Nike is Leaning Back Into Wholesale. Some Analysts Say This Was Inevitable.

After years of relentlessly focusing on direct-to-consumer sales, Nike is doubling back down on wholesale, a move some analysts say was bound to happen.

The wholesale emphasis — one of few key areas Nike is looking to improve — marks an interesting reversal from Nike’s DTC-focused strategy (“Consumer Direct Acceleration” CDA) that has been the brand’s North Star since June 2020. This plan involved zeroing in on DTC and digital channels and pulling out of some wholesale doors. In recent months, market watchers become increasingly skeptical of Nike’s progress with this plan, as the Swoosh re-entered or reinvigorated its wholesale partnerships with retailers such as DSWMacy’s and Foot Locker.

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In a Thursday call with investors, Nike president and chief executive officer John Donahoe said that while CDA “has driven growth and direct connections with consumers, it’s been clear that we need to make some important adjustments.”

“While Nike Direct will continue to play a critical role, we must lean in with our wholesale partners to elevate our brand and grow the total marketplace,” Donahoe added.

Nike’s wholesale emphasis has already impacted the footwear retail marketplace. In the last month, several retailers made a it point to call out the Swoosh as one of their top brand partners during earnings calls with analysts. On Thursday, Designer Brands Inc. said Nike sales have almost returned to pre-Covid levels at DSW since the brand was reintroduced to the chain in September. Academy Sports and Outdoors also called out Nike as largest brand in its footwear business.

In the third quarter, Nike’s wholesale revenues were up 3 percent to $6.6 billion. Nike Direct revenues were slightly up to $5.4 billion, with Nike Brand Digital sales down 3 percent on a reported basis and 4 percent on a currency-neutral basis.

According to some analysts, the reversal back to wholesale was a long time coming.

“The decision to sacrifice their wholesale partners to drive greater digital business has created some issues for Nike, particularly on the competitive side,” wrote Wedbush analysts Tom Nikic in a note earlier this week.

These issues, he said, have been especially prevalent in the running category, a “highly wholesale-dependent” category that Nike had largely neglected until Covid. Nike’s absence in this channel has largely contributed to its lagging performance behind fast-growing brands in this category, such as Hoka and On.

Nike’s DTC focus also caused it to miss out on a large swath of shoppers looking to buy shoes in stores after the pandemic.

“Customers want to buy Nike everywhere so reducing wholesale dramatically seems like the wrong move in hindsight,” wrote Jefferies analyst Randal J. Konik in a Thursday note. “Now the company is left trying to figure out what the optimal mix between direct and wholesale should be, and we won’t find that answer until an analyst day later this year.”

Nike chief financial officer Matthew Friend addressed this need to show up in various places in the Thursday call with analysts.

“The consumer is still clearly shopping in multi-brand retail, and we need to elevate our brand and our positioning to be able to serve the consumer and to have the maximum impact from the new innovations that we’re bringing to market,” he said.

Williams Trading analyst Sam Poser has previously maintained that Nike’s direct business alone was not sustainable without wholesale. Now, he says the recent wholesale push represents a desire from Nike to get more product in the marketplace at the potential expense of brand equity, something he sees as a likely possibility.

“While Nike product, in total, is not as in demand as once was, Nike remains the largest athletic brand, and can use its leverage, and is using its leverage, with its wholesale partners,” Poser wrote in a Thursday note. “Using leverage is great if the product sells well, but is brand dilutive if the product does not perform.”

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