Nike 5 eCommerce Mistakes – Nike is in a deep crisis, caused by strategic mistakes in recent years. Several reasons, including the much-too-hasty entry into direct-to-consumer (DTC) sales while simultaneously turning away from the multi-tiered distribution model (wholesale and retail, turning away from platforms like Amazon), as well as the neglect of innovation, have led to massive revenue losses and a weakened brand image.
On June 28, 2024, Nike released its Q2 results for 2024.
In one day, the company lost 25 billion in market capitalization (70 billion in nine months). 130 million shares were traded (13 times more than average). The lowest share price since 2018, -32% since the beginning of 2024. It wasn’t just any day on Wall Street, but a day of judgment for Nike.
The resignation of CEO John Donahoe and the appointment of Nike veteran Elliott Hill signal a possible turning point.
The 5 worst mistakes in Nike’s direct-to-consumer (DTC) strategy (Nike 5 ecommerce mistakes)
Nike has relied heavily on direct sales (direct-to-consumer, DTC) in recent years, drastically reducing its dependence on wholesale. However, this approach led to serious problems, which were reflected in massive losses in sales and market share. Let’s go into a little more detail:
Strategic error no. 1:
radically sidelining and neglecting wholesalers and retailers
Nike deliberately cut ties with many wholesale partners in order to push ahead with its own distribution. The effects:
- Nike lost the broad market presence it had built up over decades.
- Retailers such as Foot Locker, JD Sports or small sports shops were forced to include alternative brands (e.g. Hoka, On, New Balance) in their product range.
- Consumers who no longer found Nike in their usual shops and were not brand fans simply switched to other brands.
Consequence:
competitors gained market share while Nike lost its once unchallenged market leadership in important categories such as running, basketball and lifestyle sneakers.
Lesson learned:
You don’t just cut ties with retailers that have grown over time without having a high degree of stable customer relationships yourself.
Strategic mistake #2:
Overreliance on digital
Or, to put it another way, a haphazard digital transformation. Nike focused too much on digital sales via Nike.com and the SNKRS app, while its brick-and-mortar retail business fell further and further behind. The problems with Nike’s five e-commerce mistakes are:
- Digital sales plummeted by 20% despite billions of dollars in investments (a large portion of the annual marketing budget of $4.3 billion in performance marketing and digital ads), even though Nike saw the greatest growth potential here.
- Pure online customers are extremely price sensitive because online competition has been fought for years via discount campaigns (Black Friday, etc.).
- This – in combination with the almost abrupt collapse of retail sales (see reason 3) – forced Nike to lower its prices more than planned and to reduce its margins.
- Technical issues and frustrations with the SNKRS app annoyed customers because they often came away empty-handed.
Consequence:
customers turned to alternative brands such as New Balance or adidas, which were still available in traditional retail stores.
Lesson learned:
The marketing mix for such popular brands ALWAYS consists of online and offline channels, as well as a coordinated multi-channel mix.
Strategic mistake no. 3:
Misjudging brand loyalty and customer retention
Nike believed that loyal customers would automatically switch to the DTC channel:
- Many consumers bought Nike products from brick-and-mortar stores out of convenience, not because they wanted to shop directly with Nike.
- Wholesalers and retailers are often important advisors to customers – their elimination reduced the willingness to buy Nike products.
- The SNKRS app and exclusive drops led to frustration rather than excitement, as many customers came away empty-handed.
Consequence:
Nike not only lost occasional buyers, but also long-time fans who felt alienated from the brand.
Learning:
Building stable customer relationships takes years and a lot of care, for example through clever email marketing and intensive community management. Even a strong brand like Nike felt this.
A first conclusion so far:
the leap into the purely digital business while simultaneously foregoing sales from multi-level distribution and without sufficient customer relationships was almost “economic suicide”.
Two further aspects come into play.
Strategic error no. 4:
Lack of product innovation – focus on mass products
Instead of impressing with innovative products, Nike relied too heavily on proven models such as the Air Force 1, Air Jordan 1 and Dunk.
- But customers were demanding new, innovative designs.
- Retro models were offered too often and in too many variants, which diluted their exclusive character.
- At the same time, brands like New Balance with the 550 or adidas with the Samba attracted customers looking for variety.
Consequence:
Nike lost its innovative edge and appeared old-fashioned and interchangeable compared to dynamic brands like Hoka or Lululemon.
Learning:
Trend or fashion brands need at least 25% or more of their sales to come from new products or relaunches. Otherwise, they lack the attractiveness or desirability to inspire and retain customers emotionally.
Strategic mistake no. 5:
serious problems with inventories (plus $3.5 billion) and supply chains
According to quarterly reports, inventories amounted to $6.5 billion on May 31, 2021. On May 31, 2022, it was $8.5 billion. On November 30, 2022, it was $10 billion. Nike no longer knew what to produce, when to produce it, and where to deliver it.
Nike lacked the experience to efficiently manage the transition to the DTC model.
The consequences:
- overproduction and huge inventories due to inadequate digital sales forecasts (Nike’s “Flywheel” model).
- Nike started to offer excessive discounts to get rid of excess products, which had a negative impact on brand perception and margins.
- Slow delivery times and logistics problems further worsened the customer experience.
Consequence:
Nike had to offer further massive discounts, causing the brand to lose its premium character.
Learning:
warehousing and logistics are a success factor in retail and e-commerce. With clever management, it could have been 1.2 billion less instead of 3.5 billion (based on 6.5 billion).
Another lesson: PUMA also made this mistake decades ago. Rise through premium and bottleneck strategy. But with the success, they went back to mass too quickly. And thus they became a junk brand or a shelf warmer.
The result of the “Nike 5 eCommerce Mistakes” was the following: Loss of sales and market share
Nike reported a 10% decline in sales in the last quarter, with a dramatic 20% decline in digital business. Particularly affected were:
- Europe (-12%), North America (-11%), China (-3%)
- shoes (-10%), clothing (-9%)
To summarize:
Nike’s DTC strategy was not bad in itself, but it was poorly implemented. The mistakes were
- a complete overestimation of customer brand loyalty, while Nike’s own stable customer relationships were far too weak
- Overestimating the willingness of buyers to switch from retail platforms and specialist retailers to their own POS or web shop.
- Overestimating digital sales opportunities despite massive investments in digital advertising while underestimating the role of retailers.
- Lack of analysis of brand loyalty, as customers often seek easier purchasing options and do not perceive Nike.com as their preferred shop.
- Neglect of product innovations, which are absolutely essential in the fashion market, causing the brand to quickly lose its appeal.
- Nike was overwhelmed by production planning and as a result had additional serious logistics and storage problems.
- Nike has thus maneuvered itself into a crisis through strategic miscalculations.
Recommendations that presumably apply not only to NIKE.
- Approx. 25% or more innovation
- Stronger partnerships with wholesalers and retailers
- Effective marketing mix of online and offline marketing instead of a pure focus on performance advertising
- B Better production and logistics planning, including sophisticated forecasting models through better customer insights and campaign management
- Return to inspiring brand campaigns
- Brand management is a complex, multi-channel task. CRM and e-mail marketing can provide important services here.
- Building stable customer relationships and intensive community management – partly in cooperation with wholesalers and retailers.
- Doing one thing without neglecting the other. It sounds banal, but it’s like juggling with five or more balls.
What are the prospects for the future? Despite the crisis, Nike remains a heavyweight:
- $5.7 billion EBIT per year, no debt.
- High brand awareness and global presence.
Dependence on direct sales, a lack of innovation and a weak market strategy have led to losses in sales, market share and brand image.
A change of leadership as a turning point?
John Donahoe’s resignation after massive pressure from the financial world was well received by investors (stock rose 10%). His successor, Elliott Hill, is expected to lead Nike back to its roots.
The CEO change could herald a realignment, but the road back to the top requires courage, investment and a radical change in strategy.
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