Nike beat analysts’ expectations in its results for the third quarter of 2022, largely thanks to a strategy that focuses on digital channels, brand-owned stores and a few strategic retail partners.
As part of its push towards DTC channels, Nike has terminated partnerships with certain retailers such as Zappos, Dillard’s, DSW, Urban Outfitters, and Shoe Show. Nike has also cut back on the amount of product it is offering existing vendors, such as Foot Locker, in order to consolidate distribution in its own channels. Meanwhile, strategic retailers like Dick’s and Hibbett Sports that have managed to remain essential channels of distribution have gained share as strategic partners for the Swoosh.
Overall, Nike said it has reduced the number of wholesale accounts worldwide by more than 50% in the last four years as it leans into brand-owned store experiences and enhanced digital channels.
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Thus far, this plan appears to be working. In a call with investors discussing the company’s results, Nike executives outlined how Nike’s “Consumer Direct Acceleration” (CDA) program is already yielding strong sales results, offsetting headwinds from a slowdown in China and global supply chain issues.
Here are three major ways this sales strategy is playing out in the marketplace.
Connected partnerships with retailers
Nike’s shift away from wholesale retail has been a major story over the last year. However, while the overall number of wholesale accounts has dwindled (wholesale revenue grew 1% on a currency-neutral basis in Q3) the company is bullish on the importance of this channel.
“Wholesale partners play an integral role in our future marketplace, first, to authenticate our brands and then to create scale of distribution through a consistent consumer experience across a larger retail footprint,” said Nike CFO Matthew Friend.
New digital partnerships are one way Nike is enhancing the experience at key wholesale partners.
For example, Nike and Dick’s Sporting Goods recently launched a new connected partnership that allows Dick’s Scorecard and Nike Membership members to connect their accounts. Via the Dick’s mobile app, customers can browse member-exclusive Nike footwear and apparel and participate in high-heat drops.
Dick’s is one of Nike’s “important strategic partners,” Donahoe said, and this program represents a way to keep consumers of both stores connected.
“Consumers really appreciate the fact that they know who we are and they are Nike members whether they’re shopping at a Dick’s or shopping elsewhere,” Donahoe said. “And we’re working closely with DICK’S to provide that seamless experience.”
While this program with Dick’s was a pilot, the plan is to eventually roll it out to more stores.
Digital
Digital experiences, including websites and apps, are crucial avenues for Nike to stay connected to consumers. Nike digital grew 22% in Q3, led by demand in the Nike app.
Digital represents 26% of the Nike brand revenue. In North America, digital represented one third of total revenue in the quarter, the highest digital penetration in all geographies.
Nike called out its various mobile apps such as the Nike app, the SNKRS mobile app, and the Nike training and running apps and described new features it is using to engage consumers on these platforms.
“We’re excited about the opportunity for SNKRS to continue to explore new dimensions and experiences like live streaming and to do so particularly for women’s product and for apparel,” Donahoe said. “More to come here soon as we continue to use digital to engage all consumers in ways that integrate culture, commerce, sport and innovation.”
Brand owned stores
Nike-owned stores are also an important driver of growth for the brand.
Sales in Nike locations grew 14% in Q3. In North America, Nike-owned stores grew 16% from improved traffic and activations in key cities.
“We’re investing in NIKE stores to specifically address gaps in distribution to serve the growth opportunities we see in women’s apparel and Jordan,” explained Friend, who added that Nike is planning to test a Jordan-only concept in North America in fiscal year 2023, building on a popular concept in Greater China, the Philippines and Korea.
“Our approach is to first pilot these new concepts, iterate and perfect, and then move to scale,” Friend said. “Since the onset of the pandemic, we have seen how creating the marketplace of the future will deepen our connections with consumers, fuel marketplace growth and expand the profit pool for NIKE and our wholesale partners.”
