Nike cautiously partners with Amazon, but keeps DTC digital focus on track

Nike’s digital strategy just passed two important milestones. The first is a fiscal one - with nike.com and the firm’s apps now accounting for more than $2 billion in revenues, nearly double the amount from two years ago.

The second is effectively a concession to market forces in the form of a new relationship with Amazon. It's a case of Nike bowing to the inevitable after recognising that more and more third-party sellers have been selling Nike products on Amazon. As this in turn slackens the firm’s grip on its own distribution and pricing policies, it’s a case of ‘if we can’t beat ‘em, join ‘em’.

It’s not the first time that Nike has partnered, of course, as CEO Mark Parker is quick to point out:

With Nordstrom, a destination for women, we’re combining digital and physical experiences with the dedicated Nike and Nordstrom page on Nordstrom’s app. Over the past five years with Zalando in Europe, we’ve had great success growing our business to an elevated presentation and service and in China, we have a premium experience on the world’s largest platform, TMall, where Nike is the biggest sports brand reaching an incredible 500 million users.

But with all retailers struggling to find ways to compete or to fend off Amazon’s disruptive potential in their particular sectors, Nike’s pragmatic co-existence philosophy is a significant extension of its digital thinking, albeit one that’s clearly still relatively nascent. Parker says:

In the US, we’re executing a new pilot with Amazon with a limited Nike product assortment. As we do with all of our partners, we’re looking for ways to improve the Nike consumer experience on Amazon by elevating the way the brand is presented and increasing the quality of product storytelling. We’re in the early stages but we really look forward to evaluating the results of the pilot.

He adds:

Our overall goal is to elevate the consumer experience by better segmenting and differentiating all of our channels. Just as a backdrop, that’s foundational for Nike. Every partner we have ultimately requires a specific approach and in other parts of the world, we’re executing with e-commerce platforms like TMall and Zalando. We’ve been doing that for over the past five years.

If that sounds like a less-than-evangelical sales pitch for this new iniative, that’s probably deliberate. In fact, the message from Parker seems to be to contain expectations and almost dampen down excitement, emphasising the limited nature of what’s involved here:

We’re running a pilot that begins with a small product assortment across footwear, Apparel and accessories. What’s most important to us is that we have the opportunity to elevate how the Nike brand is presented on the Amazon platform, and that includes the quality of the product information, and of course, providing a simple experience for the consumer…ultimately the convenience that Amazon is well known for with Nike’s brand and product power.

Doing its own thing

Parker’s also keen to remind the world that NIKE does have its own digital pushes underway and isn’t just piggy-backing on Amazon:

Our focus is going to be pushing for the shift to direct where we have elevated experiences and that includes some of the app-based commerce that we’re working on. Some of the biggest growth that we’re seeing is in dot com and some of the biggest growth on dot com is really through mobile and the biggest growth on mobile is on app-based commerce, so [there are] incredibly exciting things happening there.

It’s a message that’s picked up Nike Brand President Trevor Edwards, who says:

The Amazon piece is just one element of how we serve the broader market by making sure that we are serving consumers wherever they choose to shop and making sure that that’s through our doors, through our wholesale partners, as well as through platforms. So we’re really looking to make sure we serve the consumer in the appropriate way.

The latest initiative here is Consumer Direct Offense, launched last month to “better serve the consumer personally, at scale”. According to Nike’s own descriptor:

Leveraging the power of digital, Nike will drive growth — by accelerating innovation and product creation, moving even closer to the consumer through Key Cities, and deepening one-to-one connections…In the new alignment, the company will drive growth by deeply serving consumers in 12 key cities, across 10 key countries: New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan.

The new initiative has entailed some corporate reorganising with the creation of a new Nike Direct organization, led by Heidi O’Neill, President of Nike Direct, and Adam Sussman, Chief Digital Officer. This organization pulls together Nike.com, Direct-to-Consumer (DTC) retail, and Nike+ digital products under one umbrella. Edwards explains:

Now we have complete teams from product to digital to creative teams to membership teams all based in the [same] city and this is a big shift…The other part that we did with the reorganization is we really put categories, design, products and merchandise all together as a full unit and their job is to ensure that we create the most innovative products and concepts that gets driven all the way through the market and then also we combined DTC with our digital organization.

So now they’re one unit and so we have really one way that the consumer wants to come through the journey of a direct connection with the brand. We’re able to now serve them both physically and digitally.

Getting ever closer to customers is the main objective, he adds:

We have a uniquely powerful connection with our consumers. They want to be a part of our brands. They want a relationship and that means we think of membership differently. It’s providing distinctive access and improving the ways we serve them. With these deep connections, it’s no surprise that time and again our consumers choose us.

[Our] results prove this vision with members on our apps spending nearly triple what others spend on nike.com. Through Consumer Direct, we are elevating our concept of membership to take full advantage of this commercial opportunity. We connect consumers to the product they want through exclusive offerings and tailored recommendations.

Edwards cites a specific example of how this works in practice:

With our mobile apps, we’re disrupting the sneaker shopping experience. This quarter with sneakers stash, we unlocked access to exclusive products using geolocation and with Shock Drop we offered unannounced releases that surprised the sneaker community. The sneaker app was only available in North America and is now expanding into Europe, Greater China and Japan.

This work is strengthened by our key cities strategy as we move our digital teams into cities to offer distinct experiences and connections. One exciting example is a new interactive experience through sneakers in New York that makes certain styles exclusively available to members who unlock them through the app’s new augmented reality features.

He concludes:

Clearly, we are boosting our ability to create new ways to serve consumers, making the entire Nike+ ecosystem available to consumers where they already live. This is why we are so excited about the Consumer Direct Offense. It will take these elements and all these great concepts and scale them to make the most of our connections with consumers everywhere.

My take

Direct-to-consumer remains a big play for Nike, prediciting that such sales will grow by almost 2.5x over the next five years, from $6.6 billion in fiscal 2015 to $16 billion by fiscal 2020. To achieve those goals, the firm needs a compelling digital story of its own, even if Wall Street got most excited by the Amazon pilot when the firm released its quarterly numbers recently. In that context, there’s a lot riding on Consumer Direct Offense being a success. And that in itself carries its own price tag in the form of plans to cut about 1,400 jobs and reduce the number of product lines Nike sells by about 25 percent. The race is on.