Nike has sent a second wave of ‘Dear John’ letters to South African retailers – as last year, they informed a new group of retailers shortly before the start of the Christmas holiday season that they will no longer be supplying them with product.
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This is in line with Nike’s Consumer Direct Offence announced in June 2017, whereby the brand declared that it was going to concentrate on own retail, online sales direct to consumers and a few chosen retail chains in selected cities around the globe. The announcement especially angered retailers because Nike declared that they would cut off supply to mediocre retailers and only concentrate on differentiated retail partners.
Many of the retailers who have been informed that they will no longer receive new Nike stock after the middle of next year can by no means be labelled mediocre. Some of them represent the biggest accounts of several sports brands.
Understandably, the retailers who have recently been informed that they are no longer on Nike’s Christmas list are apprehensive.
More than a third (36%) of the respondents to our survey fear that once they can no longer offer Nike, customers will walk out of their stores and they will therefore lose sales across the board. But then, 46% believe that their “salespeople are good enough to sell other brands instead of Nike.” Another retailer says “although it is a strong brand, they have restricted us from buying into the top sellers over the years, hence we won’t miss them much.” Several retailers also predicted that not a lot will change as “the demand for Nike has dropped over the years as other brands become more popular.”
They will probably be reassured by the experience of the retailers who lost Nike as a supplier a year ago. None of the respondents who were cut off a year ago say that the brand loss had the disastrous implications for their stores they feared at the time. Almost half (45%) found that their salespeople were good enough to sell other brands to customers instead. Others found that while they lost sales, it was not disastrous as they could make up lost sales by selling other brands.
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We asked Nike SA for confirmation of the rumour that they will eventually only supply two large Southern African retail chains that have stores in most malls and towns – but did not receive a response before publication.
If the rumour proves to be correct, this strategy would be in line with the changes the brand announced two years ago to go all out with their support of selected retailers and cut off supply to others.
Yet, despite leaving a trail of disgruntled retailers worldwide and threatened legal action from Sports Direct in the UK, Nike grew revenue 7% in the first quarter of the 2020 financial year to $10.7-bn. Currency-neutral growth was 10% for the quarter, the brand announced. “Our targeted strategic investments are accelerating Nike’s digital transformation and extending our competitive advantage,” said Andy Campion, Nike VP and CFO at the results presentation.
Revenues for the Nike brand were $10.1-bn, up 10% on a currency-neutral basis across Nike Direct (online and own stores) and wholesale sales. Key growth categories include sportswear and the Jordan brand. Converse revenues grew 8% to $555-m on a currency-neutral basis, mainly driven by double-digit growth in Asia and online, while US sales dropped.
The appointment of IT expert John Donahoe as the new Nike President and CEO to replace Mark Parker in January 2020 will, no doubt, bolster the brand’s digital strategy. Nike created a stir when it announced towards the end of October that Parker, who has been CEO since 2006 and President and CEO since 2016 will step down to become Nike’s Executive Chairman.
While Parker’s resignation took most industry commentators by surprise, there are some who speculate that this can be linked to recent controversies, for example, his close relationship with Nike’s Oregon Project coach, Alberto Salazar, banned for doping. During 2018 the brand made headlines with top executives departing following reports of sexual harassment and a revolt by female employees claiming the workplace was toxic.
Donahoe is currently President and CEO of ServiceNow Inc and chairman of PapPal, but has served on the Nike board for the past five years and previously served as CEO of eBay and CEO and worldwide MD of Bain & Co.