On October 25th, 2017, with Nike’s stock trading at roughly $51, then chief executive, Mark Parker, committed corporate suicide with a new strategy. At least that’s what many believed at the time. Because it was on that day that Parker declared that, out of a roster of more than 30,000 retail partners, the Nike brand would focus its time, attention and financial resources on a mere 40 of them.
The crucial realisation driving the decision was that while Nike was spending billions to pump equity into its brand, sub-optimal customer experiences at the hands of lacklustre merchants were simultaneously undermining the brand’s equity with consumers. While Nike worked to convince its customers that its products were unique, they were all too often being dumped next to competing labels in a manner suggesting anything but premium or exclusive positioning.
The strategy Nike employed for success
Parker knew that if Nike was to succeed it had to partner only with those retailers that had both the means and the desire to create more fulsome Nike buying experiences. Monies and effort previously squandered on counterproductive distribution would be redirected to what Nike was calling its “Consumer Direct Offense” — a radical strategic move away from wholesale distribution announced in June of the same year. This move was part of its “Triple Double Strategy” — doubling its innovation efforts, doubling its speed to market and doubling its direct connection to consumers.
Direct-to-consumer
With that, the brand poured itself into direct-to-consumer sales and in 2017 established a direct-to-consumer sales target of 33% of total volume by 2022. By 2019, three years ahead of plan, Nike achieved that goal. In fact, by that time, Nike’s direct-to-consumer trade was achieving a percentage growth rate more than double that of its wholesale volume.
Whether anyone at Nike was conscious of it or not, the organisation had awakened to a momentous reality: Wholesale was, at its core, a devil’s bargain that often came with commodification, brand dilution and a fracturing of the relationship with the end customer. But it was all part of a dance that virtually all brands engaged in. Not because they liked the music or their dance partners, but out of pure necessity.
By 2017 however, technology and innovation had brought Nike and every other brand full circle, to a place where relationships with individual consumers could indeed be directly formed, nurtured and well-serviced. A time where one pair of running shoes could be made in a bespoke fashion and created at scale. Research also pointed quite clearly in favour of direct selling. A focus on direct-to-consumer sales would — according to credible studies — generate up to 86% more revenue than through their wholesale channels, with better margins. All while retaining brand equity and achieving superior customer satisfaction.
Flipping the funnel
By 2018, Nike began challenging retail paradigms in the physical realm. First up was its House of Innovation 000 in New York City that delivers an uber-personalised service to consumers using technology. Customers across major cities could not only see the unique store experience but become part of it, engage in it, play and be inspired by it. By October of the same year, House of Innovation 001 opened in Shanghai.
Nike’s next innovative incarnation was a concept called Nike Live, a small, local and heavily technologically-integrated retail space targeting the NikePlus family in Los Angeles alone. What few recognised at the time was that the store was designed to be as much a hyper-local data point as it was a distribution point. Data from in-app transactions as well as in-store experiences would be parsed and deciphered into highly localised and curated selections of products, as well as unique and technologically integrated member services, such as curbside pick-up and returns, in-store events and even free products. Most notable however was the fact that the Nike By Melrose store was converting shoppers into Nike Plus members at a pace 6 times greater than any other Nike stores. Even more stunning perhaps was the fact that customers that visited the physical store prior to buying online spent 30% more on average than customers who enjoyed no such physical experience.
What Nike realised was that stores were no longer simply distribution points for products. Brick-and-mortar spaces had indeed become powerful acquisition points for customers. In fact, physical stores had emerged as the most effective means of drawing shoppers into the brand ecosystem. Once acquired, shoppers could operate across any number of channels, all elegantly woven together with branded technology. Physical stores had become a media channel and media had become the store. Where the retail industry had spent centuries using media to drive people to stores, the future would be about using stores to drive people to media. The store was no longer the end of the marketing funnel. It was the beginning. And Nike knew it.
Tech as a tether
Three consistent themes rang through every one of Nike’s technological endeavours: customisation, community and content. Whether through its Nike Running or Training Club, the subtext was always clear. Individuals with unique personal goals and achievements, brought together to form a global community of athletes, fed a never-ending stream of rich, powerful and inspiring stories of human performance.
Put differently, Nike never viewed technology as simply another channel for transactions, but rather a means of creating an ongoing connection with customers, while also connecting its customers to the community. The simple goal being, to create a speciality app that is so good it gets real estate on home screens. With over 100 million Nike+ members, logging billions of hours of workouts, and an in-app average spend that is three times greater than on Nike.com, it’s was clear that the company and its app developers had hit the mark.
The true product
For most brands, the product is very clearly the physical objects they sell: shoes, apparel and accessories. For Nike, it’s something much bigger. It’s about powerful human ideas. When we buy Nike, we’re buying into a cultural story. It may be a story about social justice and equality. It may be a story about perseverance against the odds, as was the theme of their memorable Find Your Greatness campaign. Or it may be a story about the many failures we all (even legends like Michael Jordan) experience en route to victory.
Nike is, above all else, a master storyteller that also happens to make well-designed products; products that become an emblem declaring one’s cultural alignment with the brand. The actual things Nike sells are simply the outward symbolism of that cultural affiliation. Thus, the relationship with a brand like Nike becomes transformational where the relationship with other brands remains purely transactional.
Today, amid the pandemic, Nike’s stock sits at roughly $135 per share, a 150% increase in value since Parker’s momentous announcement in 2017. While Nike could never have predicted the pandemic, the decisions it made almost four years ago have powered its performance through it and provided a roadmap for others.
The lessons for retailers across categories are clear. First, no single customer or level of sales volume is worth sacrificing your brand. The brand is really all you have. Second, direct-to-consumer sales aren’t a departure from the norm but rather a return to the way retail was done for millennia. Wholesale was the aberration.
Moreover, the true (and perhaps only) value of a brand rests in the power of the stories it tells. Lose the story and you lose the brand. Lose the brand and you lose everything. And lastly, while media in every form is now “the store,” physical stores have become the most powerful media channel on earth, real-life stages from which those unique brand stories can be told.
Source: BoF