Cut out thousands of online dealers! Nike (NKE.US) launched a “major channel overhaul” in China, betting heavily on DTC's direct management to reshape pricing power

The Zhitong Finance App learned that Nike (NKE.US) said on Tuesday that as part of the sneaker giant's plan to clean up the increasingly chaotic digital market and push the region back to growth, the company plans to cut supplies to thousands of online dealers in China starting in January.

Starting next year, Nike's online business in China will mainly shift to the retailer's official website and app, as well as its official flagship stores operating on Tmall, JD, and Douyin.

Currently, in addition to purchasing Nike products through all of the above channels, consumers can also purchase through Nike's local physical partners and tens of thousands of other online stores operated by a second-tier dealer network. Although the huge digital network has brought about widespread consumer access to Nike products, it has also caused inconsistencies in the brand image and pricing experience, and hindered the company's efforts to reverse the declining sales trend in the region.

Katherine Sparks, Nike's new vice president and general manager for Greater China, wrote in a letter, “These new flagship stores will be Nike's single, advanced target location within these ecosystems, with a sharper product presentation, stronger brand narrative, and a more connected consumer journey.” “This is to reinforce the platform where consumers begin and end their shopping journeys and ensure that these experiences are intuitive, consistent, and uniquely Nike.”

“It's not about reducing access channels, but about reducing fragmentation and enhancing the consumer journey,” she said. “Brands become stronger when experiences are consistent.”

Nike's plan to reduce the size of its online business aims to create a better and more consistent experience for consumers and take back control of online pricing. However, outsiders are also concerned that this may lead to a substantial decline in revenue in the region, where the market has shrunk by about 30% over the past five years.

News about Nike's plans to cut off online dealer cooperation first came to light in a report in local Chinese media at the end of last month. The news triggered a report by France's BNP Paribas stock analyst Laurent Wasilescu, who wrote that the move was reminiscent of Nike's unfortunate decision to cut off wholesaler cooperation in North America. It was this decision that led to Nike's loss of market dominance in the region and a sharp decline in sales and gross margin.

“This strategy freed up space for competitors, and Nike ultimately lost the game. We believe the same situation could happen if the same approach were taken in China,” Vasilescu wrote last month, adding that BNP Paribas will continue to maintain the company's “underperforming” rating. “We think Nike is not facing a dealer problem, but a product issue, and this applies to other markets as well.”

The change is also expected to hurt Nike's local physical partners, which have expanded their online business in recent years to expand their own business.

Despite this, Nike's largest dealer in mainland China, Taobo expressed support for the company's decision.

In a statement, Taobo said, “Based on the principles of mutual benefit and common growth, Taobo and Nike have been cooperating for 27 years.” “This adjustment will put some short-term pressure on our business. But we are convinced that in the medium to long term, this direction will help drive a healthier, more orderly, and more sustainable retail ecosystem in China, while further enhancing the consumer experience and product appeal.”

“Looking forward to the future, we will continue to work closely with Nike to take advantage of our advantages in offline retail operations, local consumer services, and deep market cultivation across the city level.” “Through new-concept sports experience stores and high-quality physical retail experiences, we will bring richer and more meaningful sports experiences to Chinese consumers.”