The Sunday Times - UK (2021-12-19)

6 The Sunday Times December 19, 2021

BUSINESS

$7bn

Profit made by

Nike last year

39%

Percentage of

sales made

directly by Nike

£1bn

Value of direct-

to-consumer

brand Gymshark

By selling direct to customers, the sportswear giant is

dealing a blow to stores — and other brands will follow

Nike delivers kick in

the teeth to retailers

SAM

CHAMBERS

I

n May 2019, Simon Loofe received a

letter he had been dreading. A law-

yer from Nike informed him that

the sportswear giant would stop

supplying Loofe’s and Shoe HQ, his

Bury-based fashion shops. With

each passing season, Nike deprived

Loofe of more and more stock until

cutting him off entirely this year. It

marked an unceremonious end to a

35-year relationship.

“It’s a bitter pill to swallow... Nike was

a massive part of our business,” said

Simon’s son Jonathan, who helps run the

family business that marked its 100th

birthday this year.

Loofe’s is one of hundreds of busi-

nesses that have become collateral dam-

age from Nike’s mission to cull the num-

ber of chains it supplies to only 40

worldwide. After the pandemic spurred

Nike’s chief executive John Donahoe to

accelerate his Consumer Direct Offense

initiative, the dreaded letters like the one

received by Loofe are hitting the inboxes

of some of Britain’s leading retailers.

The Barclay family’s ecommerce busi-

ness Very Group, which is plotting a

£4 billion float, as well as the footwear

chain Schuh, have both recently learned

they will be dumped by Nike.

Nike cut ties with John Lewis when the

chain reorganised its sportswear depart-

ment in 2019, and the only Nike-branded

product sold in Mike Ashley’s House of

Fraser stores is a bright green book fea-

turing pictures of trainers designed by

the late fashion guru Virgil Abloh. Next

and Asos both have good reason to be

looking nervously over their shoulders.

The bad news for the high street is that

losing trainers is just the tip of the ice-

berg. Fast-growing brands such as plant-

based food producer Huel and glasses-

maker Warby Parker are building huge

customer bases without selling through

established retailers. The direct-to-con-

sumer movement is causing consterna-

tion among retailers dependent on popu-

lar brands, while forcing department

stores and online marketplaces to

rethink long-established models.

“For a brand such as Nike, the holy

grail is to have a direct relationship with

their customers — that gives them com-

plete control over how their brand is por-

trayed,” said Matt Truman, executive

chairman of True, an investment firm

that specialises in direct-to-consumer

brands.

“Nike’s risk is that they wake up

one morning and see Very offering

50 per cent off and Asos offering

30 per cent off, while they are trying

to sell shoes on their own website at

full price. It can get to a stage where

you think, ‘What’s the point of risk-

ing my brand equity for a lower

margin?’ ” he said.

T

he brands most capable of dis-

pensing with third-party

retailers are those with the

most cachet — and few have more

than Nike. The Oregon-based com-

pany was best known for running shoes

until a partnership with basketball super-

star Michael Jordan catapulted Nike into

the world of sports fashion, now known

as “athleisure”, in the 1980s. Last year,

Sotheby’s auctioned a signed pair of Air

Jordan 1s, worn in play by the man him-

self, for $560,000 (£420,000). The tie-up

became the blueprint for a string of lucra-

tive deals with the likes of LeBron James,

Emma Raducanu and Cristiano Ronaldo.

Demand for trainers has exploded

over the past decade — and both Nike and

Adidas have happily fanned the flames.

Nike habitually releases trainers in delib-

erately insufficient quantities through

“drops” that whip sneakerheads into a

frenzy. Collaborating on designs with

rappers such as Travis Scott and Kendrick

Lamar only adds to the fervour.

Today, Nike is the undisputed king of

the booming athleisure market, which is

forecast to be worth £350 billion globally

by 2025, up from £250 billion today. Adi-

das, the number two player, revealed it is

seeking to bring in half of its revenues

through its own sales channels — a target

shared by Nike, which made 39 per cent

of its sales through its own stores and

website last year. A senior figure in sports

retail described the direct-to-consumer

Superstars such

as Cristiano

Ronaldo, Emma

Raducanu, Dina

Asher-Smith and

LeBron James

have enhanced

the image of the

sports kit king

phenomenon as the biggest change the

industry has seen in at least 20 years.

Paul Sherratt, who advised sports

brands for 25 years before setting up the

goalkeeper glove-care brand GloveGlu,

said the rise of social media had been the

key enabler for brands wanting to cut out

the middleman.

“All sport brands are looking at ways of

going direct ... why wouldn’t they? They

make more margin, they know who the

customers are and they can build a com-

munity,” he said.

Some brands are building huge follow-

ings without the exposure of a depart-

ment store concession or an Amazon list-

ing. In only eight years, Ben Francis, 29,

built gymwear brand Gymshark into a

£1 billion business without selling a single

product through another retailer. The

wholesale operations of Lululemon, the

$52 billion yoga brand, extend only to a

select band of gyms and yoga studios.

B

y aligning themselves with global

sports stars, Nike and Adidas can

build sales with ease in almost any

country they wish. That is in stark

contrast to the retailers they sup-

ply, which struggle to build customer loy-

alty outside their home market, limiting

their leverage with the 800lb gorillas of

the sports industry.

Some think Nike’s cull of retailers is

taking things too far. One national high

street chain has submitted a formal com-

plaint over Nike’s behaviour to the

Competition & Markets Authority.

“Nike’s disintermediation strategy

may sound like it’s just their own busi-

ness model but it has a serious negative

effect on competition and consumer

choice ... it appears to be backdoor price

maintenance,” the complainant said. The

CMA has yet to decide if there is a case.

Nike did not respond to a request for a

comment.

While some retailers are suffering at

the hands of Nike, a select few, such as JD

Sports, have reaped enormous benefits

from maintaining a close relationship.

Still, Peter Cowgill, JD’s hard-headed

executive chairman, is alive to the risks of

depending so heavily on one of the

world’s most powerful brands.

Cowgill, 68, has made a string of acqui-

sitions that have dramatically expanded

his empire to cover 3,300 stores across 19

countries in a bet that JD, which, to an

extent, basks in Nike’s reflected glory, is a

strong enough brand in its own right to

win young shoppers around the world.

For all of its dealmaking, JD is dwarfed

by Nike. Last year, the retailer raked in

underlying pre-tax profits of £421 million

on sales of £6.2 billion — a fraction of

Nike’s $6.7 billion profit from sales of

$44.5 billion. That partly explains why

Cowgill wanted to diversify with surpris-

ing attempts to buy troubled retailers

such as Debenhams, Topshop and the

fast-fashion online seller Missguided.

Cowgill’s great rival, Mike Ashley,

would love the same problem. The Sports

Direct boss has struggled to rebuild rela-

tionships with Nike and Adidas after

years of discounting eroded trust.

As he expands Frasers and Flannels,

his upmarket department store chains,

Ashley is seeking to defend — in charac-

teristically unconventional style —

against the risk of other brands going

direct-to-consumer. The tracksuit tycoon

has sought to wield influence over Hugo

Boss and Mulberry by taking significant

stakes in both businesses.

Ashley has bought brands such as Jack

Wills and Sofa.com and is understood to

be scouring for smaller high-end brands

to add to his stable. Other high street stal-

warts are following suit. Next boss Lord

(Simon) Wolfson, who has opened up the

retailer’s website to hundreds of third-

party brands, has bought stakes in Reiss

and Victoria’s Secret. Marks & Spencer

bought Jaeger and a 25 per cent stake in

women’s fashion brand Nobody’s Child.

Asos bought Topshop this year.

Such options are not available for

Loofe as his independent is cut off by

Nike. He has managed to bring in more

stock from other shoemakers, such as Dr

Martens and Ugg, to mitigate the damage.

He is keenly aware that Nike will probably

not be the last brand to jump ship.

“The biggest risk we face is these

brands trying to be retailers themselves,”

Loofe said.

For Nike,

the holy

grail is a

direct link

to buyers

ILLUSTRATION: TONY BELL