Nike’s Betting Big on DTC, But It’ll Be a ‘Battle,’ Analyst Warns

  • Nike is in the midst of a years-long shift to more direct sales.
  • The company remains bullish on the strategy, recently noting that its margins are improving.
  • But some analysts are wary, with Adrienne Yih from Barclays noting that it exposes Nike to volatility.

At Nike’s annual shareholder meeting two weeks ago, top executives once again defended the company’s ongoing shift to more direct sales.

“Our strategy is working,” CEO John Donahoe said, in a review of the business. Direct sales increased 7% to $4.8 billion in Nike’s most recent quarter as it cuts down its reliance on wholesale.

But yet another analyst is questioning the logic of the company’s drastic pivot to direct sales.

Barclays lead analyst Adrienne Yih thinks the DTC shift will improve the company’s margins and the power of its brand, but she said it exposes Nike, “more to the fickleness of the end consumer, with greater demand volatility and uncertainty than the recurring revenue nature of wholesale partnerships,” she wrote this week. “The DTC world is a battle every day to engage individual consumers.”

She also said Nike’s elimination of wholesale accounts opens up shelf space and opportunities for competitors – including Hoka, On, Adidas, and Under Armour.

Yih downgraded the stock to equal-weight from overweight. SGB ​​Media previously reported on the note.

Simeon Siegel, managing director for equity research at BMO Capital Markets, previously expressed his doubts about Nike’s direct-sales push.

“We see Nike’s size and scale as long-term competitive advantages, but remain wary of perceived margin benefits behind the DTC shift,” he wrote in a note to investors after Nike’s March earnings report.

Meanwhile, some of Nike’s competitors, like Columbia Sportswear, are doubling down on wholesale. The strategy provides more predictability and less risk, given that retail partners own the inventory.

“This company was founded as a wholesale company,” Columbia Sportswear CEO Tim Boyle said at a Thursday investor day. “That’s our heritage. And that will remain the priority for the company.”

For decades, Nike largely operated through wholesale partners, such as department stores, sporting goods retailers, and mom-and-pop sneaker shops. As part of its Consumer Direct Offense strategy, announced in 2017, Nike started closing wholesale accounts and prioritizing its own sales channels, including its apps and website.

In 2020, Nike ramped up the effort, renaming the business plan the Consumer Direct Acceleration, and introducing various new store concepts and e-commerce experiences in order to drive direct and digital sales. Nike’s currently opening more stores and warehouses in order to get products to consumers faster.

At its annual shareholder meeting this month, CFO Matt Friend said the DTC strategy has driven a 2.6 percentage point increase in the company’s gross margin in two years.

“Fundamentally the Consumer Direct Acceleration strategy is changing our financial and operating model resulting in healthy profitable growth for Nike,” he said.

Friend previously told investors in March that Nike has cut 50% of its wholesale accounts since 2018 and its “go-forward plans” include its remaining partners.

“Wholesale partners play an integral role in our future marketplace, first, to authenticate our brands and then to create scale of distribution through a consistent consumer experience across a larger retail footprint,” Friend said.

Nike will next report quarterly earnings on September 29.

Do you work at Nike or have insight to share? Contact the reporter Matthew Kish via the encrypted messaging app Signal (+1-971-319-3830) or email ([email protected]). Check out Insider’s source guide for other tips on sharing information securely.

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