Nike Inc.’s Direct-to-Consumer Channel and Its Problems
Nike is one of the leading producers of sports footwear in the world. Apart from sports footwear, it offers a broad range of athletic apparel and footwear in general. Throughout recent years, Nike has had an undisputed dominant position in the American athletic footwear market, with Under Armour being a distant second (Childs & Jin, 2017). Nike’s momentum in the United States grows as compared to its primary competitors, thus suggesting that Nike has more efficient ways of reaching to its consumers. Still, Nike’s distribution channels in the United States suffer from insufficient digitization, which is especially detrimental in the light of the company’s Direct to Consumer (DTC) program.
Nike has been placing increasing emphasis on its digital solutions and cutting ties with other retailers. As Nike became an international market leader, it increasingly came to rely on larger retail outlets and its own Direct to Consumer channels. A resulting conflict of interest arises in the form of smaller retailers, or ‘mom and pop’ shops becoming obsolete (Carpenter, 2019). As Nike and similar brands become more and more popular, demand rises, and with it rise the brand’s expectations of its distribution network. Small shops are unable to meet the demands for the volume of product moved and are forced to cut ties with the brand, limiting their selection and driving customers away. That leads to increased homogeneity of markets and increased consolidation of business in the hands of several large retail chains. Nike’s increasing reliance on a decreasing number of retailers, along with its emphasis on its own DTC digital marketplace harms small businesses.
However, despite the prioritization that DTC receives from Nike, there is a significant issue with this particular distribution channel – namely, insufficient digitization. The Internet-savvy consumers of today prefer to make their purchases online. Data demonstrates that this tendency fully applies to Nike products: Nike Direct revenues were at $11.8 billion in 2019, and continue to grow (Nike, 2019). Despite this evident promise, online sales are somewhat underutilized by Nike. One of Nike’s primary digital solutions is still rooted in physical retail. As of 2018, the Nike App was primarily oriented at reserving stock in Nike’s physical outlets (Nike, 2018). The DTC nature of the personalized digital marketplace was still offset by the need for a physical outlet. Despite Nike’s apparent inclination to innovate and integrate digital solutions into its marketing and supply chain, it still relies on hundreds of physical retail outlets. Consequently, Nike is presently unable to reap the full benefits of the swiftly growing and promising distribution channel.
The conflict that is created by Nike’s commitment to digital platforms and large retailers is twofold. On the one hand, small businesses and retail outlets suffer from Nike’s rising demands and must cut ties with the brand, harming their sales and making them less viable. On the other hand, Nike currently experiences problems with its online sales due to the insufficient digitization of the process. The company balances its distribution between wholesale customers and the DTC program. The first component accounts for the more significant share of revenue but only demonstrates moderate growth, while the second component is still inferior in terms of total revenue but shows considerable promise. Online sales are among the most swiftly growing components of the DTC program. However, they are bogged down by the lack of a comfortable and comprehensive online shopping and inventory management interface. The propagation of the Nike App may present a solution for this issue, but, as of now, Nike’s digital distribution channel does not grow as fast as it could have otherwise.
- Carpenter, M. (2019). Shut out by shoe giants, ‘mom and pop’ stores feel pinched. Web.
- Childs, M., & Jin, B. (2017). Nike: An innovation journey. Product Innovation in the Global Fashion Industry, 79–111. doi:10.1057/978-1-137-52349-5_4
- Nike. (2018). Breaking down the Nike App at retail. Web.
- Nike. (2019). NIKE, Inc. reports fiscal 2019 fourth quarter and full year results. Web.