Nike Says No Thanks to Sears
By George Anderson
Nike has decided to pull its products from Sears in what many believe is the manufacturer’s move to prevent its branded products winding up in Kmart stores.
The sports apparel manufacturer has jealously guarded the premium-priced heritage of its trademark “swoosh” products. It recently announced a deal with Wal-Mart to create a line of athletic shoes and sports apparel under the Starter brand. Green Bay Packer quarterback Brett Favre has been signed on to endorse the Starter line.
Anthony Chukumba, an analyst with Morningstar, told Reuters, “I’m very surprised by this. Sears has always prided itself on having name-brand athletic footwear including Nike, New Balance and Adidas. Clearly this hurts them.”
“Maybe this is Nike saying, ‘I don’t trust (Sears Chairman) Eddie Lampert and I don’t know where the stores are going, so it’s not worth taking the risk of damaging the brand
image,’” he said.
Moderator’s Comment: What do you think is behind Nike’s decision to pull its brand from Sears? Do you think other brand manufacturers will follow suit?
Will Nike pull its “swoosh” from other mid-level department stores such as Kohl’s as it builds on its premium image? –
George Anderson – Moderator
This maybe a situation that we don’t know if discussion between the two companies has taken place. But, Nike is being consistent with protecting its brand image and distribution strategy.
This move does not come as much of a surprise. Nike has always been careful to protect its brand image. Let’s not forget the stand they took with Foot Locker over the BOGO promotions. Foot Locker was a much bigger customer for Nike than Sears. In the end, Nike won that battle and now controls the distribution of their brand through that customer. I fully expect they will continue to work with Sears with their new Starter product. Like it or not, Sears needs Nike much more than Nike needs Sears.
This move clearly is harmful to Sears and Kmart’s image and reinforces Nike’s elite image. I would also guess that it gives Nike a lot of free publicity that strengthens its more exclusive position. Fortunately, I am not a Nike or Sears consumer so it has no impact on me personally. Now if they start messing with New Balance, I will get involved.
While this certainly hurts Sears/Kmart more than it hurts Nike, there is some irony here in that Nike’s image is built more around marketing than real product performance. Remember the flap a few years ago when Phil Mickelson said Tiger would be playing better if it weren’t for his Nike equipment? And from years of running experience (albeit at a very slow pace), my personal belief is there are several brands of shoes that are better than Nike, and that the value proposition for Nike is not all that good. But, the juggernaut roles on as perception matters most.
The “exclusive” image built and nurtured for the Nike brand is arguably one its greatest corporate assets. As long as the perception exists of exclusivity, Nike will continue to have enormous upside potential. Like it or not, Kmart and Wal-Mart continue to be associated with a complete lack of exclusivity. While actual distribution of Nike brand product is far from exclusive, careful avoidance of high profile “image killers” continues to create the perception. And we all know that perception is reality.
Sears Holding has already begun to distribute Kmart product into Sears and Sears product into Kmart. Nike is acting appropriately to protect its brand equity. At any point in time, should they wish, Nike can explode sales (perhaps short term and maybe not with attendant profit) by expanding downward in the retail distribution chain. There will be no going back. Given the development and nurturing of other brands, there is no current financial pressure to dilute the Nike brand.
This is appropriate, relatively fast, and definitely in the shareholder’s best interest. Will it be extended to other accounts currently carrying Nike? There is nothing currently to indicate that would be the case.
Smart move by Nike. Brands with strong consumer pull should, in general, be more selective in choosing their retail partners. Retailers need to work harder to earn (and maintain) the privilege of carrying top brands.
I think its a down right dumb move by Nike. But then again, they are big enough to make a few dumb ones. That is, until next week. Things can change that fast. Remember Jordache jeans?
Psychological studies of cognitive dissonance have shown that when people see two items together that they don’t think belong together, they’ll adjust their image of both to bring them closer into line (Osgood’s Congruity Theory).
Marketing studies have shown that the same thing happens when two brands are promoted together in a co-branding or trade promotion setting. When the brands are relatively equal and complementary, it works great (e.g., McDonald’s and Disney).
In doing trade promotion consulting, I often argue with my clients: “Why are you spending tens of millions on national advertising to promote a brand image, and giving other tens of millions to mass merchants to destroy it?”
When brands don’t go together in the public’s mind, it’s foolish to put them together in ads or promotions — or in stores.
This is dumb. Believe it or not, people with enough money to purchase Nike products shop at Kmart. And if you don’t want to pay full retail or even sale price, you can buy $125 Zoom Lebron II counterfeits for $20 on the street in New York. If you’re not a premier basketball player, but are instead wanting to make a fashion statement, counterfeit ‘Brons will do just fine.
Shoppers today seem more involved in brand and price than where the purchase was made. “I got it at Saks” no longer carries the social weight it once did. “Where did it come from?” no longer always means “Where did you buy it?” More often it means “Where was it made?” I wonder how “exclusive” Nike’s brand would remain if shoppers could see where and the conditions under which their products are manufactured.
Finally, is Nike as picky about their online re-sellers as they are about their brick ‘n mortar connections? Do a quick Internet search for Nike products, and you’ll find hundreds of retailers you never heard of selling Nike-branded products. Do any of them have retail reputations equal to or lower than Kmart’s? Or any reputation at all, let alone the “exclusive” cachet Nike desires? My guess is that Nike doesn’t know or care, as long as the product continues to move.
Mazure3 is absolutely right:, “If I can buy the Nike brand at Foot Locker, DSW, TJMaxx and other deep(er) discounters, why is it a big deal for Nike to make its product available at Sears or Kmart?”
I think Nike is wise. The Sears/Kmart brand will build nothing. I expect them to plunder the brands they own to build traffic in hopes of cashing out their real estate holdings. Selling property with lease back arrangements is easy, especially if “breaking” the lease is as easy as it was when Kmart leaseholders got stuck during the last reorganization. Will the new bankruptcy laws offer any protection to leaseholders? My guess is that it won’t. Sit on the sidelines and watch as Sears/Kmart pulls a classic “Pump and Dump”!
It’s kind of a shame that Nike can’t lay a claim to having Martha Stewart wear a pair of Nike’s when she takes off her security ankle bracelet. It would have been a promotional opportunity: “Martha gets airborne again in her Nike’s.”
But enough of that. Whether or not other manufacturers follow Nike’s lead, this should be a wake-up call for the folks at Sears/Kmart to get their new retail act clarified quickly or else other vendors may think Sears/Kmart exists at Mr. Lempert’s financial pleasure rather than for the consuming public.
Bill Perez from SC Johnson joined Nike some time ago as CEO. This is the first outside CEO and the Sears group has just felt his impact. The guy gets Brand and will move to preserve that equity. This should be a message to big box retailers.
Let’s see. First Nike develops a deal with Wal-Mart to market a line of shoes exclusively for Wal-Mart. Then they decide to pull out of Sears so that their “high-quality” shoes do not end up with Kmart…..I don’t buy that for one minute. If “quality” was a big concern, they would not have an agreement with Wal-Mart to produce the new line. I have worked for two companies who developed “exclusive” lines for Wal-Mart and both ended up having to cut costs, cut corners and both produced inferior products that, in the end, decreased the overall quality of their whole product line once they moved all production to China at Wal-Mart’s insistence. At least Nike won’t have to shut down American plants as they already make their shoes “overseas.”
I love how none of the “BrainTrust” panel members mention Wal-Mart and more than one cited Nike’s elite image. Maybe Nike is an elite company to them. To me (and a lot of people I know), Nike is just another tennis shoe company that spends millions to try and get us to buy their “quality” product.
Is the pendulum swinging again? Is this an early sign of consumer movement back to appreciating exclusivity over a deal on a brand? Nike may never return to high status among active sports enthusiasts. Why would they want to when the money is in millions of passive enthusiasts who sit in mass in easy chairs or in the bleachers sporting hundreds of dollars worth of Nike branded products? This news is as good for the other retailers of Nike as it is for Nike itself.
Meanwhile participative sports enthusiasts will choose performance level products found only in limited independent and small chain retail settings due to the smaller size of the market, and the service level provided their “real customer” in selection, fitting, etc.
Phil Knight never wanted Nike to return to Sears stores. Sears burned Knight early on with a cheesy promotion, and he never wanted to risk his brand again. Then came “Softer Side” and something called “Sears Collegiate Champions,” an ambush of the NCAA, that showed Nike Sears was beyond a slavish reliance upon off price promotion. Only then did the Nike brand appear inside of Sears. It was tested at the same time of Sears charter sponsorship of the WNBA. Those marketing programs are now history. Brand Sears will rely upon “Good Life. Great Price.”
Nike is outta there!
It seems odd to use words like exclusive and elite in describing Nike. If I can buy the Nike brand at Foot Locker, DSW, TJMaxx and other deep(er) discounters, why is it a big deal for Nike to make its product available at Sears or Kmart?
Nike is so widely distributed and on such a roll that pulling out of Sears is unlikely to impact them a bit. That said, this is probably just a tactic in their pushing Starter more deeply into mass chains.
I suspect this is one of the many vendor relations surprises ahead for the team in Hoffman Estates…
A lot of people don’t get it. Nike is not rejecting Sears. They are rejecting Kmart. And rightfully so. The big box retailers are racing to the bottom…..that is not an environment in which to sell a premium brand. Additionally, you want to protect your other retailers who are merchandising and selling Nike at full value.