MANAGEMENT DECISION CASE

Taking the Nike Experience

Direct to Consumers

Let's say you're upping your

game and want to exercise more. Maybe that means walking in the mornings,

playing a pickup game after work, or running a marathon. Whatever your goal is,

you need some new shoes, and Nike is your favored brand. If you're like the

majority of consumers, you head to a retail store to purchase a pair. Until

recently, this was your only choice. Just a short while ago, if you tried to

connect to Nike directly you'd find yourself squarely in a system focused on

B2B (business-to-business) marketing channels. While Nike is no stranger to B2C

(business-to-consumer) marketingit opened its first NikeTown retail store in

1990these stores were as much museums as retail outlets, and more about brand

promotion than retail sales.

In 2014, with more than 700

Nike-contracted factories moving shoes and apparel through 57 distribution

centers to 140,000 retail stores, Nike garnered 82 percent of its revenue

through B2B channels and just 18 percent from B2C.⁵⁵But

this is changing fast. Competitors such as Under Armour already get 30 percent

of their sales direct from consumers.⁵⁶Acknowledging

trends in both B2C and B2B behaviors and needs, Nike announced that by 2020 it

will grow its B2C e-commerce business seven-fold, from $1 billion to $7

billion. Total B2C business, including company-owned retail, will rise to $16

billion, or 32 percent of its total global revenue, almost doubling in just six

years.⁵⁷As

discussed in this chapter, demographic trends plus changes in consumers'

motivations and behaviors are guiding Nike to expand its target markets and

channels. For example, broad consumer trends suggest e-commerce B2C sales will

continue to grow, from $1.9 trillion in 2016 (8.7 percent of total

180

worldwide retail sales) to $4

trillion by 2020.⁵⁸More

specifically, consumers' desire to have healthier lifestyles suggests an

increase in Nike's overall business. But the continued rise in the number of

working women, who have less time to shop, suggests more spending power in the

women's sector and a greater need for access to online purchasing. In addition,

demographic trends show younger cohorts, who are very comfortable with online

shopping, are now the largest consumer segment. Nike, intent on serving

customers in ways that meet their needs, has addressed these trends by

increasing its attention to its women's line of training footwear and apparel,

and expanding its e-commerce presence.

But trends in B2B also

suggest that Nike should target more of its business with direct-to-consumer

models. Threatening the traditional B2B distribution model in the eyeglass,

razor, and shoe industries, companies like Warby Parker, the Dollar Shave Club,

and TOMS Shoes are selling products directly to the consumer instead of through

wholesale distribution channels.⁵⁹This

has placed traditional manufacturers, those who make the product but rely on a

distribution channel to reach consumers, on the defensive.

Prior to the Internet, it was

difficult to purchase directly from a manufacturer. B2B firms didn't have the

operational systems to take and fill small orders from individual consumers.

But the Internet makes one-to-one communication easier, and readily available

e-commerce tools make fulfilling orders much simpler. With these tools, small

manufacturers can compete with the large. Today, even the smallest of

manufacturers can pitch their product directly to consumers. Before a product

is made, companies can pitch their value though sites like Kickstarteran

online crowd-sourced funding sitesourcing their "investor-customers"

directly and then continuing to sell B2C instead of starting with distribution

channels.

Consumers often like the

direct model too. Disappointments encountered in retail shopping, where limited

inventory may mean the right size, color, or quantity is out of stock, are

almost never a problem when shopping directly with the manufacturer, where

inventory is largest and the ability to make more quickly is right at hand.

Likewise, consumers are often pleased when they get to interact directly with a

brand by providing input into product design or sharing feedback on their

experience with the product. Manufacturers are also perceived as being the

truest experts on the product, and a better place to get advice or help.⁶⁰Such interactions can lead to improved brand loyalty.

Manufacturers are recognizing

this disruption in the marketplace, so much so that Unilever, one of the

world's largest consumer goods conglomerates, recently paid $1 billion for the

Dollar Shave Club. And the reason? Not the excellent e-commerce site operated

by Dollar Shave Club, but the firm's ability to build a relationship directly

with consumers.⁶¹For

manufacturers, the opportunity to own the relationship with the customer, and

to be able to define their own brand without intermediaries, is an attractive

reason to go direct. And for Nike, one of the world's top 20 most valuable

brands, owning the relationship as trends move toward B2C will be important.

Question:

1. What are some hurdles Nike may face as it expands its B2C business? Consider this

question both internally, with new skills Nike needs to amass, and externally,

with challenges it may face from its B2B channel partners.