Is Nike bold DTC strategy paying off?
The Rise of Direct-To-Consumer
Traditional retailing value chain was, shortly explained, split between vendors, which produced a portfolio of products, and retailers, who sold the products to the final customer.
During many years, this model was almost 100% widespread. Only few luxury brands had their own outlets.
Fast/accessible fashion brands were the first success stories of having a fully integrated value chain, but massive adoption of this sales model was still under discussion as deployment costs were too high (distribution, rental and store management, above all).
All this was in the analogic era.
The digital revolution broadened (and made less costly) the options to reach the customer. E-commerce growth (+20% CAGR for last 5 years), although still low compared to b&m sales, showed that the future of retailing was a mix of different sales channels.
Then, digitally native brands such as Dollar Shave Club, Warby Parker, Casper, Bonobos and Glossier pioneered the, let’s say, Direct to Consumer channel v.1 and showed that selling to the final customer was not exclusive to the legacy retailers anymore.
The advantages of DTC for brands, further than margin improvement due to the elimination of the middleman, are the following:
Complete control over the brand equity
Direct access to customer data
Based on that, most “traditional” brands, of any sector turned their eyes to this new sales model and are making the DTC a strategic brand and sales development channel.
Nike is definitely one of the best examples of a traditional brand developing a successful DTC strategy.
Nike Consumer Direct Offense
At the end of 2017, Nike unveiled the Consumer Direct Offense program which showed the sportswear giant clear attempt at profoundly reinventing the customer experience around the world, both in-store and online, tailored to the personalization era.
“The future of sport will be decided by the company that obsesses the needs of the evolving consumer. Through the Consumer Direct Offense, we’re getting even more aggressive in the digital marketplace, targeting key markets and delivering product faster than ever.”
Mark Parker, NIKE, Inc. Chairman, President, and CEO.
So, with CDO, Nike is moving closer to the consumer by creating a local business, at a global scale, fueled by what they call, using the basketball terminology, “Triple double” which aims to:
double its cadence and impact of innovation,
double its speed to market, and
double its direct connections with consumers.
In order to keep the promise of meeting the needs of the evolving consumer, Nike has already made some moves:
Developed leading customer insights capabilities by acquiring Zodiac, originally a predictive customer analytics platform that forecasts the behavior and lifetime value of individual customers and customer segments, in March 2018.
Invested in innovative shopping experiences by acquiring Invertex, a computer vision firm from Israel that has developed a “scan-to-fit” based on 3D-digitization and AI to analyze users’ feet in stores and to suggest models and sizes that would fit best, in April 2018.
And finally, redefined its distribution strategy. Nike wants to move away from what it calls “undifferentiated retail” so its retail partners base was reduced from +30,000 to 40 selected retail brands that meet Nike’s demands for differentiation, in other words, they offer compelling customer experiences further than broad assortments and competitive prices. Foot Locker, Nordstrom, Dick’s Sporting Goods, JD Sports and Finish Line made the cut in physical retail and Amazon, Zalando, Tmall, Stitch Fix, Asos, Zozo, Flipart and Jet.com made it digitally. The entire list has not been shared.
Therefore, Nike products are accessible through two channels:
Nike Direct, which refers to Nike’s own channels, both online and offline, where consumers buy Nike products directly from the brand. Around 7,000 branded stores operating today.
Nike Network, which refers to the selected 40 retail brands that Nike has chosen to focus its relationships. These partners work much more closely with Nike and have dedicated space and salespeople for the brand.
NikePlus as the foundation of all
Nike’s free loyalty program, called NikePlus is key to this new approach to customer engagement as data gathered from it will impact many aspects of the business from assortment and new product development to the personalized, curated experiences.
Over 100 million Nike customers have signed on NikePlus so far and the company aims to triple that number by 2023. The app is also activated when customers connect online or in its own stores or with its differentiated retail partners.
Nike has worked to bring together a single customer profile of every NikePlus member, shared across the entire outlet network, physical and digital, owned or in partnership, to ensure a unique, personalized experience.
To date, NikePlus members spend three-times more in the app than non-members on Nike.com.
The new Nike stores
Since the announcement of its DTC strategy, Nike has made two major new store openings, one in New York and another in Los Angeles that show different deployments under the same concept: connecting with the customer.
Nike Live at Melrose (LA) is Nike’s first Live store. Focused on providing service to NikePlus members rather to a wider (unknown) customer base, this store has a range of products and services that are based on the habits of local NikePlus members
Nike House of Innovation (NY) is a six-story store that offers all you can find in a Live Store plus an almost infinite options to personalize Nike products on-the-go. Apart from that, NikePlus members have access to exclusive services such as Nike Expert Studio, Scan to Try, Shop the Look or Instant Checkout.
Is Nike CDO paying off?
Nike bet on Direct To Consumer seems to be working. In the fiscal year 2018, almost a third (29%) of Nike’s global sales came through Nike Direct. And, even though the wholesale channel still dominates Nike’s sales globally (71%), the direct channels have significantly higher growth rate (+15% yoy).
Nike plans to grow its DTC channel to $16bn in 2020 from $10.5bn in 2018 at the expense of its wholesale channel.
And, although shares of Nike (NYSE:NKE) dropped sharply on March 22, after it didn’t meet analysts’ estimates, the reading of the situation is that results were not great, only good. Anyway, the stock price is not only about the distribution strategy but to more other factors.
Nike has been the first giant pre-digital revolution brand to make a bold movement betting on a new approach to retailing and its message is clear: brand’s value comes from a differentiated, personalized and integral & integrated experience that goes further beyond the product. All supported by permanent innovation to deliver leading edge solutions for customer engagement. And Nike is making it happen.