Nike is making it clear that its two-year-old “Consumer Direct Offense” initiative, aimed at garnering a bigger percentage of its sales at its own stores, is just getting started, with tech at its center.
The sports gear company took in $11.8 billion from its own stores and website in the last fiscal year, and Nike wants to further reduce its reliance on other retailers, including some struggling department stores and have greater control over how its brand is presented. Some two-thirds of the company’s revenue comes from partner retailers.
That focus was on full display this week when Nike announced it would stop selling any of its merchandise on Amazon.com, ending a two year pilot selling a limited number of goods on the e-tailer.
At its own stores, Nike is raising its tech game. For instance, Nike’s newest locations in the company’s fleet of cutting-edge flagship stores are designed to bringing more sales in-house. Those Nike Live stores in Long Beach, Calif. and Tokyo each leverage Nike’s popular app that consumers use. But the apps also help management with data on local online shopping habits to help them better stock the store shelves, and react faster to consumer demands.
Heidi O’Neill, president of Nike Direct, shoves brick-and-mortar doomsday predictions aside, saying stores are crucial in today’s retail environment. But they need a big assist from technology to keep customers interested.
“I see the role of the store as an extension of the mobile experience,” O’Neill tells Fortune in an interview at Nike’s new S23NYC facility in New York’s South Street Seaport. The building houses the engineers, digital designers and data scientists working on new retail technology. At the same time, she adds, “consumers still want a personal human connection.”
Nike operates 29 stores in the United States, and another 57 elsewhere, in addition to a large number of outlet stores. (Nike’s parent company also owns Converse and Hurley.) O’Neill says she has plans for add more full-service stores in the United States though without repeating the mistakes that countless retailers have made: opening a ton of banal locations.
O’Neill sees tech like the NikePlus program as a cornerstone of that. Membership in NikePlus program is designed to help the company better know each customer’s interests and shopping patterns, and ultimately sell them more. Launched in 2015, NikePlus now has 185 million members and offers a number of benefits, some specific to individual stores: at the Tokyo store, for instance, members get access to a digital vending machine via the Nike app.
The app has been a boon for business: on its last quarterly conference call with Wall Street, Nike executives said that roughly half of digital revenue growth stemmed from members using the app. At some recently opened stores, O’Neill says, 70% of purchases were made by members. Nike’s direct-to-consumer business has nearly doubled from $6.6 billion in fiscal 2015.
That kind of loyalty and percentages is the holy grail in retail: Kohl’s for one gets some 60% of sales come from purchases on its store card.
NikePlus gives Nike deeper insights into its customers than ever before, and certainly more than many of the company’s wholesale customers can access. There are exceptions, notably Foot Locker. That retailer’s stores connect with Nike’s app so shoppers can look up inventory, reserve products, and scan bar codes.
Nike has continued to cull the number of retailers through which it sells its products but the Foot Locker arrangement shows where Nike’s wholesale partnerships are heading. “There will be fewer (wholesale accounts), but we will go deep with these partners,” she says. Another recent example of that is the Nike display at Nordstrom’s lavish new Manhattan flagship, which treats the brand’s footwear brand as a luxury product.
And the Nike app is a key piece of the program in other ways too. It doesn’t just connect shoppers to Nike stores, the app connects them to each other through programs like Nike Running Club, which provides well-regarded training plans. That allows Nike to better compete with independent running stores, where group runs and training are routine. Group events at stores are also a key way Lululemon Athletica has made big strides in the athletic wear department.
“Activity is one of the most important parts of the Nike flywheel,” O’Neill says.
Still, while Nike has plans for more stores, particularly in the U.S., don’t expect to see a massive fleet expansion. Too many retailers have lost their nimbleness by having to manage sprawling chains of interchangeable stores.
“I don’t think more stores is the formula,” O’Neill says. “It’s the right footprint, it’s better stores, and it’s more innovation.”
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