides where to go for information and where to purchase. We want to enable seamless consumer journeys. A strong partnership with retail partners is important to reach this objective,” said Adidas in a statement.
With massive changes throughout the sportswear industry, it may close a few doors. However, as the competition dwindles from retail floors, it opens the opportunity for other brands to secure their place as the hottest brands for consumers. As one door closes, a window may just open – stay tuned.
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