In order to develop DTC business, Nike is ready to "cut off" cooperation with Macy's and other distributors

According to retaildive, in order to strengthen the development of its DTC business and adjust its retail ecosystem, the internationally renowned sports brand NIKE decided to terminate its cooperation with seven offline retail terminals including DSW, Urban Outfitters and Macy's in October this year , and also plans to open another 200 highly personalized Nike live offline small stores.

In August last year , Nike had already abandoned nine offline distributors including Belk and Zappos. It should be noted that NIKE's distributors are its main sales channels . With the integration and streamlining of NIKE's distributor channels in recent years , the sales revenue share of this channel has dropped from 76.49% in 2015 to 68.31% in 2019, but its share has remained above 65% .

Matt Powell, senior industry advisor for sports at NPD Group, pointed out that if merchants really want to have independent control over how their brands are displayed, priced, and sold at retail, then having thousands of wholesale partners is actually contradictory to achieving this goal.

In general, NIKE's DTC business development plan also includes increasing the proportion of online business, including its own official website and shopping app, and increasing the number of offline direct stores. The strong growth of the company's DTC business has given it the confidence to carry out "drastic" reforms.

According to NIKE's third-quarter performance report for fiscal year 2021 released on March 18 this year, the brand's global sales revenue was US$10.4 billion, a year-on-year increase of 3%, of which online sales increased by 59% and DTC business sales increased by 20% to US$4 billion.

Moreover, since NIKE clearly proposed to vigorously develop DTC business in 2011, the brand's DTC business share has increased from 16% at that time to 35% in 2020 , an increase of 133% in 10 years ↓

( Percentage of Nike's DTC business)

In terms of e-commerce business , due to the impact of the epidemic on online business, NIKE predicts that the proportion of online sales of its sports shoes category will reach 50% in the next 5 to 10 years, and plans to increase the proportion of its overall digital business (including its own online channels and digital channels of retail partners such as Foot Locker) to 50%.

In a conference call last week, Nike executives said that to date, Nike's digital business has grown by more than 70%, accounting for 35% of the company's total business .

( Nike's online sales performance)

It is worth mentioning that Erinn Murphy, senior research analyst at Piper Sandler, once predicted that NIKE's DTC digital sales channel will be expected to become the brand's most important sales channel in the future, accounting for more than 50%.

In a report released last October, the research institute stated that the business scale of NIKE's official shopping app NIKE SNKRS alone has reached US$1 billion, accounting for 18% of NIKE's total online sales in 2020.

The direct-to-consumer DTC development model can enhance a brand's control over its image . Wholesalers and third-party sales channels such as Amazon cannot provide brands with such autonomy and freedom. This is one of the reasons why NIKE decided to withdraw from Amazon in 2019.

However, withdrawing from the offline market distribution channels and turning to opening directly-operated stores has also brought certain pressures to the brand's collaborative efforts in various aspects such as cost control and supply chain management.

Therefore, Nike's vigorous development of the DTC business is more based on the fact that this business model can enable the brand to better meet the real needs of consumers, improve store efficiency and sales gross profit, thereby ultimately increasing sales and profits and achieving a virtuous cycle with greater revenue growth potential.

In fact, NIKE is not the only sports brand that has realized the prospects of the DTC development model. Under Armour also hopes to withdraw from thousands of wholesale markets and close 3,000 wholesale channels in October this year ; Adidas also announced this month that it will increase the sales share of its DTC business to 50% by 2025.

A report jointly released by McKinsey and the World Sporting Goods Federation shows that the transformation of brands to the DTC model has been accelerated by two years under the impetus of the epidemic . Researchers suggest that in the medium and long term, only by setting the development goal of DTC business to account for 20% or more can brands achieve more vigorous development in the future.

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