Nike to cut off thousands of online distributors in China
Nike The company said Tuesday it plans to cut thousands of online distributors in China starting in January as the sneaker giant tries to clean up what has become a cluttered digital marketplace and return the region to growth.
Starting next year, Nike’s online footprint will shift primarily to the retailer’s official website and app and the storefronts it operates on Tmall. JD.com and Douyin, one of China’s largest online marketplaces and social platforms.
Currently, consumers can shop Nike through all of these channels, as well as thousands of online stores supported by Nike’s network of physical partners and secondary distributors in the region. While the vast digital network has led to widespread consumer access to Nike products, it has also created an inconsistent branding and pricing experience, hampering the company’s efforts to reverse a sales decline in the region.
“These new flagships will serve as the single supreme destination for Nike within these ecosystems, with clearer product presentation, stronger storytelling and more connected consumer journeys,” Cathy Sparks, Nike’s new vice president and general manager of Greater China, wrote in a letter. “This is about empowering the platforms where consumers already start and finish their shopping journeys, and ensuring those experiences are direct, consistent and unmistakably Nike.”
“This isn’t about reducing access. This is about reducing fragmentation and strengthening the consumer journey,” he said. “When the experience is consistent, the brand becomes stronger.”
Nike has made clear that it has not completely severed ties with organizations that operate online storefronts that are set to go dark. Instead, it works with them to reduce their online footprint while strengthening their physical presence.
Nike’s plans to reduce its online footprint are designed to create a better, more consistent experience for the consumer and allow it to take back control of online pricing. But there are also concerns that this could lead to a significant drop in income in a region that has already shrunk by around 30% in the last five years.
News of Nike’s plans to cut online distributors first came to light in a report in a local Chinese media outlet late last month. This prompted a note from BNP Paribas equity analyst Laurent Vasilescu, who wrote that the move was reminiscent of Nike’s ill-fated decision to cut wholesalers in North America, which contributed to the collapse of its market dominance in the region and sharp declines in sales and margins.
“This strategy opened up shelf space to competitors, and the strategy ended badly for Nike. We believe the same thing could happen if it follows the same approach in China,” Vasilescu said last month. Vasilescu wrote, adding that BNP continues to maintain a low performance rating for the company. “We don’t think Nike has a distributor issue, but rather a product issue that applies in other markets as well.”
The change is also expected to hurt Nike’s brick-and-mortar partners in the region, who have expanded their online presence in recent years to grow their own businesses.
Still, Topsports, Nike’s largest distributor in mainland China, said it supported the company’s decision.
“Topsports has been working with Nike for 27 years based on the principle of mutual benefit and shared growth,” Topsports CEO Yu Wu said in a statement. he said. “This regulation will bring short-term pressure to our business. However, in the medium and long term, we firmly believe that this direction will help support a healthier, more orderly and more sustainable retail ecosystem in China, while further improving consumer experience and product appeal.”
“Looking forward, we will continue to work closely with Nike, leveraging our strengths in offline retail operations, local consumer services and deep market development in urban layers,” Wu said. “We will deliver richer and more meaningful sports experiences to Chinese consumers through new concept sports stores and high-quality physical retail experiences.”
