Nike's New Consumer Experience Distribution Strategy Hits The Ground Running (2024)

In mid-2017 Nike unveiled its plan for growth called the Triple Double Strategy (2X). Through it, the company promised to double its “cadence and impact of innovation,” double its speed to market and double its “direct connections with consumers.”

The cornerstone of the Triple Double Strategy is the Nike Consumer Experience (NCX), which includes Nike’s own direct-to-consumer network, as well as a vastly streamlined slate of wholesale distribution partners. It is through the NCX that the company is feeding its 2X Innovation and 2X Speed initiatives.

At a time when most big international companies would be doubling down on what made them successful in order to defend their turf, Nike is going on the offense in a “disrupt yourself” way to propel the company faster and further into the future.

Michael Spillane, Nike president of products and categories, said at the company’s October 2017 Investor Day presentation, “We’re the largest footwear brand at $21 billion. We’re the largest athletic apparel brand at $9.6 billion. And in footwear, we hold the #1 market share in all markets and all major categories. It means we can amplify our brand message into a global conversation.”

In “Just Do It” fashion, Nike recognized it must “edit to amplify” growth, so it is putting 25% fewer styles into the market to make space in order to amplify sales. And it also includes streamlining distribution to only those that deliver the fastest, most profitable growth.

That means Nike could potentially edit out a massive number of distribution partners from its current slate of 30,000 retailers to focus primarily on only 40 that offer superior customer experiences, quality service and storytelling that differentiates the brand. And of course, the company’s own Nike Direct retail platform, both online and offline, is where it can deliver all those at the highest level.

With a little over a year of executing on the Triple Double Strategy, the results are starting to show. In fourth quarter 2018 Nike brand revenues grew 9% on a currency-neutral basis, followed by a 10% increase in first quarter 2019. In both quarters, the company reported double-digit growth internationally and in Nike Direct, as well as “strong momentum” in North America, its premier market.

Nike credits its Nike Customer Experience (NCX) platform as driving virtually 100% of growth in 2018, according to a new study of Nike’s distribution strategy by Euromonitor. The report provides a case study in how big global brands and retailers must navigate in the future.

Such dramatic strategies are not for the faint of heart, but absolutely critical to manage disruption in established businesses caused by demographic, geographic and psychographic shifts in the market.

Empowered consumers won’t wait for brands to catch up. Nor will product marketers wait for their retail partners either. Nike has decided to proactively get out in front of those changes and be there whenever and wherever the customer wants to engage with them.

Here is how Nike is doing it.

Go with retail winners, forget the losers

While Nike is placing a heavy emphasis on direct-to-consumer channels through Nike.com and its own retail stores, wholesale distribution still accounts for the lion’s share of sales, some 70% in 2018, though that share has decreased from 82% in 2014.

To amplify sales through its wholesale distribution channels, Nike has identified only 40 retail partners, both online ecommerce players and physical retailers, that offer the best access to the customers it targets and who can deliver best-practices customer experience for the brand.

Nike calls these best-of-the-best partners “differentiated retailers,” as distinguished from undifferentiated retailers that don’t offer quality service or powerful storytelling in keeping with Nike’s expectations.

These undifferentiated retailers Trevor Edwards, president of Nike brand, describes as “mediocre,” and destined not to survive. However, over 60% of its North American business today comes through undifferentiated retailers. Implementing the NCX program will require a serious edit. The goal is to generate 80% of its North American wholesale business through differentiated retailers in 2023, up from 40% in 2017.

Nike’s fine-tuned list of40 differentiated partners, including online as well as physical retailers, will gain access to the most popular products, including exclusives and more marketing dollars to draw shoppers away from undifferentiated retailers.

While the company has not revealed the full list of its favored differentiated retail partners, the Euromonitor report reveals that Foot Locker, Nordstrom, Dick’s Sporting Goods, JD Sports and Finish Line made the cut in physical retail and that Amazon, Zalando, Tmall, Stitch Fix, Asos, Zozo, Flipart and Jet.com made it digitally.

With 30,000 retailers in its network globally and some 110,000 points of distribution, many undifferentiated retailers will get short shrift from Nike in the future, if they aren’t cut entirely.

While Nike does not explicitly state what criteria it used to define differentiated partners, Nordstrom and Foot Locker provide examples of the differentiation it is looking for. Nordstrom has an shop-in-shop agreement where Nike operates its own space and provides the sales staff. Foot Locker has similar separate spaces and company-trained “Nike Experts” on staff. For its pure-play digital partners, Nike expects them to share data.

Nike Direct puts its best foot forward

A new app to power both in-store and Nike.com sales and new store formats are the hallmarks of Nike’s direct channels to the consumer.

The Nike App enhances the shopper experience and gives access to the NikePlus rewards program. The loyalty program offers members exclusive products, of which about one-third of its assortment is online and member exclusives, access to Nike experts, personalized workouts, priority access to events, free shipping and 30-day wear tests. Awards are accrued based on spending and fitness app usage which unlocks even more exclusives, more services, personalized discounts and access to VIP experiences.

While NikePlus members get the awards, Nike gets the customer data which allows the company to drill down on their shopping habits and product preferences in order to personalize their future engagements with the brand.

Over 100 million Nike customers have signed on so far and the company aims to triple that number by 2023. The app is also activated when customers connect online or in its own stores or with itsdifferentiated retail partners. To date, NikePlus members spend three-times more in the app than non-members on Nike.com.

With some 7,000 branded stores operating today, Nike is exploring new physical store formats from the mammoth six-story New York flagship store on Fifth Avenue and 52nd Street to a smaller format Nike Live store on Melrose in Los Angeles that opened July 2018 and the new House of Innovation in Shanghai which opened in October 2018.

The Nike Live store model puts all its customer data to work to streamline the product assortment in “fast-fashion” style by swapping out 15% of apparel and 25% of footwear every two weeks, instead of the traditional 30-45 days.

The House of Innovation is a new experiential retail concept that will be customized to each planned city with a Nike Arena for rotating product and installation displays and a Center Court area to host presentations and workshops.

What other brands and retailers can learn from Nike’s example

As important as the study of Nike’s new distribution strategy is to sportswear marketers and retailers, it demonstrates the ways that other brands and retailers need to think about retail distribution in this internet-disrupted age.

For the sportswear industry, Michelle Grant, head of retailing at Euromonitor, says, “With this new distribution strategy, Nike is opening a new front for competition in sportswear: the best retail experience. Its competitors will have to catch up to meet the standards that Nike is setting when it comes to physical and digital retail through its own and partner channels.”

But for multi-brand retailers the learning is even more compelling. It is a “warning to lackluster retailers that brands, like customers, will leave,” the report states. “The important lesson for retailers is that they must move fast to innovate and differentiate themselves to offer value to both shoppers and to the power brands that may pull back from their stores.”

The Nike strategy is the writing on the wall for retailers large and small that have not figured out how to be collaborative and productive partners for the brands they carry. Its not enough to just show the brands, retailers have to sell the brands too.

If retailers don’t step up to provide superior customer experiences, quality service and storytelling for the brands they carry, then the companies and their customers will walk, jog or run away, like Nike is doing to its currently undifferentiated retailers.

Note: Since publication of the Euromonitor report, a pilot test with Farfetch has been discontinued.