Nike’s eCommerce Strategy, 4 Reasons Why Digital Sales are Soaring
Nike has a strong digital business with digital sales representing 42% of Nike’s sales in its 2022 fiscal year. This high concentration of digital sales did not happen by accident. Nike made a strategic decision to focus on its direct business in 2017. That year Nike launched its Consumer Direct Offence, an initiative “fueled by Nike’s Triple Double strategy: 2X Innovation, 2X Speed and 2X Direct connections with consumers.” This strategy coincided with Nike’s establishment of a new direct organization which amalgamated Nike.com, Direct-to-Consumer retail, and Nike+ digital products under a single leadership team. If you are curious about how Nike has brought that strategy to life then consider these four elements of Nike’s digital strategy.
1. Build your own platform by moving away from wholesale. The year was 2013 and 81% of Nike’s business came from wholesale. Fast forward to 2022 and sales generated through Nike’s wholesale channel made up 55% of Nike’s sales. One of the strategic moves Nike made to provide more direct connections with consumers was to rationalize its wholesale business. In 2017 Nike sold its product through an estimated 30,000 retailers but by 2019 it only had 40 strategic retail partners. To make this shift Nike exited several wholesale relationships including the ones it had with Urban Outfitters, Dillard’s and Zappos. “As part of our recently announced Consumer Direct Acceleration strategy, we are doubling down on our approach with Nike Digital and our owned stores, as well as a smaller number of strategic partners who share our vision to create a consistent, connected, and modern shopping experience,” Nike said in a statement.
But recently Nike pulled back a little on its stance of relying less on wholesale accounts. “There are Nike brand loyalists and people who want exclusively Nike product… but there are a lot of customers out there who want a multi-brand experience, who want to be able to compare a Nike shoe and an Adidas shoe head-to-head and see which one they want to go home with,” said Tom Nikic, svp of equity research at Wedbush Securities. “I think they may have underestimated the stickiness of that multi-brand demand.” Nike is also using wholesalers to help it clear out high levels of inventory. “Ultimately, strong distribution is becoming more critical as the consumer economy tightens,” said Neil Saunders, Managing Director at GlobalData Retail.
But why make such a large shift away from a business model that helped to make Nike a household name? One of the benefits of moving away from wholesale is better margins. Typically Nike earns 10 points more on its gross margin rate on revenue from digital channels versus wholesale. Speaking about this in 2020 Matthew Friend, Nike’s CFO, said: “I …also want to highlight that the strategy and the focus on shifting the marketplace, exiting…wholesale distribution and focusing on our direct business and our strategic partners drove higher full price realization…which also fueled our gross margin. And so, those two factors in particular were large drivers of gross margin performance in the quarter.”
eMarketer estimates only 18% of consumers believe brands offer an exceptional customer experience. That makes selling through your own channels another key benefit of moving away from wholesale. Compare the experience of shopping for a new pair of shoes or yoga pants at JCPenney versus at Nike’s flagship House of Innovation store in New York. Nike’s own stores provide an opportunity to offer a powerful and differentiated customer experience it can’t provide when it’s selling through someone else’s channel.
Having more control of the customer experience is part of the reason why Nike decided to stop selling on Amazon in 2019. As anyone who sells on Amazon knows counterfeit products are an issue. Most consumers shopping on Amazon are not even aware of the sheer volume of counterfeit products on the platform. Imagine the experience for a customer who buys a pair of “Nike” shoes on Amazon only to discover later they are fake. Nike, like many companies, believe Amazon is not doing enough to stop counterfeit sellers. In a statement following the end of its partnership with Amazon, Nike wrote: “as part of Nike’s focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail.” “We will continue to invest in strong, distinctive partnerships for Nike with other retailers and platforms to seamlessly serve our consumers globally.”
Not selling on Amazon won’t stop fake products from showing up on Amazon’s marketplace. But as Nike doubles down on its own channels and builds more loyalty with consumers they will be more likely to seek out Nike directly when they want to make a purchase. This is a strategy that Nike’s scale gives it the luxury to do.
2. Keep customers interested with new product launches. Having an eCommerce business isn’t going to get you very far if you don’t have a constant stream of new products. In 2019 Nike created the Nike Vaporfly sneaker which was worn by marathon runner Eliud Kipchoge when he ran a sub two hour marathon, the first time in history that time was ever achieved. The shoe’s carbon sole reduces the amount of energy that is lost with each step a runner takes making them faster. The sneaker is so fast that many running experts want it banned but Nike has already created different variations of the shoe that are popular with runners.
Even in the pandemic Nike continued to launch new products. In 2020 Nike launched its first ever line of maternity activewear. "Activewear may be everywhere [but] it is not in maternity. So making it available and affordable is a great play," said Marshal Cohen, chief retail industry analyst at NPD Group speaking about the new line.
Nike also launched the Nike Air Zoom Tempo NEXT shoe in 2020 to help runners run more efficiently. In China, in 2020, Nike had planned to launch a few new products in-store. But due to the pandemic it converted those launches to digital only launches. This included the launch of the Air Jordan Retro High OG and the Air Jordan 5 Retro. Both of these digital launches had strong results. Nike’s CEO John Donahoe has even said that: “no one can match our pace” of launching new products.
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3. Extend beyond core eCommerce apps. The best retailers don’t just have products or apps they have an ecosystem. Apple does this best. The iPhone is Apple’s largest segment, generating $206 billion in 2022. But coming in second is Apple’s services business, generating $79 billion in 2021. Services like iCloud storage, AppleCare and Apple Music also draw customers into Apple making it hard for them to leave.
Nike also has a strong ecosystem that provides many entry points to its business outside of its of its core footwear products. One of these entry points are apps like Nike Training Club and Nike Run Club. These apps allow users to access training programs such as strength workouts that can be done from the comfort of a user’s home.
Early in the pandemic Nike saw just how valuable these apps could be. Once COVID-19 started to spread in China Nike quickly shifted its focus to helping customers stay fit and connected while stuck at home. This approach resonated strongly with Chinese consumers. By the end of Nike’s 2020 third quarter weekly active users of Nike’s activity apps in China were up by 80% versus the beginning of the quarter in what the company has called an “extraordinary” increase in usage. Not only was engagement up but so were sales. In the third quarter of 2020 Nike’s digital sales in China were up by more than 30%. Speaking about this Donahoe said “the strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app.”
As you can see it’s not just about commerce it’s about truly understanding what your customers need and coming up with creative solutions to meet those needs. That may sound cliché but the best companies in the world do this better than anyone else. If Amazon believed that all its customers needed were books it might not exist today.
Speaking about its apps on Nike’s first quarter 2021 earnings call, Donahoe said: “in Q1, we saw an all-time high of the percentage of our members working out on The Nike Training Club app, with more than 50% of our members worldwide starting to work out in Q1. And in the Nike Running Club, we've seen four consecutive months of more than a 1 million downloads each month of our audio-guided runs.”
As Fortune writes: “Nike has long understood that digital tools must do more than just support sales and have to insinuate themselves into customers' lifestyles to really pay off. Otherwise, e-commerce growth often just means business going from one avenue to another, rather than growing the overall pie.”
4. Don’t forget the importance of brick and mortar. Nike has made several investments in new store formats over the last few years each of which have a strong tie to its digital business. In 2018 Nike opened its 68,000 square foot flagship House of Innovation store in New York. Using Nike’s “Scan to Try” functionality on Nike’s mobile app customers can scan the barcode on any product in the store using the app to learn more about a product and see what colours and sizes are available. With the app customers can also see if a product is in stock, or if it is available at nearby stores or online all without speaking to anyone. Using the app customers can also request that a sales associate bring items to designated locations in the store or have items placed in a fitting room.
Using Nike’s “Instant Checkout” functionality customers can also pay for their purchase by scanning the bar code on a product using Nike’s mobile app. After paying for the purchase within the app customers can skip the checkout line and walk out of the store with their items. Michael Martin, Nike’s former global head of digital products has said:“we want to have the best store experience where our most connected customers are, whereas another company might look at the inverse — if people are shopping in the app, they don’t need a store there. But we see our approach as better serving our customers.”
Martin also said: “the way we look at digital and in-store is not channel-by-channel, or one channel helping the other. Instead, we architected the entire notion of why someone with a phone in their pocket would walk into a store.” Viewing the store and Nike’s mobile app as connected customer touchpoints has also increased Nike’s sales. “We know a consumer who connects with us on two or more platforms has a lifetime value that's four times higher than those who don't.” said Donahoe on Nike’s first quarter 2021 earnings call.