Traditional sporting goods stores are already losing share to stores like Amazon and mass merchandisers.
Nike has been shifting its distribution strategy to focus more on expanding its direct-to-consumer (DTC) business. It first increased the minimum annual amount retailers must spend to receive Nike wholesale products. Now, the brand announced in October 2019 that it plans to end supply agreements with independent retailers over the next couple of years.
These moves are part of Nike’s “Triple Double Strategy” growth plan, whereby the company plans to double its “cadence and impact of innovation,” its speed to market and its direct connections with consumers. By reducing the number of retailers that sell Nike products, sales can be redirected through its own website and stores. Its ultimate goal is for half of its sales to come through its own channels.
Reducing the number of retailers who sell the Nike brand helps Nike to have more control over how the brand is priced, thereby mitigating any destruction of brand value through third party discounting.
There isn’t enough room in the current retail landscape for all the sporting goods stores in the US, estimated around 22,000, especially considering that a majority of them are independent retailers with a limited number of stores (or perhaps even just one store). This decision by Nike could be very well mean the end of business for many of these independent companies that have relied on sales of Nike merchandise.
The movement toward DTC channels among national sporting goods brands (not exclusive to Nike) will only continue. It will become imperative that traditional sporting goods retailers reduce their reliance on name brands and look toward other opportunities such as private label expansion or new service offerings for growth.
By the facts.
Source: Mintel’s Sporting Goods Retail, US, August 2019.
Nike Graphs provided by Nexford University
Comments