Nike touts big DTC, data-intensive offerings in upbeat second-quarter results

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Two years ago, shortly after the start of the coronavirus pandemic, Nike doubled down on what it called its “Consumer Direct Offense”, now more cautiously called “Consumer Direct Acceleration”.

Nike was not just riding out a storm, but was taking advantage of the global upheaval in consumer shopping habits caused by COVID-19 as an opportunity to rethink its business “by expanding our digital advantage, reshaping the market of the future and creating deeper and more direct relationships with consumers”. Chief Financial Officer Matthew Friend told investors during Nike’s earnings report on Monday.

The company has now brought together its main e-commerce site, Nike.com, under one data-driven roof, as well as its direct-to-consumer retail presence and Nike+, its product personalization and loyalty program.

But Nike had already begun a major transformation centered around e-commerce and DTC channels.


In 2018, Nike bought Zodiac Metrics, an advertising analytics startup from UPenn Wharton that focuses on lifetime customer ratings. It then acquired Celect, which connects local online demand and inventory management services. These two acquisitions grew into a data science team that was integrated into all of Nike’s digital and DTC businesses.

The following year, in 2019, Nike dropped a primary seller agreement with Amazon. He no longer sells Nike products on Amazon at all – Partly because Amazon has failed to deliver on its promise to remove knockoffs and shoddy Nike stockists from the marketplace.

But Amazon has also disintermediated Nike from its customers. At the heart of Nike’s business overhaul is its goal of getting as close to customers as possible.

“A more digitally connected Nike is a more valuable Nike,” Friend said. “Increased digital engagement translates to more repeat buyers, higher purchase frequency, and increased average order value, which ultimately drives higher lifetime value through membership.”

And Amazon wasn’t the only retail partner delisted by Nike. Over the past year, Nike has stopped selling to DSW, Foot Locker and Urban Outfitters.

However, Nike did not leave all of its business partners. But those who remain earn their place by granting certain rights over customer data. Dick’s Sporting Goods, for example, is now a major strategic wholesaler of Nike. Dick’s has agreed to a loyalty program partnership with Nike so that customers on the Dick’s site or app who research or purchase Nike products are now tracked by Nike and can be integrated directly into Nike+.

“Increasingly, we are moving beyond inventory to a broader approach of knowing and serving our consumers as Nike members, especially when shopping through our retail partners,” said Friend told investors. “And with evident success so far in knowing our common members, our strategy has extended [last quarter] to serve our individually shared members through connected data. »

Nike wants to be the primary seller when people buy Nike, no matter where they are. But there’s a big upside to bringing buyers into your own properties.

Nike’s gross profit margins fell 80 basis points in the last quarter compared to the second quarter of 2021, Friend said, which doesn’t look great. With the mix shifting towards digital sales, margins are expected to be higher than wholesale.

The DTC and e-commerce activities, however, improved their profit margins by 100 basis points.

Margin pressure came from the supply chain. Profit margin gains from DTC sales were offset by a 100 basis point headwind from higher ocean freight costs.

Friend said the costs of shipping a single container from China had increased fivefold since just before the pandemic.

Supply chain challenges and an economic downturn only make it more important for Nike to focus on DTC sales.

Nike’s marketing this year – which is up 6% from 2021 and expected to increase further this year – will focus on driving customers to its app ecosystem, as these are the most interesting buyers for the company.

“We don’t take lightly consumers’ choice to place us in the most prized real estate that exists today: their phone’s home screen,” said the President and CEO. of Nike, John Donahoe. “No other brand occupies this space globally like Nike and it remains one of our greatest competitive advantages.”

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