Photo – Big 5 Sporting Goods
Stores scramble as Nike cuts wholesale accounts
Amid Nike’s moves to consolidate wholesale accounts, a few affected retailers are expressing confidence they’ll be able to shift to other vendors to fill the void.
In March, Nike informed six chains — Big 5 Sporting Goods, DSW, Dunham’s Sports, Olympia Sports Shoe Show and Urban Outfitters — that they were being cut off. Nine others, including Belk, Dillard’s, EbLens and Zappos, were similarly informed in 2020.
Under a shift first announced in 2017, Nike is emphasizing direct-to-consumer sales while limiting wholesale to a few accounts that best support its positioning. Competitors Adidas and Under Armour are taking similar steps, albeit to a lesser degree.
Among the impacted retailers, Big 5 in early May said products impacted by Nike’s decision represented seven percent of 2020 sales and predicted minimal long-term impact.
“We source products from many vendors, and we have a very diverse and flexible product mix. Although we are disappointed by Nike’s decision, we are encouraged by the response of other vendors, both new and existing, about the opportunity to expand their presence in our stores,” Steve Miller, Big 5’s CEO, told analysts. “From a customer standpoint, we believe that many customers enter our stores relatively brand agnostic and shop us for our value and convenience. I’m quite confident in our team’s ability to work through this transition to continue to offer a compelling product assortment in 2022 and beyond.”
At DSW, Nike grew to represent over seven percent of sales in 2020 as the pandemic shifted trends towards athleisure (athletic/casual) styles.
“We have spoken with the leaders of every major athleisure brand that we work with,” said Roger Rawlins, CEO of Designer Brands, DSW’s parent, on a quarterly call last week. “These conversations have been very positive. They see this news as an opportunity for growth.”
DSW is also increasing its focus on trail, hiking and technical running categories.
For some independent sneaker stores, skate shops and soccer outlets, however, more than half of their mix consists of Nike, and articles have detailed their devastation after receiving an account termination notice.
- Nike says goodbye to more longtime wholesale partners – RetailWire
- Nike Will No Longer Sell to DSW, Urban Outfitters, Shoe Show + These Stores, Analyst Says – Footwear News
- Big 5 Sporting Goods (BGFV) Q1 2021 Earnings Call Transcript – The Motley Fool
- Designer Brands inc (DBI) q1 2021 Earnings Call Transcript – The Motley Fool
- Nike’s killer blow for small stores – The Times
- Shut out by shoe giants, ‘mom and pop’ stores feel pinched – The New York Times
- Nikes are getting harder to find at stores. Here’s why – CNN
- Exiled On Main Street – Nike’s obsession with digital sales has been punishing for mom-and-pop retailers – Portland Business Journal
Discussion Questions
DISCUSSION QUESTIONS: How difficult will it be for most chains to replace Nike’s sales? What advice would you have for stores that have seen Nike terminate their accounts?
Poll
BrainTrust
Gary Sankary
Retail Industry Strategy, Esri
Casey Golden
CEO, Luxlock
The bigger retailers are putting on a brave face, but Nike is a powerful brand and the loss will be felt for many of these retailers. Nike has made their position clear: they’re focusing on the end-consumer, period. There’s not much retailers can do, other than find different products that their customers will want and buy. I suggest that these retailers double down on their efforts to work with new and emerging brands that are desperately trying to get traction – who knows, they might uncover the next Nike.
Much of this depends on the mix of customers. Those coming in to buy sneakers in general can likely be switched to other brands. However there will be some who come specifically for Nike sneakers or those who like Nike and buy on impulse when in the store. The reality is that those sales will likely be lost. This is more of a concern for a sports focused retailer like Big 5 than it is for a general player like Dillard’s. Nike may also lose some sales if it’s not present in these retailers – however the point is that for Nike this will be a drop in the ocean.
Spot on analysis Neil! There are two main customer segments – Nike loyalists and non-loyalists. While the retailers have been optimistic that it won’t hurt their sales, I think they will experience lost sales from Nike loyalists who will shop elsewhere. For those retailers for whom Nike sales represented 7 percent of sales, maybe the net loss will be 3 percent to 4 percent.
I am not a big fan of direct-to-consumer. That being said, retailers who are being cut off have a big number to replace. Nike has a 20 percent-plus market share in the U.S. Even if they can replace half of that with their customers and other brands, a 10 percent drop leaves a big hole in the top line. That doesn’t even consider the branded apparel which may be harder to replace and which may carry more brand loyalty than the sneakers. the biggest injury will be experienced by the sneaker independents, who actually may not be able to remain in business.
Advice? Become more customer-centric. Become more of an expert on the performance side of sneakers.
I’ll be watching this story develop very closely. To be sure those retailers who have been cut off from Nike will take a revenue hit that I believe will be very difficult to replace, at least in the short term. There are a couple ways to approach this in my opinion.
I do believe Nike’s decision opens the market to more disruption. Former Nike resellers should focus on up and coming brands, they have an opportunity to bring new names and new styles to the market. It will take a while but it’s certainly possible. The first Under Armour shoe only hit the market in 2009. In 12 years they’ve become a major competitor for Nike and, for a smaller shoe retailer, a very viable option. There are certainly others, some we’ve not heard of yet.
For bigger retailers now might be the time to double down on private label. If, as Big 5’s CEO Steve Miller said, “Customer enter our stores relatively brand agnostic,” this would be a great strategy to build some loyalty, in addition to margin and product stability.
The bigger question in my mind is if Nike will be emboldened by this move to move further down the path to direct-to-consumer. If I were on the board of some of the giant sports retailers, who have not been trimmed from the Nike ecosystem, I would take a good look at my own merchandising strategies and ask hard questions about what we would do if we found ourselves in this situation. Plan accordingly is my advice.
The bigger question is, what happens to Nike? The company changes strategy very often — too often, as far as I’m concerned, and while I think I can empathize with eliminating some of the bigger chains, eliminating independents really goes against the times.
I don’t think this strategy is going to stick for very long. Just my opinion.
The loss of the Nike brand to the DSWs of the world is significant and will not be fully replaced from a revenue point of view for at least a year or two at DSW, Big 5 Sporting Goods and the other impacted retailers. At the same time it allows Nike to raise its stature a notch, (and maintain a high margin) by not been available in these outlet type stores. This will also fuel the store-within-a-store concept like the relationship Macy’s has with the FinishLine stores inside of hundreds of Macy’s locations. Nike has been very smart on its direct-to-consumer strategy by having some of it flow through its name brand and having some of it flow as drop-ships from its key retailers.
It’s going to hurt in the short term. For retailers, Nike is substantial but not at a level where we’d call revenue concentration a risk.
Over time, the retailers will find alternative brands like Adidas and Puma to do aggressive promotion. Brands will also pitch in to occupy the shelf space.
These cancelled retailers should see this as the door to opportunity being opened. Much like it’s difficult to walk away from a well paying job that mistreats you, these retailers have now been freed up to step into the future (no pun intended). Shoppers have spent the past year exploring online shopping, which has vastly increased their exposure to influencers, social media ads and new online only consumer brands. Retailers should fill up their empty Nike space with new partners like Zou Xou, APL, M. Gemi, SuperGA, Cult Gaia, Veja, Allbirds, Rothys or other brands that have become much coveted, but tough to find IRL.
From a merchandising perspective, this was a move we all knew was coming.
Retailers should not be scrambling to fill Nike’s spot in their assortment mix. Rather they should be proactive, using this opportunity to evaluate ALL brands in their product range. If anything, Nike’s strategy should be leveraged to shake things up, to better understand your customer as shopping behaviors have shifted so much.
No retailer should be dependent on one brand to drive customers into their stores. If this is the case, the retailer has a lot more to evaluate than just their product mix.
It will be more difficult to lose Nike than most retailers are admitting. Even if the clenched teeth calculations are right, what large retailer can afford to lose 7 percent of sales and not have that negatively impact their business? As to what advice I would give retailers in a post-Nike world, I’d say battle scarcity (of Nike lines) with scarcity you control. If I were one of these companies I’d be assembling a “Foot Trust” of sneaker heads, iconic pro athletes, and shoe designers to come up with my own retailer-controlled brand of shoes which I would sell (at least initially) at a premium. Phil Knight built a shoe empire out of the trunk of his car. There’s no reason a well-heeled (sorry, couldn’t resist) retail chain shouldn’t be able to do the same.
Nike is the category leader and, in the long term, the move to rationalize its wholesale accounts is a margin improvement play. When a store needs to replace 5 percent to 10 percent of its revenue, this becomes an opportunity for competing brands to step in and increase their wholesale market share. However even Adidas and Under Armour are undergoing similar rationalization. These actions place more significant pressure on retail chains to improve their stores, deliver on connected commerce experience, and invest in advanced analytics impacting their customers. Big brands’ wholesale account rationalization will result in a retail shakeout.
Nothing new from the luxury space but we’ll be seeing more brands reducing their wholesale footprint as they adopt new technology to plan and support their D2C channels. What they temporarily lose in revenue they gain in margins and customer data. When you don’t want to compete on price, you compete on experience. Since department stores have not been leading in-store experience it’s up to the brands to control the narrative and experience. They don’t want to compete with themselves online, and that’s where the buys are being directed. They must master the physical distribution channels or the brands will open smaller shops in higher volume to create a magical moment. Glossier’s pop-up model is great!
Spot on from the brand’s perspective and how technology is changing the levers for value creation.
“When you don’t want to compete on price, you compete on experience.” This piece of wisdom should be chiseled in marble somewhere. Like in the headquarters offices of a whole bunch of brands and retailers.
Could Nike just be playing hardball with these retailers to negotiate better terms and pricing in a not-so-distant future?
Stores obviously have to do the best they can: there are plenty of other brands out there, how effectively they will serve as substitutes we’ll have to wait and see (my guess is better than they fear, but not as well as they hope).
Curiously — perhaps because it’s been covered already — there’s no mention of the converse (pun intended): how well online DTC will replace reseller-based for Nike. I will confess that while I’ve never cared for Nike for a number of reasons, I’ve always respected their business acumen (indeed it’s the “business at all costs” that I don’t really care for) … with this, I pause.
As a fan of the little guys, I say that this is a perfect opportunity for niche marketing. Small businesses can have some of the bigger brands to lure in other customers, but niche marketing is where you can really differentiate yourself. If I were a smaller retailer and I lost this brand, I would take it as an opportunity to promote smaller brands and their ethos. Nike has had a lot of bad press on their working conditions. Use that to your advantage.
Educate yourself on these smaller brands, go after the market that thrives on authenticity and small companies. You can make up your lost dollars by going after that market. Education to the consumer, while sometimes time-consuming, usually works out in your favor. Highlighting specific features and benefits of these other brands may actually help your business be stronger in the long run.