UNTIL DEATH US DO PART

Relationships are at the heart of successful marketing campaigns. The nature of such relationships differs, depending on the expectations and demands of both parties. If we think of a continuum, at one end we experience transactional relationships. These are characterised by a lack of commitment and loyalty. Costs typically drive the decision-making. At the other end, we experience strategic partnerships between the two parties. Trust, cooperation and collaboration drive such relationships.

Nike’s relationships with its independent sports retailers, who make up a figure of around 30,000 worldwide, brought me back to some of the theories and concepts behind relationship marketing. It provides us with a “ready-made” case study of the challenges of managing relationships and managing change.

Nike and Adidas are the two dominant sports brand across a number of categories in the sports clothing, footwear and accessories sectors.

In the case of Nike, it sells through wholesalers, its main channel. However, from 2012 to 2018, its reliance on this channel declined from 83% of total global sales to around 68 %. It sells through over 30,000 independent retailers. Since 2018, it has decided to reduce its dependence on such retailers. We examine this in more detail in later paragraphs.

When you think about it, no manufacturer wants to use intermediaries to sell its product. For one thing, they take margin out of the total price of the product. For another, they are in many cases independent, and do not sell on an exclusive basis. This can lead to a conflict of interests, unless they are sufficiently motivated to do so. However, the sheer scale of the challenge of getting product to the consumer in many cases makes it impractical to eliminate intermediaries.

Since mid-2017, Nike pursued a policy of moving more aggressively to a policy of selling direct to the consumer (DTC). Senior executives refer to this policy as the “Consumer Direct Offense” strategy.

This strategy focuses on main cities in countries, greater focus on innovation and an emphasis on the social media and digital platforms.

Pursuing such a strategy inevitably poses problems for the small independent sports retailers. Nike, and to a lesser extent, Adidas, have introduced policies which appear to threaten the existence of many small retailers. They have introduced targets by way of a minimum annual purchase obligation. Failure to meet such targets has led in many cases, to the termination of agreements. Ace Sports, a London-based sports retailer, has done business with Nike for over thirty years. In 2019, it failed to achieve its £8,600 minimum purchase obligation. It was given two days’ notice of its contract being cancelled.

In addition to such practices, Nike restricted access to its innovative products and delayed delivery of items.

Harking back to the different approaches to managing relationships, such tactics ensure that Nike perceives such relationships as being transactional in nature. Using more pragmatic language, some people have accused them of acting like the typical schoolyard bully.

Yet, you can counter-argue that Nike is pursuing a strategy that fits in with the desire to generate more margin and profitability by selling direct to the customer. In the sports sector that is not performing as strongly as the latter part of the past decade, Nike generated profits of $18, billion in 2019. This represented an increase of around 9.5%.

Lest we think that it is only small independent retailers that are suffering, multiple chain sports retailers also experience difficulties.

Sports Direct, one of the largest sports retailing operators, encounters major problems with both Nike and Adidas.

Over the years, it has specialised in acquiring sports brands, generating useful margin and subsequently lowering prices on Nike and Adidas products. Typically, its stores reflect a Spartan atmosphere; more akin to a discount store. This does not appeal to Nike in particular, who emphasises the need for a positive and strong customer experience. They do not trust him to represent the Nike brand, as they would like. Therefore, Sports Direct fails to gain access to the “desirable” and innovative brands from the duopoly of Nike and Adidas. In the UK for instance, both brands generate around fifty-five per cent of sales of trainers.

If you look at the brand values of Nike, you will see that it places great emphasis at being in the forefront of design and the use of innovative technology. While it still wants to do business with a selective number of independent multi-store retailers, it applies stringent standards.

Sports Direct, via its owner Mike Ashley, has re-designed some of its stores to meet such standards. By contrast, one its main competitors, JD Sports gains access to a wider and more attractive range of Nike and Adidas merchandise. On our continuum of relationships, JD Sports is at the “strategic partner”

Nike and Adidas have been accused of retaining control over their key, innovative products, thus ensuring that they generate the appropriate margins instead of the independent retailers.

Ashley has referred this perceived favouritism to the Competition Authority.

Competition legislators will only intervene if they perceive that there I an agreement between two or more parties that effectively restricts healthy competition. They can also take action if they perceive a supplier that is in a position of market dominance (usually if it holds somewhere between 40 to 50 per cent of total market share), and is abusing its position. So far, in the context of the UK market, it has not intervened.

Nike is clearly moving inexorably to a DTC sales and marketing approach. It applies a selective approach to the use of independent sports retailers.

It increasingly focuses on its own retail stores, particularly flagship ones in key cities, and its own Nike Direct online channel.

This generates an environment where it has much greater control over its key merchandise and, by implication, its margins.

The strategy however creates conflict within the independent supplier network. This leads to problems such as a loss of morale, or in the worst-case scenario, closures. After all most people who visit such retail stores look for either Nike or Adidas brands. If popular brands such as the Vaporfly running shoe are not available, they will go directly to Nike.

Adidas has adopted a less aggressive move in terms of terminating contracts with its retailers. Some of the latter have demanded a face-to-face meeting with its representatives. If they demonstrate that they are willing to invest in their stores and allocate more prominent positions and presentations of the Adidas brands, then they are more likely to get their contracts renewed.

The food sector in general and the relationships between supermarkets and their supply base has provided much debate, analysis and discussion in the academic and business media.

This perusal of Nike’s approach to its relationships with independent retailers also indicates the perennial challenge of managing change. In this case, the shift away from extensively using such intermediaries and adopting a direct to consumer model.

Let’s see what happens over the next year or so.

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