How Nike is radically reinventing itself
Content, community and customisation - these are the nifty new strategic drivers that are at the heart of a radical new focus at Nike.
Project “Consumer Direct Offense” started rolling out about three years ago, but the ideas that formed the kernel of the plan go back a decade.
Just a decade ago, in 2011, roughly 84% of Nike brand sales were still to wholesale customers. Sales Nike made to shoppers itself, through channels such as its stores and website, amounted to just 16% of its business.
Nike's key insight way back then was that in order to thrive in the future, it needed to take control of its distribution chain to better manage its brand and deepen its connection with consumers.
Now, this might sound like the kinda nonsense almost every company throws around after a few too many Jagerbombs at the company bar, but even though they are one of the biggest companies in the world, at Nike they move fast when a decision has been made.
Above all else, Nike sees itself as a marketing company.
Their primary objective is to build a very strong brand, as well as strong relationships with customers. Increasingly they found it was difficult to do this as a wholesaler that simply supplies retailers; so they made the bold decision to use technology to take back control of their brand through an aggressive DTC approach.
BTW - DTC = Direct To Consumer i.e. cutting out other useless retailers.
How did they do this?
Despite Nike’s investment in personalisation and localisation – two themes slated to be key to retail in the coming year – investors are not always happy to see their profits funnelled back into the business. To counter this, Sussman explained, the company deploys an “incredibly disciplined approach”, he said. “Applying a digital operating model to a retail model has transformed how we manage the business,” he added, referring to the company’s acquisition in March of the data analytics firm Zodiac. This investment in effectiveness measurement has allowed the company to go beyond the impression/conversion layer through to deeper analysis of active membership and predicted lifetime customer value. - via
Nike made the decision to not just pay lip service to their relationships with customers, but to invest good money in bringing them in super close.
Did it work?
In the company’s 2021 fiscal year, which ended May 31, direct sales rose to approximately 39% of Nike brand sales, while wholesale accounted for about 61%. (These figures exclude sales of products from subsidiary brands such as Converse.) - via
Nike's revenue grew 13% in currency-neutral terms in the fiscal second quarter to $10.33 billion, which beat expectations at $10.09 billion, and profits improved significantly as well. Gross margin expanded by 20 basis points to 44% as a result of higher average selling prices, showing the company was able to pass along higher prices. Demand creation expense fell 3% due to the timing of certain marketing investments, which helped lift operating income by 25% to $1.25 billion, and Earnings per share jumped 35%, helped by a lower tax rate, to $0.70, ahead of estimates at $0.58. - via
Obviously selling directly to customers is far more profitable for Nike, plus they get to manage the relationship with the customer rather than simply giving that opportunity away to a retailer.
Nike obviously saw early on (because they obviously hire futurists to help them make good judgments about these kinds of opportunities that are located in the future) that technology and changing customer sentiment had opened the door to hit GO on this idea and so far it has proven to be a well-timed, well-executed plan.