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Nike to move away from brick-and-mortar retail stores

Eliud Kipchoge
Eliud Kipchoge
Photo: Nike.

It might become increasingly difficult to find a pair of Nikes front-and-centre on the shoe wall of your favourite local running shop.

But they will be easy to order directly from the brand online, and off Amazon.

Nike CEO Mark Parker announced at an investor meeting on Wednesday that the sportswear giant is making a big shift in how it will sell its products. 

“A total transformation of the business,” said Parker of the move, which he said is predicated on a push to hit a $50 billion USD five-year revenue target.

In all, Nike plans to scale back its retail focus from 30,000 partners to 40 over the next few years. Right now, it’s estimated that the company is sold in about 26,000 U.S. stores alone, but that retail sales have significantly slowed, as direct digital sales are finally starting to show growth.

Some of Nike’s premium products, such as the Vaporfly 4%, are now only sold through Nike.com in Canada.

Mediocrity will be dropped

Nike’s brand president Trevor Edwards was more blunt, stating, “undifferentiated, mediocre retail won’t survive.” He warned that the company will be shifting its wholesale business away from stores that aren’t doing something special with their product over the next five years.

Nordstrom and Foot Locker were singled out as great examples of dynamic partners who Nike would trust with their brand, but others, such as large running shoe chains in the U.S., were not mentioned.

The Oregon-based company also expects to drastically increase their production cycle in order to become increasingly competitive. This will also mean that consumers should be able to get access to new technologies more quickly. The typical running shoe, for example, takes a couple of years to develop and manufacture currently. Expect that to change with this new strategy.

Nike will also soon roll out a membership program, offering special and limit products to those who join.

Nike appears it will maintain some of its key retail partnerships, but will drastically pull back on the majority of what it currently does with nearly all of its non-essential wholesale relationships. It was not clear in the announcement which partnerships would be kept and which would be cut.

A spokesperson for Nike Canada told Canadian Running on Thursday that the company doesn’t currently have plans to change support to their key Canadian retail partners, but that they will “continue to evolve our account marketing efforts over the coming years.”

The future is with Amazon?

Nike has started a pilot program selling through Amazon in the U.S., but Parker wasn’t clear about the future of the partnership. It’s not clear if and when the online retail company would begin selling running-specific Nike products within Canada. 

It’s all about China

Three quarters of the growth Nike is forecasting will come from international business, mainly from China, Parker told CNBC. Sales in China were sky-high at the beginning of 2016, but have slowed considerably in 2017, but clearly Nike sees that is a point of focus, particularly through online direct sales.

Nike have lost market share in recent years to their main competitors, including Adidas and Under Armour. Adidas’ sales growth has doubled Nike’s since the end of 2016.

The TPP problem

Parker also addressed the Trump administration pulling out of the Trans-Pacific Partnership, a massive multinational trade agreement that involved the U.S. (and still does with Canada), and a series of partners including Malaysia and Vietnam, where some Nike products are manufactured. Then President Obama visited Nike global headquarters in Beaverton, Ore. back in 2015 in order to build support for the agreement.

“We believe in free and fair trade,” Parker told CNBC on Wednesday when asked about the U.S. withdrawal from the TPP. “We know how to adjust our offence, if we need to do that,” he said of how Nike will continue to compete without the agreement in place for American businesses. Of note, China is not a member of the TPP.

Nike’s stock price has increased over 3.5 per cent since the announcement, as of Thursday afternoon.