How Nike Lost $27 billion in one day? : Direct-to- Consumer Business case study

Summary

The video script discusses Nike's struggle with its Direct to Consumer (D2C) strategy, which initially boosted sales but later led to inventory issues and a decline in stock prices. It highlights the challenges of D2C, including inventory management, operational costs, and the impact of recession on consumer behavior. The script also emphasizes the importance of understanding market dynamics and the potential pitfalls of bypassing traditional retail channels, drawing lessons for D2C businesses and investors.

Takeaways

• 👟 Nike, a dominant player in the running shoe market, is facing stiff competition and seeing a decline in sales and stock price.
• 📉 The company's direct-to-consumer (D2C) strategy, which initially showed promise, has been a significant factor in their current struggles.
• 🔄 Nike's D2C approach has led to high unsold inventory levels, with figures reaching as high as $9.7 billion in certain quarters.
• 💹 While Adidas's stock price appreciated by 19%, Nike's stock price declined by 21% within a year, reflecting market perception and performance.
• 🛒 The D2C model offers benefits like higher profit margins, brand control, and direct customer relationships, but it also comes with significant challenges.
• 📈 Nike's D2C sales initially rose from 16% of total revenue in 2011 to 35% in 2020, showing early success before the strategy faced headwinds.
• 🏪 The high operational costs of maintaining physical stores under the D2C model became a burden during economic downturns, impacting profitability.
• 🔄 Nike's attempt to rebuild relationships with retailers after focusing heavily on D2C is challenging due to the market share gained by competitors like On and Hoka.
• 📊 The script highlights the importance of understanding the full implications of a D2C strategy, including inventory management, customer reach, and economic resilience.
• 💡 For D2C brands and investors, the script serves as a cautionary tale, emphasizing the need for a balanced approach that considers both the benefits and risks of bypassing traditional retail channels.

Q & A

Why is Nike struggling in the running market according to the transcript?

Nike is struggling due to increased competition, particularly from brands like Hoka, and a shift in consumer preferences. The company's direct-to-consumer (D2C) strategy, which initially seemed successful, has led to overstock and a drop in sales as consumers are now more price-sensitive and prefer buying from retailers.

What is the Direct to Consumer (D2C) strategy and why did Nike adopt it?

The D2C strategy involves selling products directly to consumers through the company's own website or stores, eliminating the need for wholesalers. Nike adopted this strategy to gain better control over pricing, inventory, and customer data, as well as to increase profit margins.

How did the pandemic affect Nike's D2C sales initially?

During the pandemic, Nike's D2C sales initially rose drastically as consumers shifted to online shopping. However, post-pandemic, the sales growth from apps and websites started dropping as consumers returned to in-store shopping.

What are the four major superpowers that a D2C approach offers according to the transcript?

The four superpowers of a D2C approach are: 1) Higher profit margins, 2) Brand control and consistent pricing, 3) Detailed customer relationship and data, and 4) Better customer experience through direct interaction and control over the retail environment.

Why is Nike now facing a challenge with its unsold inventory?

Nike is facing a challenge with unsold inventory because the D2C model requires the company to manage its own inventory without the help of wholesalers. This has led to overproduction and a lack of flexibility in responding to changing consumer demands.

What are the operational costs associated with the D2C model that Nike is now reconsidering?

Operational costs in the D2C model include high rent for flagship stores in prime locations, maintenance of retail spaces, and logistics. These costs have become a burden during times of low sales, leading Nike to reconsider its reliance on the D2C model.

What are the lessons that entrepreneurs and investors should learn from Nike's D2C experience?

Entrepreneurs and investors should learn that D2C is not always ideal and that middlemen can add value to the supply chain. They should also understand that brand loyalty can be overrated and that building a strong ecosystem, like Apple has done, can be more effective than relying on perception for loyalty.

How did Nike's decision to cut ties with retailers impact its market reach?

Cutting ties with retailers reduced Nike's market reach because it lost access to the extensive distribution networks of these retailers. This made it harder for Nike to sell in areas with fewer customers and limited its ability to quickly adapt to changing market conditions.

What is the impact of recession on Nike's D2C strategy as described in the transcript?

During a recession, consumers tend to look for more economical options and may opt for discounted shoes at retailers rather than full-priced options from Nike's D2C channel. This shift in consumer behavior has negatively impacted Nike's D2C sales.

What are the advantages of the wholesale model from Nike's perspective as highlighted in the script?

The wholesale model allows Nike to mitigate risk by sharing inventory management with retailers, reach a wider audience through the retailers' networks, and reduce operational costs as it does not have to manage individual stores or logistics.

What is the 'Consumer Direct Offense' strategy that Nike announced?

The 'Consumer Direct Offense' strategy was Nike's initiative to focus on its D2C approach by cutting off ties with one-third of their wholesale partners and reducing supply to remaining stores. It aimed to strengthen Nike's digital and retail presence directly with consumers.

Outlines

00:00

📉 Nike's Struggle with the D2C Model

Nike, a 60-year-old company, is facing a significant challenge in the running market due to increased competition, particularly from Hoka. Despite a pandemic-induced sales boom, Nike's stock price has dropped by 21%, and they have a high unsold inventory compared to Adidas. This decline is attributed to Nike's shift to a Direct to Consumer (D2C) strategy, which has not been as successful as anticipated. The video aims to dissect the D2C model, understand Nike's implementation, and the resulting flaws that have led to their current predicament.

05:01

🛍️ The Shift to Direct to Consumer Strategy

The video explains the transition from a wholesale model, where Nike sold to retailers like Foot Locker, to a D2C model, which allows the company to sell directly to consumers. This change was driven by the potential for higher profit margins, brand control, better customer relationships, and data collection. Nike's D2C strategy, called 'Consumer Direct Offense,' involved cutting ties with certain retailers and focusing on digital platforms and physical stores to enhance customer experience and brand value.

10:04

🔄 The D2C Ecosystem and Its Challenges

Nike's D2C approach created a three-pillar framework consisting of digital products, retail stores, and the interconnection between the two. This ecosystem was designed to collect customer data, optimize inventory, and enhance the shopping experience. However, post-COVID, there has been a decline in app and website sales growth, leading to a significant inventory buildup and a dip in revenue. Nike is now reconsidering its D2C strategy and moving back towards the wholesale model.

15:05

📉 The Downfall of Nike's D2C Strategy

The script delves into the issues faced by Nike's D2C strategy, including the impact of recession, inventory and supply chain challenges, and high operational costs. The recession led consumers to seek more economical options, and Nike's inventory management became a burden as they had to handle everything in-house. High fixed costs from flagship stores and a limited reach compared to wholesalers contributed to Nike's difficulties, forcing them to rebuild relationships with retailers.

20:06

🚀 Lessons from Nike's D2C Experience

The video concludes with key lessons for D2C entrepreneurs and investors. It highlights that D2C is not a panacea and that middlemen can provide value in terms of risk mitigation and market reach. It also emphasizes the importance of building customer loyalty through design, as opposed to perception, and the need for strategic distribution and product development. The speaker encourages viewers to subscribe for more insights and mentions a masterclass for financial education.

Keywords

💡Direct to Consumer (D2C)

Direct to Consumer (D2C) refers to a retail strategy where brands sell their products directly to consumers, bypassing traditional distribution channels like wholesalers and retailers. In the video, Nike's shift to a D2C model is a central theme, illustrating how the company aimed to increase profit margins, control brand perception, and gather more customer data. However, the script also discusses the challenges Nike faced with this approach, such as high inventory and operational costs.

💡Wholesale Model

The Wholesale Model is a traditional retail approach where manufacturers sell their products to wholesalers, who then distribute and sell them to retailers or directly to consumers. The video contrasts this with Nike's D2C strategy, highlighting the benefits of the former in terms of risk mitigation, inventory management, and broader market reach, which became apparent when Nike re-evaluated its distribution strategy.

💡Inventory Management

Inventory Management is the process of overseeing the stock levels of goods, ensuring that the right amount of inventory is available to meet demand without incurring unnecessary costs. The script discusses how Nike's D2C strategy led to significant inventory challenges, as they had to manage stock directly without the buffer of wholesale partners, which impacted their profitability and operations.

💡Profit Margins

Profit Margins are the difference between a company's revenue and the cost of goods sold, indicating how much profit is generated per unit sold. The video explains that one of the superpowers of the D2C model is the potential for higher profit margins, as companies can sell directly to consumers at a higher price than what they would receive from wholesalers.

💡Brand Control

Brand Control refers to a company's ability to manage its brand image, pricing strategy, and customer experience. The script emphasizes the importance of brand control in Nike's D2C strategy, where they could maintain premium pricing and a consistent brand image without retailer discounts affecting their perception.

💡Customer Data

Customer Data encompasses all the information collected about consumers, including preferences, demographics, and purchasing behavior. In the video, it's highlighted how the D2C model allowed Nike to gather detailed customer data, enabling them to personalize marketing efforts and improve products based on direct feedback.

💡Operational Costs

Operational Costs are the expenses associated with running a business on a daily basis, including rent, utilities, and staff salaries. The script points out that Nike's investment in flagship stores and operational expenses under the D2C model became a financial burden when sales declined, illustrating the financial risks of this approach.

💡Recession

A Recession is a period of economic decline, typically characterized by a fall in consumer spending and increased unemployment. The video discusses the impact of recession on Nike's D2C strategy, noting that during economic downturns, consumers are more likely to seek discounted products from wholesalers rather than full-priced options from D2C channels.

💡Supply Chain Shocks

Supply Chain Shocks refer to unexpected disruptions in the supply chain that can affect production and distribution. The script mentions inventory and supply chain shocks as a challenge for Nike under the D2C model, where they had to manage the entire process without the support of wholesalers, leading to increased inventory and financial strain.

💡Market Reach

Market Reach is the extent of a company's ability to distribute and sell its products in different markets. The video contrasts the market reach of the D2C model with that of the wholesale model, indicating that wholesalers can help extend a brand's reach to areas where setting up individual retail stores may not be viable.

💡Loyalty

Loyalty in a business context refers to the faithfulness of customers to a particular brand. The script suggests that brand loyalty may be overrated, as consumers may not be as loyal as companies believe, especially during economic downturns. It contrasts Nike's approach to building loyalty through brand perception with Apple's strategy of building a strong ecosystem that makes it difficult for consumers to leave.

Highlights

Nike is facing increased competition in the running market, with 50% of people now wearing Hoka.

The company's stock price has decreased by 21%, while Adidas's has appreciated by 19%.

Nike's unsold inventory reached $8.9 billion in the first quarter of 2023, compared to Adidas's $6 billion.

The Direct to Consumer (D2C) strategy is identified as a major mistake made by Nike.

The D2C retail space is making significant market moves, impacting Nike's market value.

Nike's missteps with the D2C model are a lesson for investors and founders in the D2C space.

The D2C model offers four superpowers: profit margins, brand control, customer relationship, and better customer experience.

Nike's Consumer Direct Offense strategy involved cutting ties with one-third of their wholesale partners.

Nike's three-pillar framework for D2C includes a digital product portfolio, retail store portfolio, and interconnection between physical and digital.

The D2C strategy initially increased Nike's sales from 16% to 35% of total revenue from 2011 to 2020.

Post-COVID, Nike's sales growth via apps and websites dropped, leading to a surplus of inventory.

Nike is now reverting to the wholesale model due to the challenges faced with D2C.

Recession impacts D2C sales as consumers look for more economical options.

Inventory and supply chain shocks are significant challenges for D2C models like Nike's.

Operational costs for flagship stores and high rents add to Nike's financial burden.

D2C models face a reach problem, limiting their market penetration compared to wholesalers.

Lessons from Nike's D2C experience include the value of middlemen in risk mitigation and market reach.

Loyalty for a brand is often overrated, and brands need to build ecosystems that increase customer retention.

Transcripts

hi everybody Nike is feeling Nike is no

longer dominating the running Market the

60-year-old company is stumbling this is

the first real time that you're seeing

Nike really struggle with competition do

do you have Nikes or you don't 50% of

people are wearing Hoka now this is a

story of misfires being masked by a

pandemic sales Boom for the fiscal

fourth core it looks like a Miss pretty

much across the board really worried

that the company just doesn't have the

next like a for us in the past one year

while Adidas stock price has appreciated

by 19% Nike stock price has gone down by

21% while in the first quarter of 2023

Adidas had an unsold inventory of $6

billion in the same quarter Nike had an

unsold inventory of $8.9 billion and it

even touched 9.3 and 9.7 billion so Nike

sales are dropping dead inventory is

very very high and the stock price is

going down which is why this year Nike

seems to be a stock market disaster in

the United States of America and all of

this started because Nike made one big

big mistake and this mistake is called

direct to Consumer strategy or

d2c the direct to Consumer retail space

is making some pretty big Market moves

donaho pointed to the results as proof

his strategy was working and started

cutting those ties with retailers and

Nike is just lagging behind Nike market

value nose dived over the past few years

an era that was about to come to an end

now this d2c approach is the reason why

this case study is super super important

because while America got hit by the d2c

wave in 2010 now in India everybody

wants to start a d2c brand so if you're

a d2c investor or a Founder watch this

episode very very carefully because you

can get all the hard lessons that Nike

learned by burning a billion dollars and

that too in less than 20 20 minutes so

in this episode today let's dig deep and

try to understand what exactly is this

d2c model why did Nike switch to this

d2c model what are the most fundamental

flaws in this model because of which

Nike is now going back to the wholesale

model and most importantly as investors

and entrepreneurs what are the lessons

that we need to learn from Nike's

billion doll

mistake before we move on I want to

quickly thank our education partners of

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[Music]

description this is a story that dates

back to 2011 when Nike realized that

they were the Godfather of the American

shoe market and it's quite

understandable because Nike was a legend

in the market Jordans were flying off

the shells their stock price had shot up

by more than 300% in the past 10 years

and they recorded a revenue of $20

billion people rush to get the newest

pair of Air Jordans a crowd busted

through this door in Indiana and

remember as you're watching these

pictures this is all over shoes How many

pairs of Air Jordans do you have I have

about nine pair of Air Jordans since I

was a kid I've been you know working

hard just to come up here early in the

morning just to wait line to get these

shoes and by that time Nike had such a

strong brand image that every star

player was wearing a Nike whether that

was Roger Federer or Kobe Bryant Tiger

Woods or Cristiano Ronaldo everybody was

wearing a Nike once I went through the

presentation with Nike they really made

a grave effort of trying to have my

input on the shoes when I first signed

up with with Nike lines and apparel that

know people love it's just been amazing

for me to be part of at 35 years old

he's still lighting up the Siri a for

Juventus coming in this season as runner

up for the Golden Boot with 31 total

goals so since Nike had an incredible

brand pull Nike decided to make a

tectonic shift and this tectonic shift

was to go from a wholesale model to a

direct to consumer model and this is

what shook the entire Sports Market of

America for those who don't know

wholesale model is a model whereby Nikey

sells its shoes to a wholesaler like

Foot Locker or Macy's who then use their

distribution to sell these shoes at

their own price in their own stores all

across America or the wholesalers might

sell it to other retailers who further

go on to sell it to their customers

whereas in a direct to Consumer model

Nike can directly sell all of its

products directly to the customer either

through its own website or through its

own retail store so in this model the

wholesaler is completely eliminated now

the question is if Nike was able to sell

its shoes to wholesalers without the

worry of website traffic or store

maintenance why did they suddenly shift

to the direct to Consumer model well

that is because ladies and gentlemen a

direct to Consumer approach gives you

four major superpowers the first

superpower is a superpower of profit

margins in simple words if Nike makes a

shoe for $80 and sells it to Macy's at

$100 Macy's would then sell the same

shoe at

$120 so even though the product cost is

$120 the profit of Nike is only $20 but

theoretically if Nike sold this product

directly to the customer they could sell

the same shoe at $110 and still make a

profit of

$30 so do you see even with decrease in

cost Nike can still generate more

profits the second superpower is brand

control and pricing so during a holiday

season a retailer like Macy's might

heavily discount Nike shoes just to

attract customers and this creates a

perception that Nike is a low value

brand but with Nike's own stores of

website Nike could maintain a consistent

pricing which can maintain the

premiumness of the brand the third

superpower is customer relationship and

data so if a customer buys a Nike shoe

from Foot Locker Nike might receive

basic sales data like which product was

sold and which state did the sale happen

in but in a d2c scenario if the same

customer buys from nike.com Nike can

collect all the micro details like

customer preference age gender location

interest and even profession and

testimonial so this allows Nike to run

the most accurate ads which are

personalized to every single person who

buys from Nike and more importantly when

it is able to collect direct feedback

from the customer it is also able to

improve its product life and lastly

while a wholesaler might have a Salesman

who doesn't know about the product or a

shelf that could be completely

disorganized if Nike owns a store it can

control everything from quality of sales

staff to the lighting to even the music

in that store and this results in a

better customer experience so do you

realize this way the d2c strategy could

literally offer everything that a brand

wants Better Price better margins better

experience better customer data and most

importantly better control over both the

product and the Brand This is a reason

why ladies and gentlemen in a

revolutionary approach Nike announced

something called consumer direct offense

strategy under this strategy Nike cut

off onethird of their wholesale Partners

including Macy's Urban Outfitters and

even Zappos and eventually they reduced

their supply to the remaining stores on

top of that it also ended its

high-profile partnership with Amazon yes

Nike ended their relationship with

Amazon and where the d2c strategy of

Nike started the real story is direct to

Consumer DTC a business model that had

exploded in the 201 it is the golden

model of the new age they want to sell

direct to Consumer and like not do the

retail stores as much but they're doing

something that really no Behemoth has

ever done before instead of selling

through wholesalers they established a

three-pillar framework the first pillar

was digital product portfolio and this

portfolio had four apps Nike Training

Club for gym and yoga and Enthusiast

Nike run club for runners sneakers for

sneaker enthusiasts and they had the

main Nike app which sold all their

products this layer collects all the

data from the customer from location to

preference to purchase data to search

data to age and even gender Now using

this data layer Nike understood the hot

spots of their customer base all across

America so now they knew where to set up

their stores and what kind of products

they need to keep in those stores in

order to maximize sales and here's way

they built their second pillar which was

their retail store portfolio and this

portfolio again had four types of stores

firstly they had the Nike rice store

which are focused on customized shopping

experience with localized products and

events then they have Nike House of

innovation stores which are specially

made to launch Cutting Edge Nike

products thirdly they have Nike live

which are small stores which were

designed for quick pickup and returns

and then they have Nike style which is

specifically aimed at genz consumers

with a mix of streetwear and sports

inspired fashion then Nike had the third

layer which was the interconnection

between physical and digital layer so

let's try to understand this better you

see when a customer uses these Nike

digital products Nike is able to

understand where is the maximum density

of Nike customers and then Nike is able

to set up its stores and here's where

this third layer makes people use both

the digital products as well as the

retail stores and eventually it results

into a virtuous cycle for example in the

app when the customer feeds all the data

the retail stores use customer data of

that location to decide which products

will be kept in which store and then the

customer data is feeded into the app so

when the customer walks in Nike will use

that data from the customer's profile to

give customized recommendation to that

customer based on the store products and

then for the products that are already

there in the store Nike has these QR

codes which the customers can scan so if

you look at an airone one in a store the

QR code will tell you everything from

what sizes are available which other

products will go well with that

particular shoe what is the review that

the customers have given and it will

even give you similar recommendations

based on that particular store's

inventory so your buying experience is

enhanced by a large large extent and

lastly if you have the Nike app you

don't need to wait in the queue at all

you can simply check out from the Nike

app itself and this again feeds data

into the Nike database so so if you see

this third layer helps Nike build an

ecosystem where the customers use both

the app as well as the store to feed

Rich data into the Nike database at

Nike's new flagship on Fifth Avenue the

house of innovation you can shop

68,000 ft of Cutting Edge retail space

without talking to a human you take a

picture of that QR code and this entire

look is loaded onto your phone we are

going to be allowing our consumers in

the mobile app um to buy product in

their app and walk out without needing

to talk to us and this gives Nike three

incredible superpowers number one is

better Inventory management and

optimized product placement for example

with the intelligence of evolving

customer data Nike will know which

products will sell better and which

products need to be produced more for

example suddenly if there is a trend of

white sneakers in Brooklyn and a trend

of Jordans in Manhattan Nike will

quickly send more Jordans to Manhattan

and more white sneakers to Brooklyn the

second superpower is customer

segmentation insight for better

marketing for example if Nike

understands that Brooklyn has gym and

Tennis enthusiasts and Manhattan has

more yoga practitioners Nike would

sponsor tennis tournaments in Brooklyn

and they would Place their products in

the best gyms in Brooklyn similarly they

would organize more yoga workshops in

Manhattan and they would try out more

yoga products in Manhattan and lastly

when Nike organizes these special events

or sponsors tournaments that are close

to the hearts of the people it builds a

sense of community and eventually it

would help them command loyalty from

their customers so as time passes the

database was expected to get richer and

richer with better and better insights

eventually it was expected that this

entire d2c ecosystem will help Nike

pinpoint opportunities all across

America and it will help Nike make

better decisions eventually keeping it

way ahead of its competition this was

the Revolutionary framework that Nike

designed to go all in with its d2c

strategy so do you realize Nike

literally had everything to achieve

success in his d2c model they had a

solid brand value insane amount of data

millions of customers using the app to

collect data and a billion dollars to

make all of this happen all across

America so the question is did they

succeed well initially yes their d2c

sales Rose from 16% of the total revenue

in 2011 to 35% in 2020 in fact even

during co Nike sales started Rising

drastically now just to give you an idea

about how big a deal this was while

Adidas's entire Revenue in 2022 was $24

billion just with the d2c channel in the

same year Nike generated $18.7 billion

this is how insanely well the d2c

channel was doing for Nike so everything

was great right well you know what guys

something changed after covid and this

is what led to disastrous consequences

for Nike now whether this is shortterm

or long-term we don't know but as of now

Nike is facing in a hard hard time so

the question over here is what exactly

went wrong well if you look at this

graph Nike's sales growth from apps and

website started dropping drastically now

even while d2c scales are rising overall

they are left with billions of dollars

in inventory the revenue is dipping and

lastly after all this leap Nike is now

making a uturn to go back to the

wholesale

model as the world reopened turned out

people still quite liked buying shoes in

stores but but Nike just wasn't in as

many of them now it was kind of like

done and uh the hype was done so now the

question over here is when the d2c

strategy was so well plotted out when it

was so well designed when Niki had all

the money in the world all the data in

the world what exactly went wrong well

here's where ladies and gentlemen the

dark side of the direct to Consumer

Channel comes in and here's where you

need to pay very very close attention

because these are the same problems that

d2c brands are facing in India so if

Nike faed to this problem so will you so

listen to this carefully the first

Factor was the impact of recession in

simple words Whenever there is a

recession a consumer would want to

compare multiple shoe options and choose

the most economical option rather than

just blindly preferring a Nike over

others for example during a recession a

consumer would look for discounted shoes

at Foot Locker rather than paying the

full price at nike.com And this is

exactly what happened in case of Nike

whereby Nike's d2c sales in the last

quarter of fi 24 fell by 8% to $5.1

billion whereas the wholesale sales of

Brands like Foot Locker and DSW they

remained super stable which means people

were buying shoes it's just that they

were buying from wholesalers and not

directly from Nike itself the Second

Challenge was the challenge of inventory

and supply chain shocks for example in

case of a wholesale model Nike simply

has to sell its products to the

wholesaler and the wholesalers would

take care of everything from inventory

to shipment to to stock clearance to

even reverse shipping so once Nike sells

the products to the wholesalers Nike

doesn't have to worry but in case of the

direct to Consumer Channel Nike has to

take care of everything from inventory

to shipment to clearance to even the

reverse supply chain at the same time

when you deal with wholesalers

wholesalers share the burden of

inventory management so they Place bulk

orders in advance which helps Nike

forast the demand and reduce the risk of

Overstock similarly if Nike over

produces a particular shoe then they can

rely on wholesale Partners to help them

move those products through their

extensive distribution networks and

promotional efforts so if you look at

what happened after Nike event d2c you

will see that they started to pile up

more and more inventory in fact in 2022

they had 8.42 billion of inventory which

further went up to touch 9.7 and 9.3

billion in a quarter and this meant in a

quarter Nike had to bear the cost of

storing billions of dollars worth of

stock which directly impacted their

profitability the third factor that

backfired was the operational cost for

example Nike invested very heavily into

building a flagship store in a prime

location which incurred high rent and

high operational expenses and while this

did enhance the brand image of Nike it

also added to the fixed cost of Nike so

when the market was bullish and

everybody had money Nike was having a

great time but as soon as recession hit

and sales started to go down these

stores became a cash burning machine but

when it comes to the wholesale model

Nike did not have to worry about store

rent or maintenance in fact they did not

even have to worry about logistics for

example instead of opening a new Nike

store in a smaller City Nike could

partner with a local sports retailer who

already had an established customer base

and operational capabilities so for Nike

it was no headache of a store no rent no

staff and no need to set up Logistics so

all they had to do was build a great

product sell it to the wholesaler and

let them decide where and how they want

to move the stock so in exchange for the

profit margins that Nike paid to the

wholesaler they got risk mitigation and

less headache of Logistics in return and

lastly in a d2c model there is a reach

problem in simple words if Nike has to

set up and maintain a store for that

store to be viable Nike might have to

sell at least 500 shoes a month so Nike

can set up its retail store only in

those areas where they can sell 500

shoes a month but when it comes to a

retailer Nike could just sell 100 shoes

to that retailer and reach those areas

where there are lesser Nike customers

and since the retailer is selling

products of multiple other brands for

him 100 Nike shoes sold a month is good

enough to make a profit so long story

short while Nike has a genius strategy

to go d2c the lesson that Nike learned

is that while d2c Channel gives higher

margins better data and better customer

experience it comes at a very heavy cost

of inventory load lesser reach less

tolerance to recession and less risk

mitigation this is the reason why Nike

is now trying to get back to its

retailers and wholesalers but now there

is one big big problem so Nike tried to

bolster and build their own shops but it

looks like they do need partners and

they brought back Tom Petty and with one

goal rebuild relationships with

retailers a brand that is struggling

trying to rebuild Retail Partners the

moment Nike went off the shells of

wholesalers two other brands took off in

the American market and they took off as

a result of this Lacuna that Nike had

created

these two brands are on and Hoka so now

Nike is struggling to get back those

slots that the wholesalers had given

away to on and Hoka this is the story of

Nike's d2c Channel now does this mean

that Nike has completely failed with his

d2c approach not at all Nike is a very

big brand and like I said before they

have a billion dollars they have a

strong brand value and they have a very

strong digital ecosystem using which

they are collecting a ton of data so

even now they could very easily turn

this around and turn their d2c channel

into a successful channel it's just that

as of now they are struggling and from

their struggles we could understand the

most important challenges that Nike may

not face 5 years later but entrepreneurs

like you and me will face when we build

our d2c brand and this is what brings us

to the last part of the episode and that

are the lessons that we need to learn

from this billion dooll mistake of Nike

lesson number one d2c is not as ideal as

everybody thought and middlemen are not

always bad well most people look at

payment to wholesalers as a loss of

profit it is actually a payment to be

made in exchange for risk mitigation and

reach so the wholesalers are not

charging you money just because they can

they're actually adding value to the

supply chain and they're not going away

anytime soon lesson number two loyalty

for a brand is often overrated and while

most brands like to believe that their

customers are extremely loyal more often

than not customers are not so loyal

whether that's Nike apple or St

Starbucks and here's where Apple

understood this very very clearly and

they have done an extraordinary job with

their apple ecosystem and today Apple

has built such a strong ecosystem that

with each passing product the exit from

that ecosystem gets more and more

difficult so while Nike tried to build

loyalty with perception Apple has built

loyalty by Design so it's literal pain

that you will feel to exit the ecosystem

at the same time you will get rewarded

if you keep adding products to the

ecosystem so do you realize Apple did it

with design and Nike tried to do it with

perception and lastly if you're a d2c

founder or an investor in d2c we are

releasing two amazing podcast episodes

with the legendary founders of vibas

sauce and bolt and both these

entrepreneurs have built a thousand CR

Company by cracking distribution and

product so do subscribe to this channel

if you haven't already and if you're

watching this episode in October check

out these episodes in our podcast

playlist the link of which I will attach

in the description that's that's all

from my S for today guys if you learn

something viable please make sure to hit

the like button in order to make you

baba happy and for more such insightful

business and political case studies

please subscribe to our Channel and

don't forget to check out the retired

early Master Class by one person Club

from the link in the description thank

you so much for watching I will see you

in the next one bye-bye

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