Nike didn’t make its billions on its own. Most of its sales come from selling to wholesale partners such as department stores, family stores, sporting goods specialists and all the thousands of retail outlets that Nike has long relied on to distribute its products to buyers. Just a decade ago, in 2011, around 84% of Nike brand sales (pdf) were still to wholesalers. Nike’s sales to shoppers, through channels such as its stores and website, accounted for just 16% of its business.
This balance is changing rapidly. Nike’s direct-to-buyer sales, which have been rising for years, have accelerated over the past year as the company’s overall business rebounded from the pandemic. In the company’s 2021 fiscal year, ending May 31, direct sales reached approximately 39% of Nike brand sales (pdf), while wholesale accounted for approximately 61%. (These figures exclude sales of products from subsidiary brands such as Converse.)
Why Nike sells to fewer retailers
This change is part of a strategy announced by Nike in 2017 called “direct-to-consumer infringement”. A key component is increasing Nike’s own sales to shoppers through its own immersive stores and digital channels, including its suite of apps, including SNKRS, where it launches limited-release merchandise. Direct sales tend to have better margins since there is no middleman taking a cut; they provide Nike with direct connections to customers and their data; and they allow Nike to better control its brand. Once Nike sells to a retailer, it has limited control over how its products are displayed, which means they can end up crammed on shelves alongside competitors in a generic mass.
At the same time, Nike has reduced the number of retailers it sells to, pulling products from what it sees as “undifferentiated” stores that either lack a strong identity or don’t offer Nike a different customer than which he achieves by himself. These range from independent stores to large chains. Recently, it stopped selling to Urban Outfitters, DSW and Macy’s, according to research by Sam Poser, analyst at investment firm Williams Trading.
Wholesale Nike Still Matters
That’s not to say Nike’s wholesale business doesn’t matter anymore. Nike made it clear in 2017 that it would prioritize a handful of retailers. “Today, we work closely with major strategic partners such as Dick’s Sporting Goods, Foot Locker and JD Sports, as well as compelling local neighborhood partners who are authentic when it comes to athletic performance and lifestyle. “said CEO John Donahoe on June 24. call for earnings.
Local skate shops, for example, have been key to Nike’s distribution of its Dunk sneaker, which it has carefully positioned to be one of the hottest shoes of 2021. Foot Locker, meanwhile, exemplifies how Nike manages to maintain growth in its wholesale business even as it cuts the stores it sells to. While some of its competitors are excluded from Nike’s distribution, Nike is working even more closely with Nike and purchasing more of its products, based on data published in Foot Locker’s annual reports.
Nike gets the best of both worlds: it is able to maintain growth in its wholesale business, even as it drastically reduces the number of its partners. And it’s making more direct sales to buyers.
The company plans to maintain the shift. By 2025, it expects direct sales, driven by its digital channels, to reach 60% of its business.