Case Study

Inside Nike’s
Radical Direct-to-
Consumer Strategy
By Chantal Fernandez

How did Nike’s share price hit an all-time high in the middle of a pandemic? The American
sportswear giant’s success is rooted in a radical direct-to-consumer strategy built around
content, community and customisation, and conceived for a post-internet world where
brand connections are everything.

businessoffashion.com December 2020

Executive Summary
In October 2020, in the middle of a global Such an evolution is easier said than done,
pandemic that had infected 188 countries, especially for a business as large as Nike in a
causing record sales damage across the retail category as competitive as sportswear. But
sector, Nike’s share price hit an all-time high. by radically cutting back on its wholesale
distribution and raising the bar for brand
Like other retailers, Nike had been forced to
experience with the third-party partners that
close most of its network of more than 900
remained; expanding its focus on content,
stores across the world, as had its key wholesale
community and customisation to keep
partners like Nordstrom and Foot Locker.
customers close; investing in its data analytics
But the American sportswear giant’s and logistics capabilities; and rethinking the
performance during the pandemic, when its role of the store as a brand stage, Nike drove a
online sales spiked, signalled to many that Nike veritable direct-to-consumer revolution.
had the competency to prosper long term, in
When the pandemic hit, these shifts went into
a future that will be increasingly defined by
overdrive.
e-commerce and digital brand connections.
“It was definitely architecting a new retail, and
It was a validation of a strategy that Nike
a bold, retail vision for Nike,” said Heidi O’Neill,
prioritised three years ago, dubbing it
Nike’s president of consumer and marketplace,
“Consumer Direct Offense,” but the seeds of
and one of the most prominent executives
the approach go back almost a decade.
leading the brand’s new strategy in recent
Above all, Nike is a marketing company. It years. “But it started with our consumer, and
doesn’t just sell sneakers; it sells the brand we knew that consumers wanted a more direct
aspiration that imbues those sneakers with relationship with us today.”
meaning. But to achieve the reach required to
In this case study, BoF breaks down Nike’s
scale its business, Nike’s distribution strategy
pioneering direct-to-consumer strategy and
had long-relied on third-party retailers to sell
how it has worked to the brand’s advantage,
its products, even if the consumer experience
propelling its share price to new heights during
offered by those partners diluted its brand.
the global crisis of 2020.
But in a future increasingly defined by
e-commerce, fast-moving trends and, above all,
the rising power of branding to drive consumer
preference when competitors are just a click
away, Nike realised that in order to thrive,
it needed to take control of its distribution
to better manage its brand and deepen its
connection with consumers.

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businessoffashion.com 2
History and Market Context

A Tension Between
Brand and Reach

A Sports Authority store, once one of Nike’s largest retailers, displaying Nike merchandise. Getty Images.

Starting in early 2020, the coronavirus

pandemic threw the global fashion
Exhibit 1: From Playing Catch-Up to Slam Dunk
market into chaos. Brands grappled with
store closures, supply chain disruption
Nike’s share price climbed to an all-time high in October as it benefitted from a series
and a precipitous downturn in consumer
of recent strategic decisions, including a focus on direct-to-consumer channels, which
spending.
boomed during the pandemic.
American sportswear giant Nike was
Share price, market close
no exception. As the virus spread across
(USD) Indexed to 100 on Jan 4, 2016 October 2020
Nike’s share price hits
the world, the brand was forced to close
220
a new all-time high 75 percent of its stores in China at the
beginning of the year and 90 percent of
200 its stores in the rest of the world (except
March 2020
Nike’s share price dips at Korea) for about eight weeks in the spring.
180
the outbreak of Covid-19
These closures left the company with 31
September 2018
Nike announces campaign percent more inventory than the prior
160 starring Colin Kaepernick
year.
140 With revenue growth in the first nine
June 2017 months of its fiscal year, which ended May
120 Nike announces its DTC
strategy to investors 13, Nike Inc finished the year with a total
revenue decline of 4 percent. Meanwhile,
100 the global fashion industry is expected to
see a year-on-year revenue contraction
80
of up to 30 percent in 2020, according to
60 The Business of Fashion and McKinsey &
Company’s The State of Fashion 2021.
40
2016 2017 2018 2019 2020
But five months later, Nike emerged as
one of the pandemic’s biggest winners
Source: Yahoo Finance when, in October, its share price, up 28
percent year-to-date, hit an all-time high.

businessoffashion.com 3
History and Market Context

Just four years ago, Nike’s future as the

Exhibit 2: Rivals Shift to DTC global sportswear leader was uncertain.
While the Beaverton, Oregon-based
Nike’s peers are making similar shifts to increase direct-to-consumer sales. brand still dominated the market with
its inspiring and provocative marketing,
Direct-to-consumer revenue rooted in unleashing human potential
FY 2018
Percentage share
FY 2019
and fronted by a heavy roster of celebrity
athletes, it was losing share to fast-
growing competitors — especially Adidas.
30 While Nike kept its marketing focus
Nike on carefully controlled collaborations
32 with athletes, its German rival had more
forcefully courted cultural influencers,
not only forging a lucrative, long-term
partnership with Kanye West, but “open-
30
sourcing” its brand to a universe of lesser-
Adidas known but culturally powerful partners,
33 from musician Pharrell Williams and
artist Daniel Arsham to designer Raf
Simons and skate brand Palace. It was a
winning strategy, as young consumers
35
in particular flocked to sneakers less for
Under Armour their performance features than for their
34 aesthetic and lifestyle attributes. In 2016,
Adidas’ trendy and casual Stan Smith and
Superstar styles became the top-selling
Source: Companies
sneakers in the US. It became clear that
Adidas was seriously threatening Nike on
its home turf.
Exhibit 3: Under Pressure From Adidas When Nike released its Cortez lifestyle
sneaker the following year, with an
Nike’s share price surge in 2020 comes after more modest growth over the last four extensive and expensive marketing push,
years, during which arch-rival Adidas soared. the release fell flat with consumers.
Nike’s brand growth rate decreased by 4
Stock price, market close
Adidas percentage points in 2016, and was flat
(USD) Indexed to 100 on Jan 4, 2016
Nike in 2017.
Under Armour The company needed to rethink its
400
priorities and reassert its brand. Nike
is a leader in product innovation, but
more than anything, the company trades
on the power of its brand marketing.
300 “They’re such good storytellers and they
know how to engage people better than
anybody else,” said Sam Poser, analyst at
Susquehanna International Group. And
200 yet, in search of scale, Nike had long-
relied on a large network of third-party
retailers to sell its products, even if the
consumer experience offered by those
partners diluted its brand.
100
In 1964, Phil Knight founded the
company that would later become Nike
as a distributor of Japanese running
0 shoes, which were, at the time, considered
2016 2017 2018 2019 2020 the best in the world. When the brand
started designing its own shoes, it needed
Source: Yahoo Finance sporting goods shops and department
stores to reach customers. Less than
a decade later, Knight enticed the
company’s biggest retailers to place larger
and non-refundable product orders,
which came with a discount, in a strategy
he called “Futures.” This approach soon
represented the bulk of Nike’s wholesale
revenue. By the time the company went
public in 1980, it sold its shoes through
8,000 retailers.

businessoffashion.com 4
 History and Market Context

Nike’s Mark Parker presenting the consumer-led transformation to investors in October 2017. Nike.

“Everything the But nearly three decades later, the

wholesale market was facing an
Nike was far from the only brand to
realise the urgent priority to take
organisation did existential challenge. More shoppers did control of its distribution channel as
more of their shopping online, where part of a digital transformation across
moving forward they could browse any number of sites the company. But with more than $32
and no longer relied on retailers to curate billion in annual sales in fiscal 2017, such
would now be in products for them. Multi-brand stores a fundamental shift was not going to be a
simple proposition.
service of a more leaned more and more on discounts to
keep shoppers coming back.
Though it had been laying the
efficient, direct-to- Nike had long been able to cast a powerful groundwork for a transformation for
brand halo over its products, even when much of the past decade, Nike first
consumer business.” consumers found them at third-party presented its ambitious plan to investors
retailers. But over time, not even the in June 2017 in a strategy it dubbed
most inspirational multi-million-dollar “Consumer Direct Offense,” which the
marketing campaign could offset the way company described as fuelled by a “Triple
wholesale was increasingly diluting its Double” consisting of “2X Innovation, 2X
brand identity — and disintermediating Speed and 2X Direct connections with
its consumer relationships. consumers.”
And even if Nike could have simply dialed As part of the strategy, the company
up its already enormous marketing aimed to double the amount of sales
budgets, it was inefficient, especially now through direct channels — online and
that the internet allowed Nike to scale off — while prioritising just 40 of its
distribution through its own channels in a 30,000 wholesale partner relationships;
way that would actually strengthen — and cutting production timelines in half; and
not damage — brand equity. generating more of its sales from its more
differentiated product lines, such as its
Moreover, as the internet put competitors
“React” and “Vapormax” models.
a click away, removing friction from
the purchasing path and making brand Everything the organisation did moving
identity an even more powerful driver forward would now be in service of a more
of consumer preference, Nike needed to efficient, direct-to-consumer business
have more agency over its relationships centred on building closer, more powerful
with shoppers. brand connections with customers, from
new store concepts to mobile apps and
Digital was also changing customer
technology investments.
expectations. “They expected us to know
them across our ecosystem, from app to
app, from physical to digital,” O’Neill told
The Business of Fashion.

businessoffashion.com 5
The Challenge

Changing Channels Amid Crises

While direct-to-consumer sales were the significant internal turmoil at a time such as the exit of the chief operating
fastest-growing part of Nike’s business when the company couldn’t afford the officer and the president of consumer and
in fiscal 2017, they only represented distraction. marketplace. Donahoe also announced a
28 percent of revenues. Competitors shift to organise the business around the
In 2018, while the company was in the
were making similar investments in women’s, men’s and children’s categories,
middle of a multi-year effort to grow its
their digital channels, while working a simplification of the previous structure
women’s business, female leaders at the
strategically to steal market share. organised around different sports
company started what the The New York
activities.
How would such a giant and multi- Times described as a “small revolt,” and
channel brand as Nike take back control more than six top male executives shortly Meanwhile, outside Nike, America’s
of its distribution and invest in brand resigned from the company, including “culture wars” were raging and a new
connections, without shrinking or losing Nike brand president Trevor Edwards, generation of consumers, more polarised
the support of shareholders? long eyed to succeed chief executive Mark than ever, were turning to brands to
Parker. The following year, the United take a stand on values with which they
“The non-digital natives of us out there
States Anti-Doping Agency banned identified. As Nike sought to expand its
are looking to see how we can thrive and
Nike running coach Alberto Salazar for footprint in athleisure, lifestyle shoes and
be connected to consumers in a digital-
allegedly violating rules. apparel, it increasingly addressed more
first world,” said O’Neill at Recode’s Code
than sporting excellence in its marketing.
Commerce event in September 2017, “The decision had nothing to do with
framing the problem Nike faced as a administering banned substances to While the brand had made politically
brand born pre-internet seeking to still any Oregon Project athlete,” said a charged statements before, its 2018
dominate in a digital age. representative for Nike. “We support campaign with American football player
Alberto in his decision to appeal and wish Colin Kaepernick, known for his Black
“Competitors were... him the full measure of due process that
the rules require.”
Lives Matter activism, was a watershed,
sparking controversy that was ultimately
working strategically to A few weeks later, Parker announced
positive for brand appeal.

steal market share.” that he would step down as CEO in early

2020 in a long-planned transition, to be
replaced by board member John Donahoe,
The strategy required a significant
the former top executive at eBay and the
internal reorganisation, which has led to
chairman of PayPal. Donahoe’s selection
a series of substantial staff cuts, as well as
underscored Nike’s growing focus on a
a cultural shift that came during a time
digital, customer-first future — one that
of corporate crises at Nike. While these
has also come with continued internal
issues had minimal impact on brand
reorganisation and leadership changes,
perception with consumers, they caused

Nike’s world headquarters campus in Beaverton, Oregon. Nike.

businessoffashion.com 6
The Strategy

‘Consumer Direct Offense’

01 — Radical Recalibration in Wholesale
By only focusing on 40 wholesale partners who offer a differentiated retail presence, Nike
can avoid brand dilution and drive stronger connections with consumers.

A Nordstrom x Nike sneaker boutique. Nordstrom.

When one of Nike’s largest retailers, Nordstrom, Foot Locker and Zalando “differentiated retail” came to life with
the American multi-brand sporting were some of the first partners to special pop-up stores and specially
goods chain Sports Authority, filed for be chosen for their special, deeper trained sales associates. Then, in 2019,
bankruptcy in 2016, the store owed the relationships, with each retailer offering Foot Locker even went so far as to allow
brand a whopping $47.9 million. It was Nike a specific strategic advantage — and shoppers to check out in stores with the
one of the first retail victims of the end making a commitment to present Nike Nike mobile app, further integrating the
of the big box era, and was ultimately in a “differentiated” way compared to third-party retailer into the Nike world.
forced to completely shut down. One New competitors.
Jersey seller resold $200,000 worth of
Nike merchandise he picked up in the
“Nike, or any other brand for that matter, “Some retailers... gave Nike
should be looking at their partners and
liquidation, and grossed about $1 million,
according to The Wall Street Journal. This
saying, ‘you know what, I can sell my stuff clout and authenticity in
anywhere,’” said Poser. “So what’s in it for
was exactly the kind of situation Nike
me as a brand, and what’s in it for them?” the sneaker space. Others...
wanted to move to avoid as the wholesale
market unraveled. Some retailers, like boutique sneaker allowed Nike to reach a
store Concepts, gave Nike clout and
At Nike’s 2017 investor day presentation,
authenticity in the sneaker space. Others, sneaker enthusiast who
then chief executive Mark Parker
made headlines when he announced
like Foot Locker, allowed Nike to reach
a sneaker enthusiast who wants to wants to choose from a
that, moving forward, the brand would
prioritise only 40 of its 30,000 retail
choose from a wider selection of brands
and products, or a younger customer
wider selection of brands
partners with marketing initiatives and
special products. It marked the beginning
who has not yet developed the kind of and products.”
loyal relationship with Nike that could
of a culling of wholesale customers, in
continue throughout their life. Nordstrom
which the brand cut and minimised its That same year, Nike raised the minimum
provided a leg up in the underpenetrated
relationship with any retailer that didn’t annual amount of products its retailers
women’s market.
make extra efforts to make Nike’s brand needed to commit to sell to keep working
more appealing to shoppers, a phased At Foot Locker, what Parker and with the brand, according to reporting
strategy that continues today. other Nike executives referred to as from The Times. It continued to cut

businessoffashion.com 7
The Strategy

out retailers, many of them small and direct, personal relationships, we have
independent, that did not make special made the decision to complete our
accommodations for Nike. current pilot with Amazon Retail,” said a
representative for Nike.
At the other end of the scale spectrum,
Nike even cut off its relationship with Meanwhile, Nike continued to edit its
e-commerce juggernaut Amazon after wholesale network. In 2020, Nike cut
a highly publicised test period. In 2017, relationships with multi-brand retailers
after years of eschewing the “Everything including Belk, Dillard’s, Zappos,
Store” Nike has begun to expand its Boscov’s, Bob’s Stores, Fred Meyer,
presence on Amazon with a small EbLens, VIM and City Blue, according
assortment of products. Despite Nike’s to a report from Susquehanna’s Poser. It
official absence on the marketplace, even cut its relationship with small family
unauthorised (and in some cases businesses like Frank’s Sport Shop in the
counterfeit) products made Nike the most Bronx, New York, which had carried Nike
purchased brand on the site, according to products for more than 50 years.
a Morgan Stanley survey in 2017, which
“We continually evaluate our distribution
showed Amazon offered 73,000 Nike
approach based on our strategy,” said
items at the time. Competitors Adidas and
a representative for Nike. “As part of
Under Armour had already been selling
this evaluation, from time to time, Nike
on the marketplace as official partners for
chooses to conclude distribution with
years.
certain retailers.”
Amazon reportedly promised to cut down
Meanwhile, the company expanded its
on the sale of unauthorised Nike products.
business in recent years with the “digital
But even after the company developed
high street,” including European apparel
an official relationship with Amazon,
e-tailer Zalando, and Alibaba’s Tmall.
these unauthorised sales continued and
Nike pulled out two years later, citing its “We’ll continue on our path to
focus on “direct, personal relationships.” differentiated retail — to fewer, better
The experiment was a failure, and the partners, who work with us in a more
pressure was on for Nike to work harder connected experience,” said O’Neill, “so
to lure more fans of the brand through its that the consumer can be recognised as
own sales channels. a Nike member, throughout all of their
shopping journeys.”
“As part of Nike’s focus on elevating
consumers’ experiences through more

Nike merchandise on display at a Foot Locker store. Getty Images.

businessoffashion.com 8
The Strategy

02 — Pivot to Direct E-Commerce

As Nike cuts back on wholesale, its investments in direct e-commerce allow the company
to drive reach in a way that does not dilute, but instead boosts its brand.

Nike Air Force 1s on their direct e-commerce channel. Nike.com.

Meanwhile, Nike invested in technology Nike also opened new distribution

and distribution upgrades to support centres to deal with the increased volume
growth in its direct e-commerce business. of product it was shipping directly to
consumers. In fiscal 2018, it expanded
In 2018, Nike acquired American
seven of its distribution centres, including
customer data analytics company Zodiac,
one in the US specifically dedicated to
which uses predictive tools to forecast the
processing returns. Ahead of the 2020
lifetime value of a customer and increase
holiday season, Nike also opened a new
revenue with personalised marketing and
warehouse near Los Angeles to deal with
recommendations. The following year, it
additional e-commerce demand, which
also acquired retail predictive analytics
uses more than 600 robots to pick global
and demand-sensing firm Celect, which
products.
helps predict consumer demand.
Nike plans to generate 50 percent of
“Nike invested in sales from online channels, including
retail partners, but it hasn’t yet indicated
technology and how much of its total business it aims to
generate from its own channels. Poser,
distribution upgrades who estimated that Nike will seek to
to support growth in generate 30 percent of the online segment
via its own channels, said it was unlikely
its direct e-commerce the company would ever abandon key
wholesale battlegrounds. “That’s how
business.” they gain share,” he said. “If they’re not
hammering their competition there, they
know they’re not going to sell a lot online
Nike’s tech investments escalated in fiscal
anyway.”
2019, when it invested over $1 billion
in new data and analytics capabilities,
expanding Nike’s suite of apps and
digital-friendly store features.

businessoffashion.com 9
The Strategy

03 — Content, Community, Customisation to Drive Brand Connection

With a universe of digital content, community and customisation experiences, Nike keeps
its customers close, creates powerful organic marketing that boosts engagement and
customer lifetime value, and gleans data that can inform future products and experiences.

A customisation station at Nike’s House of Innovation in New York (left). Members of the Nike Training Club community (right). Nike.

To support its pivot to direct channels,

Nike sought to track and engage with
Exhibit 4: A Universe of Apps to Keep Consumers Close
consumers more closely than it ever
could when its partners controlled the
Nike has developed a suite of apps that keep customers engaged with content and
relationship with shoppers at point of
community features, while gathering consumer data to inform its strategy.
sale.
Throughout the 2010s, Nike reallocated
advertising dollars to digital. Though
the brand had never been short on
social-media friendly content, digital
Nike SNKRS Nike media allowed the company to go beyond
For limited
Commerce traditional “push” messaging and forge
edition and
collectable
For training
advice and
tighter customer relationships, improve
sneakers shopping targeting and, ultimately, create a
community it could analyse to inform its
overall strategy.
Nike’s constellation of mobile apps were
key to this element of the strategy, as was
Nike
Membership its membership programme, which, like
an AppleID or Amazon Prime account,
tracked customer behaviour and allowed
the brand to see how its customers
interact with its products, stores and
content.
Nike Nike
Run Club Training Club Nike’s apps have evolved and served
For running
training
For workouts different functions since they first
launched a decade ago. Nike set up a
“Digital Sport” division in 2010 dedicated
to creating wearable tech products and
the software that would support them.
The Nike+ FuelBand launched in 2012,
and tracked a user’s activities, steps and
other fitness related goals and synced
them with the apps and a users’ Nike
account.

businessoffashion.com 10
The Strategy

Despite initial interest in the product and well as check stock information. Shoppers
Exhibit 5: Bridging the Tech Gap its updates, Nike felt it couldn’t compete could also reserve products before
with the likes of Apple and Google in entering a store, get access to special
Over the last four years, Nike has acquired technology hardware and discontinued discounts and pay for their in-store
technology start-ups with expertise in various most of its wearables in 2014, favouring purchase in the app.
fields, from content creation to data analysis. a strategy rooted in integrating with
Nike’s SNKRS app is another key
products like the iPhone and, later, the
consumer relationship builder, one that
August 2016 Apple Watch.
has grown into a $1 billion annual revenue
Virgin Mega The software, however, remained, and channel. Originally developed in 2015 and
An American digital design studio would continue to gain importance then later expanded to focus on selling
that develops mobile technology
within the company, as Nike recognised its limited edition and most collectable
that more of its customers were spending sneakers, Nike opened the app to 22 new
more time online and specifically on their countries in 2017, in addition to the US, as
phones. the app’s popularity skyrocketed. It grew
from generating $70 million in revenue in
Nike’s membership programme actually
fiscal 2016 to over $750 million in fiscal
predated the iPhone era, launching in
2019.
2006 in a collaboration with the Apple
March 2018 iPod that tracked running workouts
through a small transmitter embedded
Zodiac
An American customer data in Nike shoes. Three years later, Nike “Someone may only buy
introduced its first ever iPhone app,
footwear and apparel a few
analytics company
dedicated to providing training workouts
times a year, but engaging
April 2018 for women, and was followed up shortly
Invertex with the first running app, which tracked
An Israeli 3D technology firm that
scans and measures shoe sizes
the user’s steps through GPS instead of with us each week [through
wearable tech.
Over the next five years, before Nike cut
the Nike Training App]...
the wearable tech category, the brand brings Nike into their lives.”
rolled out a series of different software for
different devices, designed to sync with — John Donahoe
different workout machines and regimes.
The apps gained their own followings,
Nike poured investment into the app,
August 2019 offering workouts from Nike trainers as
making it more resilient against bots that
well as running tips and tracking. But the
Celect tried to game the release process to profit
An AI retail predictive analytics apps were fragmented in their approach.
on the resale market, and introducing
and demand-sensing firm
“Nike had some really strong consumer different features to “gamify” the
October 2019 apps and stores, but we didn’t build out sneakerhead shopping experience.
Trace Me a connected consumer experience,”
An American content app Four years ago, Nike bought Virgin
said O’Neill, describing much of her
start-up for “superfans” Mega, a start-up branded with Richard
work around “breaking down the walls”
Branson’s Virgin that developed
between retail, digital product and
technology to incorporate games into
engineering teams. “We weren’t offering
mobile shopping, and quickly integrated it
members personalised journeys through
into SNKRS. Sneakerheads could “queue”
those experiences.”
for products digitally as part of Nike’s
Then, in 2016, Nike began to connect efforts to cut off shopping bots that snap
the dots, re-releasing most of its apps to up in-demand limited edition sneakers,
reinforce the underlying membership, such as collaborations with Virgil Abloh
with the Nike commerce app (for or Travis Scott, in large quantities to
training advice and to showcase and shop resell for high markups.
products), the Nike Training Club (with
SNKRS had offline potential, too. In
more workouts for men and women) and
2017, for example, the release of limited
the Nike Run Club. Membership grew
edition PSNY x Air Jordan 12s shoes drew
from around over 100 million at the end of
shoppers to Washington Square Park
2017 to 185 million by the end of 2019.
on a summer’s afternoon, in a kind of
The apps also play an increasingly central scavenger hunt for the geo-tagged location
role in Nike’s retail strategy. With Run where they would be able to unlock the
Club and Training Club focused on fitness option to purchase the shoes.
tools and instruction, the Nike commerce
These investments have paid off. The
app became a tool for enhancing Nike’s
SNKRS app has “acquired more new
physical retail strategy, which has
members than any other digital channel
expanded with new retail concepts
for Nike,” Parker told investors in 2019.
since 2018. After surveying more than
500 consumers, the brand rolled out When the pandemic hit in 2020, all
new features on the app that allowed of Nike’s apps suddenly took on more
customers to scan products in a store to importance as shoppers were stuck
summon the item from salespeople, as at home and looking for streamable

businessoffashion.com 11
The Strategy

workouts. Many returned to the apps “With digital, we can serve underserved
frequently, making them increasingly segments [where] there just might not
valuable organic marketing channels. have been that distribution channel,” she
said. The brand recognised night runners
“Someone may only buy footwear and
among its members through the app and
apparel a few times a year, but engaging
is designing more apparel with reflective
with us each week [through the Nike
fabrics.
Training App], maybe even each day,
brings Nike into their lives,” Donahoe In recent years, Nike has also invested
told analysts in June. in product customisation experiences,
which also tie consumers closer to the
In March, Nike had made its Training
brand. In 2018, Nike acquired Invertex,
Club app, previously $14.99 a month
an Israeli firm that uses 3D technology
for full access, free to all users, which
to, among other functions, scan and
resulted in a surge in memberships.
measure feet for shoe sizes. A year after
It became clear that Nike’s apps had
that acquisition, the brand introduced
become one of its most effective customer
the same scanning technology in its Nike
acquisition tools. Nike expanded the
app for footwear shoppers. It also later
number of workouts available on the
brought the scanning technology to its
training app, totalling more than 150,
stores, where shoppers could be virtually
including yoga and stretching.
measured for sports bras.
The strategy was especially important in
And in April 2019, Nike relaunched its
China (where the app is integrated with
shoe customisation project, formerly
WeChat ID and users can pay with Alipay
known as NikeID and renamed Nike
and WeChat) and 13 markets in EMEA,
by You, with more design options and
where Nike’s app had only launched in
collaborations with designers like Heron
November.
Preston. The brand has continued to draw
Since the pandemic began, Nike’s apps attention to the customisation feature
have streamed over 375 million workouts, with other micro-collaborations with
helping increase Nike’s membership by athletes and influencers.
50 million over the same period. The
In order to support customisation with
more members Nike amasses, the more
faster speed-to-market, Nike has built
data it collects on its customers and their
“express lanes” of products in recent
preferences and habits. The more data it
years, by storing materials at factories.
collects, the better the brand can design
The strategy cut down production from
and deploy its products to shoppers.
months to weeks on some products, and
“Behaviour on the app is as important as grew to represent 10 percent of all revenue
what they tell us,” said O’Neill at the 2017 in the third quarter of 2019, with a focus
Code Commerce event. on custom shoe designs as well as limited-
edition collections.
In an interview with BoF, O’Neill cited
people who run at night as an example.

Nike Run Club, Nike Training Club and Nike SNKRS. Nike.

businessoffashion.com 12
The Strategy

04 – Stores as Brand Theatre

Nike’s stores are becoming stages for brand experience where the company can deepen
connections with consumers, remind shoppers how its products are different and underscore
why its logo has cultural meaning, regardless of where they ultimately make their purchase.

The digitally-enabled “Center Court” at Nike’s House of Innovation in Shanghai. Nike.

Building brand connections wasn’t just

about digital activations. A new approach
Exhibit 6: Rethinking the Physical Store Network
to physical retail was a critical part of
Nike’s strategy.
Nike did not rely on opening more stores to grow direct sales. Instead, the company
trimmed back its retail network but invested in experiential flagships. When O’Neill was named president of
Nike’s new direct-to-consumer division
International in 2016, one of the top priorities was
US rethinking the ways that Nike’s different
segments worked together. The following
year, as part of a reorganisation that saw
the brand cut 2 percent of its workforce,
Nike’s digital product team merged
with its retail commercial one, meaning
O’Neill began working much more closely
713 729 705 695 with Adam Sussman, then chief digital
660 officer, breaking down walls between
585
their groups.
“I see the role of the store as an extension
of the mobile experience,” O’Neill said in
an interview with Fortune in 2019.
218 230 243 251 246 240 That strategy came to life in a series
of new retail “House of Innovation”
flagships that first opened in Shanghai
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 in October 2018. The multi-level store
Source: Nike
was a kind of theme park for the Nike
brand, and the kind of place where
shoppers could come and spend the day,
participating in different workshops and
events or customising shoes and shopping
with personal stylists.
Many elements of these new large-format
store concepts were digitally enabled
and designed to be supported by the
app, which shoppers could use to scan

businessoffashion.com 13
The Strategy

and pay for products and participate in locations in the US, UK and Korea, with
special events or offerings. The brand plans for additional locations in the US
also set up members-only floors, where and China.
sales associates offer personal styling and
To support these investments, Nike
fitness advice.
acquired Boston-based artificial
The brand followed the Shanghai opening intelligence firm Celect in 2019. The
with similar new locations in New York company predicts browsing and buying
and Paris. The format was a model for the patterns both online and in stores, in
future, and the brand saw that shoppers real time, and helps brands plan what
who visited the locations spent 30 percent products they need to have available in
more than the average Nike customer stores or distribution centres at any given
with the brand over the following months. time.
Meanwhile, the brand developed another “Ultimately, it’s about making the
large-format store design it called “Nike experience, physically or digitally, [a]
Rise,” which opened in Guangzhou, China richer, more dimensionalised experience
in July 2020 with a focus on running, for consumers,” Parker told investors
basketball and football. in June 2019, explaining that the brand
was experimenting and testing different
formats. “We are seeing where we have
“It’s about making the those digital connections through
experience, physically like Nike app at retail, we’re seeing
the engagement from consumers rise
or digitally, [a] richer, significantly. And the actual spend per
consumer in those cases actually jumps
more dimensionalised up dramatically.”

experience for consumers.” Of course, the coronavirus pandemic has

hampered Nike’s brick-and-mortar retail
— Mark Parker strategy, as the brand was forced to close
most stores globally for an average of
eight weeks. But it also puts more focus on
Nike is also investing in a network of
the types of stores it continues to invest
smaller-format stores designed to cater to
in for the future. Covid-19 has raised the
a specific area. “Nike Live” first opened in
bar on store formats: because of safety
Melrose, Los Angles in 2019 and tapped
concerns, shoppers need more compelling
users’ data to inform the kind of inventory
reasons to enter physical retail.
stocked in the store which, in the Melrose
location, meant more running gear “The way the consumer shops is
and brighter colours and patterns. And changing,” said Poser. “And if they’re
“Nike Unite,” another locally targeted going to go to a retail store when the dust
small-store format focused on sports settles with all this, you better have a
and community, has rolled out in five really good story to tell.”

Exhibit 7: Nike’s Formula for its ‘Consumer Direct Offense’

The company’s multi-pronged DTC strategy goes beyond its sales channels.

Nike’s Approach How It Works

Recalibrate Wholesale Discontinue retailer relationships that don’t make extra efforts to make
Nike’s brand more appealing to shoppers, and invest in those that do.

Pivot to E-Commerce Expand direct e-commerce by developing data and analytics

capabilities and mobile apps to drive reach.

Content, Community, Nurture a community of consumers through unique experiences

Customisation and content that attracts new fans and builds loyalty.

Stores as Brand Theatre Upgrade the store as a branding exercise or hyper-localised

boutique to deepen customer connections.

businessoffashion.com 14
The Results

DTC Scorecard

Nike’s “Mission Control” wall in its House of Innovation in Paris. Nike.

As Nike cut back on wholesale and

Exhibit 8: Direct Sales Double invested in its own distribution channels
and brand experiences over the last
The company’s direct-to-consumer revenue has nearly doubled in five years. five years, direct sales have grown
consistently, representing 35 percent of
Nike revenue by category (2015-2020) Global Brand Divisions sales in fiscal 2020, up from 23 percent
Percent DTC in 2015. Then came the coronavirus
Wholesale
pandemic, which proved Nike’s
investments had come just at the right
Revenue
time.
(USD, M) $28,701 $30,507 $32,233 $34,485 $37,218 $35,568

0.40 0.24 0.23 0.26 0.11 0.08

“Sales through the Nike app
23 26 28 30 32
grew by ‘triple digits’ and
35
generated 30 percent of
North America online sales.”
Twenty-five million people signed up
76 74
for the Nike membership in the fourth
72 70 68 65 quarter ending May 31, 2020, up over
100 percent year-over-year, half driven
by Nike’s running and training apps,
which saw active new member growth
exceed 200 percent in the quarter.
FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 During the same period, the Nike app
was downloaded more than eight million
Revenue (USD, M) times, three times more downloads than
the previous year. And in the year ending
Global Brand
Divisions 115 73 73 88 42 30 May 31, the SNKRS app generated $1
billion in revenue for the first time.
DTC 6,634 7,857 9,082 10,428 11,753 12,382
Nike brand’s e-commerce sales grew by
Wholesale 21,952 22,577 23,078 23,969 25,423 23,156 79 percent, with digital sales representing
30 percent of total revenue in the quarter,
Source: Nike up 80 percent year-over-year. Direct-
to-consumer brand sales grew 5 percent

businessoffashion.com 15
The Results

while wholesale revenue dropped by 9

percent year-over-year. Sales through
Exhibit 9: DTC Grows Globally
the Nike app grew by “triple digits” and
generated 30 percent of North America
The DTC strategy has paid off in all markets, with Asia Pacific and Latin America seeing
online sales.
the highest growth.

Direct-to-consumer revenue by territory (2017-2020) EMEA To be sure, the pandemic was an

Percentage share APAC & LATAM exceptionally difficult time for the
North America
company, which forced it to close stores
across the world and disrupted some of its
China
50 key investments, especially its marketing
plans around the Tokyo Olympics. Nike
40 Inc. saw sales decrease 38 percent in
the quarter ending May 31, 2020, and
inventory increase 31 percent in the same
30 period. Meanwhile, Nike Inc.’s operating
margin suffered, decreasing to 8.3 percent
20 in fiscal 2020 from 12.2 percent the prior
year.
10 In June, Donahoe announced that
Nike would enter a new phase in its
0 transformation strategy, with the goal
FY 2017 FY 2018 FY 2019 FY 2020 of generating half of all sales through
e-commerce (both Nike and select
Source: Nike
partners), and would increase its
investments in technology including
“demand sensing, insight gathering [and]
inventory management.”
Exhibit 10: Squeezed Margins He said the brand would focus more
energy on its membership programme,
Nike’s investments have resulted in a drop in profitability. reaching nearly 250 million members as
of September 2020, and also open more
Nike Inc operating margin (2017-2020) small-scale Nike stores to target specific
Percent
communities, like women.
13.83 Donahoe also announced an internal
reorganisation that would shift from a
12.21 12.20 focus on activity groups, like basketball
and running, to a focus on consumer
groups, with new departments around
men, women and children. These changes
will reportedly result in about 700 job
8.33 cuts at Nike’s Oregon headquarters.
“We believe this digital acceleration
is more indicative of a strategic shift
towards a new future marketplace, rather
than being a reflection of temporary
challenges to the mostly physical
marketplace of the past,” Donahoe told
analysts in June.

FY 2017 FY 2018 FY 2019 FY 2020

Source: Yahoo Finance

businessoffashion.com 16
Looking Ahead
“We have so far [that] we could go, we’re Nike will be nailing its retail mix during shipping and shorter production times
[just] scratching the surface, but we’ve a time when shoppers are being more from the brand’s perspective.
come a long way in terms of breaking cautious about stepping into physical
For Nike, the question remains how
down the walls and siloes in our teams,” stores, behaviour that will likely linger in
the company plans to double its direct-
said O’Neill, acknowledging the work that some form after pandemic-related health
to-consumer revenue without making
still lies ahead for Nike. “The first and concerns have passed.
substantial changes in its supply
most important pillar of our marketplace
Another challenge lies in Nike’s supply chain. Leadership in that area has
strategy is to continue to invest in both
chain. When Nike announced its also transitioned under Donahoe: the
our tech infrastructure and our digital
DTC strategy in 2017, “2X Speed,” or executive who oversaw supply chain
ecosystem.”
investments in “new capabilities and projects in recent years, longtime chief
Amid the pandemic, the brand signed analytics to deliver personalised products operating officer Eric Sprunk, was one of
on millions of new members, who in real time,” as Parker explained to the senior leaders who left the company in
started to engage with the brand’s new investors that October, were key to the February.
digital ecosystem for the first time. The strategy.
“Can you double the business, can you get
pressure is now on the brand to bring
Two years earlier, Nike inked an where they want to go on the same supply
those relationships down the purchasing
ambitious partnership with Silicon base in Asia? The answer is, no, you can’t,”
funnel and turn them into commercial
Valley manufacturing company Flex to said John Thorbeck, chairman of supply
transactions. As shoppers continue to
“nearshore” production of footwear closer chain analytics firm Chainge Capital LLC.
stay home, the apps will continue to
to its largest market, the US, in Mexico. “The company is not very productive from
play an outsized role in how shoppers
The goal was to accelerate deliveries an inventory standpoint, and nowhere
meet and engage with Nike, but it’s also
through automation to allow the brand to near best in class.”
a market in which the brand faces new
be more responsive to product demand.
types of competition from other fitness Nike has recently been focused more
content providers, from giants with cult It marked a new era for the brand, which on expanding its RFID technology, or
followings of their own, like Peloton, to for decades worked with the same group “radio-frequency identification” smart
influencer trainers with popular YouTube of footwear suppliers across China, tags, to its products for greater visibility
followings. including large-scale factories like of its inventory in different sales channels
Fengtai in Yunlin, Taiwan that dedicated and locations. This technology would
“How are we going to inspire
all of their output to the market leader’s allow Nike to reallocate inventory across
[customers]?” asked O’Neill. “How are we
products. channels, from online to a partner
going to encourage them to train and how
retailer, depending on need and, using
are we going to hear them out? So that’s The priority was keeping costs as low as
predictive technology acquired last
got to be a big focus for us.” possible, though long lead-times were
year with Boston firm Celect, ahead of
more of a liability for the brand. For
O’Neill highlighted Nike’s renewed focus demand.
decades, Nike mitigated the risk of betting
on better targeting the women’s category
on the wrong product by sharing some of But Nike has a growing margins problem,
and apparel, as part of the athleisure
that risk with wholesale partners, who made worse by the pandemic. Gross
movement, which Donahoe pegged as
placed orders for products six months in margins decreased by 90 basis points
the company’s strategic priorities over
advance through its “futures” model. in the quarter ending August 31, 2020,
the summer. The more Nike understands
executives said, as the brand dealt with
about consumers who are interested But in a future where direct-to-consumer
holding and selling excess inventory and
in those categories, through the data it would represent most of Nike’s sales, the
discounting. Even before the pandemic,
collects about where, how and why they brand would need to build more flexibility
Nike’s margins were lower than its
shop, the better it can convert them into and speed into its supply chain to more
shareholders hoped, as the investments of
shoppers. efficiently adapt to consumer trends and
the last several years are yet to pay off on
preferences, which were evolving at a
“We talk a lot about knowing to serve the bottom line.
faster and faster rate.
from a digital perspective,” said O’Neill.
The company should look to Apple’s
“But thinking about bringing that insight Yet only a few months after the 2017
“asset-light” manufacturing as a model,
all the way up to innovation and product investor presentation, Nike shut down the
Thorbeck said, cautioning that Nike still
creation and what we can do there — our project and disbanded the partnership,
judges its supply chain primarily on cost,
product teams are just psyched for the with millions reportedly lost by both
not on risk. The brand will need to expand
potential for better serving consumers Flex and Nike. It was reported the project
the “Express Lanes” in its supply chain
from a data perspective.” failed to make sense for Nike on a cost
or find other ways to work with more
basis.
Nike is in the process of renovating two flexibility with suppliers as it continues
of its New York City stores into new Competitor Adidas faced similar to transform from a giant of the analogue
“Nike Live” stores focused on women challenges when it invested in its first era into a leader in the post-pandemic
and apparel. It’s part of an expansion of automated factories in Ansbach, Germany digital age.
the small-store format that will see 10 and Atlanta, Georgia in 2015. The location
to 15 new openings this fiscal year, and made the facilities and labour still too
an additional 150 to 200 openings in the expensive to be worth the savings on
next several years. Here, a challenge for

businessoffashion.com 17
Further Reading
• The Business of Fashion, The Radical Strategy That Drove Nike’s Pandemic Success
• Highsnobiety, Community? Nike doesn’t care about your family-run store
• The Financial Times, Online sales surge sends Nike shares to record high
• Bloomberg, Nike Job Cuts Will Cost Up to $250 Million
• The Financial Times, Nike ecommerce gains fail to make up for pandemic fallout
• The Business of Fashion, How Are Sports Brands Marketing Without Sports?
• The Business of Fashion, In Brands We Trust: Why Companies Are the New Communities
• Bloomberg, Nike to Stop Selling Products on Amazon Site
• The New York Times, Doping Scandal Includes a Direct Link to Nike’s C.E.O.
• The Business of Fashion, Can Foot Locker Be Cool?
• The Business of Fashion, Despite Setbacks, Nike Is Scoring with Direct-to-Consumer ‘Offense’
• The Business of Fashion, Why Brands Are Launching Secret Apps for Superfans
• The New York Times, Nike Nearly Dropped Colin Kaepernick Before Embracing Him
• The New York Times, At Nike, Revolt Led by Women Leads to Exodus of Male Executives
• Bloomberg, Nike’s Failed Attempt to Challenge the Old-School Adidas Cool
• Bloomberg, Nike Stocks Falls as Competition for Sportswear Intensifies
• The Business of Fashion, How Adidas Converted the Cool Kids

businessoffashion.com 18
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