When Nike reported its encouraging set of results recently, it revealed that part of its success was due to its direct-to-consumer (DTC) strategy. Indeed, the retail giant has been in the process of defining itself as “the marketplace of the future” for some time, but in June this year, the retail giant began working with fewer strategic partners as part of its Consumer Direct Acceleration plan. It’s a smart move, as Nike has some excess inventory on its hands – the brand reported th
that inventory levels were 15 per cent higher during the first quarter compared with last year. DTC also reduces the risk of discounting by third parties that could potentially tarnish the brand. In the meantime, Nike has been able to easily offer a consistent and seamless online-to-offline experience in its own stores. The recently opened ‘Nike Rise’ store in Guangzhou is a great example of how this works. The store is closely integrated with its Nike membership scheme and it offers a one-on-one shopping journey by using insights that Nike members have shared with it. This enables the brand to personalise the way members engage with the app in-store, as well as the way they interact with the physical store environment. The clear benefit from a high number of members identifying themselves in-store or at check-out means that Nike gains access to a wealth of data, so it can offer a more personalised experience. This isn’t possible for sales that are made through its wholesale partners. “While we’ve had tremendous success in digital and quickly pivoted to the accelerated consumer shift, I truly believe Nike is still just scratching the surface of what’s possible. With our breadth and depth, no-one has the advantage in this space that Nike has to directly connect with consumers,” said CEO John Donahoe during the earnings call. The Nike Rise store in Guangzhou offers customers a personalised experience. Image: Nike Digital is here to stay Online was the strongest growth area for Nike in the first quarter and Nike Digital accounted for 30 per cent of the mix – nearly three years ahead of schedule. Donahoe claims that Nike has seen lasting changes to the way consumers have embraced digital channels. It is not that surprising that Nike has experienced such a surge towards digital since it has such an advanced app ecosystem that is not only commerce-enabled, but also provides a sense of community for its members. For instance, Nike experienced an all-time high in people using the Nike Training App during Q1, with more than half its members starting a workout during the period, while there was triple-digit growth in monthly active users of the Nike commerce app. It has also seen a surge in audio-guided runs in the Nike Running Club app, as people miss the camaraderie of running together. The future of the store In its latest results, Nike revealed that digital sales soared by 82 per cent. The brand is well on its way towards achieving 50 per cent of its overall sales through Nike Digital, but stores will remain a key channel – particularly as part of an omnichannel experience that leans heavily on its apps. The brand is seeing a rise in what it calls “linked transactions”, where customers self-identify as members during check-out, creating opportunities to provide a better online-to-offline purchasing journey. In its North American Nike Brand Inline Stores (around 60 outlets), Nike has started introducing ship-from-store capabilities. This accounted for around 20 per cent of revenue in enabled stores, which has helped to improve the productivity of the brand’s physical spaces. Gross profit under pressure from pandemic While DTC and digital were the bright spots in the first quarter, Nike has had to contend with lower profitability due to the pandemic. Gross margin declined by 90 basis points due to promotional activity to clear excess stock, as well as higher supply chain costs. That said, Nike should get back on the right track due to the current strategy that it is pursuing, particularly as it is reducing its reliance on the lower margin wholesale business in favour of its own channels. Digital sales also typically generate substantially higher margins than wholesale. Nike’s full year performance will undoubtedly be impacted by the unpredictable nature of the pandemic, but it is difficult to see it emerge as anything but a winner in the longer term due to the strength of its brands, investment in digital and shift away from wholesale and third party sales channels.