Nike reduces its number of retailers
Foot Locker recently inaugurated its new flagship on the Champs-Elysées in Paris. And oddly, the mannequins placed at the front of the store showed off Melody Ehsany's collection, Project X, Fresh Ego Kid, Smiley as well as popular sneaker brands such as Adidas, New Balance, Puma and Converse ... but very few Nike models.
Although Nike still occupies the majority of the shelves in the store, the ball is clearly rolling. In fact Richard Johnson, Foot Locker's longtime leader who will soon give up his seat as CEO, was rather offensive towards his historical partner. During the last quarter, Foot Locker saw its sales decline and the group decided to communicate on its performance ... excluding Nike. "While our overall sales were down 10.3%, our non-Nike sales in our key stores were actually up more than 10%," the executive explained at the presentation of the retail group's quarterly results, "with many of our top 20 brands showing strong increases."
For several months, the American Foot Locker has been organizing itself around the "Nike Direct" strategy. At the beginning of the year, during the presentation of the group's annual results, the leader announced his objectives. "We do not plan for any single supplier to account for more than 55% of our product spend. For comparison, that percentage is currently down from about 65% in the fourth quarter of 2021. This change reflects Nike's efforts to transition to direct sales and Foot Locker's efforts to diversifie its brands and categories. For the full year 2022, this would equate to a Nike concentration of approximately 60%, compared to 70% in 2021 and 75% in 2020."
Nike had already announced in 2017 its plan to drastically reduce its number of resellers and concentrate on marketing its flagship products through its own network as well as about forty major partners in the world. A drastic measure bought on by the crisis following the Covid-19 pandemic.
Assertive direct sales strategy
"Two years ago, we introduced a bold new phase of our Consumer Direct Acceleration strategy. In the early months of the pandemic, we didn't just navigate through short-term volatility," detailed Nike CFO Matthew Friend at the global sports giant's annual results. "Instead, we set a clear vision by building our digital advantage, envisioning the future of the market and creating deeper, more direct relationships with consumers. Today, Nike's continued momentum shows that our strategy is working."
For the executive, the group is structuring its future around three axes: its worldwide presence, its digital transformation that aims to build a direct link with the consumer and the development of its infrastructure to best meet the expectations of its customers. The leader also said that the group's digital business has more than doubled since the beginning of the Covid-19 pandemic, to exceed 10 billion dollars annually. This has been especially achieved through the brand's SNKRS application that allows it to be in direct contact with its customers, mostly for its limited edition "drops".
Encouraged by the Nike Direct results, which according to the group should soon represent more than 60% of its activity and allow it to reach a gross margin of 40%, the group has accelerated its plan.
Nike has secured strong partnerships with key players such as Dick's Sporting Goods in the United States and Zalando or JD in Europe. And at the same time, other than some exclusive retailers that still benefit from the launch of limited editions, the vast majority of independent stores, do not really have access to Nike's full catalog. This includes some big names who's access to the Swoosh's best products has been restricted.
A situation related both to the strategy of tightening distribution and Nike's decision to prioritize its direct sales while its product quantities were limited due to factories in Vietnam closing and transporting products from Asia being difficult. The situation does not benefit Adidas particularly, seeing as the German giant has also opted to focus on strengthening its direct relationship with the consumer.
For the time being, the major distributors continue to work with the two leaders. "Nike has certainly favored certain markets such as the United States and its direct sales," explained Jacky Rihouet, Intersport France's president. "But Nike remains a major player, Adidas is making a come back and the outsider Puma is very strong, with investments in sports and in creativity. In the running up are emerging brands like Hoka and On, which is very present in northern Europe and which should develop in France. You also have Diadora, which is discreetly moving forward."
At Courir, the leading sneaker retailer in France, Nike also remains unavoidable. "We continue to work with them but we were much less dependent than others," said Pierre Chambaudrie, the French retailer's general manager. "We've noticed that for a while now New Balance has been 'on fire'. It is a high cycle for NB, as for Converse. However, the scales are not moving much with the two leaders remaining very strong. This does not prevent us from remaining alert. For example, we have worked with brands like Faguo or N'Go Shoes."
New Balance and Puma are gaining ground with independent retailers
New Balance, as well as Puma, which saw its footwear jump 30% in the last quarter compared to last year, have the ability to meet demand, including developing an offer in new segments, and they both have the global strength to support wholesale distribution with marketing investments.
At Foot Locker, a partnership agreement with Adidas has been signed but the overall strategy at global level is clearly to dedicate more and more space to new brands.
"We continue to see significant progress on brands like Converse and Vans, which have both increased their sales by more than 20%," explained Foot Locker's leader during the results of the last quarter. "And New Balance and Crocs were both up more than 50% this quarter," management said in its latest quarterly results. "This summer we began offering Hoka in select stores and online, and we're extremely pleased with the response so far. We just added On Running to our first European Foot Locker stores. Brooks and Asics both grew 40% or more in the last quarter."
The brands Asics, Hoka One One and On as well as, to a lesser extent, Salomon and Saucony, with their history of running and trail running, are appearing more and more in sneaker stores, making up a different offer in these product categories. These brands are also alternatives for independent retailers.
"We can see that there is a real demand," says Franck Gunther, owner of the Five O Five showroom in Paris, which sells Saucony's urban lines. "Retailers are noticing or anticipating Nike's policy. For us, it's perfect because Saucony has relocated its product creation to Italy with an offer that has very clearly moved upmarket. This is of great interest to independent multi-brands, some of whom have been cut off from the best Nike products."
Expansion of product categories or responsible approach
By not being referenced directly by multi-brands, Nike leaves the field open to some of its competitors.
"It began with minimum purchases imposed on multi-brands, then gradually the stores were excluded from the Nike offer. For some, it represented 10%, 20%, 30% of their offer. For others, what was the added value to having the same products that Zalando or Sarenza were offering at discounted prices? They had to rebuild their offer. Many stores contacted us to build an offer with responsible brands," explains Kevin Gougeon, co-founder of the French fair trade sneaker brand N'Go Shoes, which is present in 200 outlets in Europe. "Now we have to convince them that we'll be around for the long haul."
Therefore, it no longer seems impossible to do without the sector's world leader. Since the summer season, Le Bon Marché and Galeries Lafayette in Paris no longer carry the brand directly. In the Parisian department stores, the offer is made up of other names. At Le Bon Marché, luxury sneakers have their place, and in a more accessible segment, the teams have selected On, Autry, Hoka One One, P448, Premiata or National Standard. At Galeries Lafayette on the Champs-Elysées, the offer is now concentrated on Converse, Veja, Autry, Bape STA (Bape's sneaker line), Comme des Garçons, but also Y3, New Balance, Axel Arigato, 0-105 and Suicoke.
Above all, the two department stores compensate for ending their direct commercial relationship with Nike with the entry of a second-hand player and exclusive products. At Galeries Lafayette, the company OP 2.O offers a selection of vintage Nike, Jordan and Yeezy models and, at Le Bon Marché, Presented By's offer, available since 2020 in the left bank department store, has gained in volume. Nike previously limiting the offer that could be proposed by the second hand specialist.
Another strong player in this market is We The New that is also discussing the possibility of proposing its offer with retailers. "The drastic restrictions imposed on distribution by Nike are rather an asset for us," explains David Benhaïm, co-founder of the resale platform We The New with Michael Holzmann. "Our sellers go to Nike for exceptional pieces or have privileged access to 'drops'. The more Nike restricts access to its catalog, the more opportunities it creates."
Taking advantage of its dominant position ($28 billion in footwear sales, twice as much as Adidas in 2021), Nike intends to impose its commercial approach on the market. And the American giant does not seem to be about to give up its position. Nevertheless, there is a great opportunity for other players, brands or retailers, to emerge in a more segmented market, whether with new trends, especially running and outdoor, or more responsible approaches. It remains to be seen which players will stand out in this reshuffling of the cards.
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