In a move to regain customer loyalty in China, American athletic wear giant, Nike, is taking control of its online product distribution. The company aims to drive consumers to official Nike channels and implement full-price sales as it faces increasing competition from domestic brands.
Nike’s new strategy includes limiting online sales by wholesale distributors, according to Cathy Sparks, VP and GM of Greater China. From January, major sportswear retailers in China will cease online sales of Nike’s clothing and footwear, focusing instead on in-store transactions. Online, Nike merchandise will be available through new Nike-branded digital storefronts on popular Chinese e-commerce platforms such as Tmall, JD.com, and Douyin, as well as Nike’s own website and app.
Sparks, who has spent 25 years at the company and was appointed to oversee Chinese operations earlier this year, stated, “Our marketplace has become so fragmented and cluttered.” She added that consumers desire a premium brand experience that is reliable and seamlessly integrates digital and physical aspects.
Recovery Challenges in China
China, the third largest market for Nike, presents a significant area of concern. As the company seeks to recover growth, it’s implementing a comprehensive strategy that includes this shift towards e-commerce.
The company reported last month that sales in Greater China declined by 17% on a constant-currency basis in the fourth quarter. This drop is even more significant than the 10% decrease seen in the previous quarter. Nike’s market share has been impacted by the rise of local competitors Anta and Li Ning, as well as international brands like On and Hoka.
Investors are keenly observing Nike’s recovery strategy led by CEO Elliott Hill. Despite facing substantial challenges, Hill, who has been at the company’s helm for nearly two years, is determined to refocus on sports, rebuild wholesale relationships in North America, and introduce new products.
In line with these changes, most of Nike’s 16 store partners in China, who manage thousands of Nike stores, will halt their online sales, a Nike spokesperson confirmed.
Topsports, a leading Chinese sportswear retailer that makes 22% of its revenue from online sales of Nike products, is among the distributors expected to be impacted. The company has warned of a “significant” short-term negative effect but remains committed to collaborating closely with Nike on offline sales arrangements.
Nike’s decision to alter its e-commerce strategy was criticized by BNP Paribas senior analyst Laurent Vasilescu, who called it a “strategic misstep” that could benefit competitors.
Furthermore, Sparks highlighted the need for Nike to launch products that resonate more with Chinese consumers. The company has appointed a vice president of local product creation in Greater China to address this need.
Questions & Answers
What is Nike’s strategy to regain customer loyalty in China?
In an attempt to regain customer loyalty, Nike is controlling its online distribution by driving consumers to official Nike platforms and implementing full-price sales, despite facing competition from domestic brands.
How is Nike’s market performance in China?
Nike reported a 17% decline in sales in Greater China on a constant-currency basis during the fourth quarter, showing a larger decrease than the 10% drop in the previous quarter.
Why does Laurent Vasilescu, BNP Paribas senior analyst, consider Nike’s e-commerce strategy changes a strategic misstep?
Vasilescu believes that Nike’s problem is not with distribution in China and elsewhere, but with its product. He suggests that the changes in e-commerce strategy could give opportunities to the company’s competitors.
