Nike Is Fed Up With 'Mediocre' Retailers
So Nike is ramping up online sales, which it thinks can grow 30% a year.
Struggling retailers beware: Nike (NKE, +3.39%) is going to downgrade you if you don’t up your game.
The sportswear giant updated investors on Wednesday on its plans to hit $50 billion in sales by 2020, a target that has been met with some Wall Street skepticism. Those plans do not include retailers that can’t get their act together and make themselves more attractive shopping destinations.
Some 40% of Nike’s wholesale business comes from what executives called “differentiated” retailers, or stores that are inviting and present its products in a sophisticated way. The company plans to get that 80% by 2022, executives told Wall Street analysts on an afternoon-long presentation that was webcast. As Nike Brand president Trevor Edwards put it, “undifferentiated, mediocre retail won’t survive,” adding ominously: “We will be shifting away from this over the next five years.”
He didn’t name names, or say Nike would actually drop any accounts, but he did point out Nordstrom (JWN, +1.66%) and Foot Locker (FL, +5.69%) as strong retail partners. Nike is rolling out a program later in 2017 with Foot Locker. (Foot Locker reporter awful quarterly results in August.)
Noticeably absent from the list of retailers getting a shout out were the likes of specialty chain Dick’s Sporting Good (DKS, +1.94%) and department stores Macy’s (M, +0.47%) , J.C. Penney (JCP, -0.95%) and Kohl’s (KSS, +1.94%) , which all have ridden Nike’s explosive growth in recent years to mitigate their overall soft sales and which have made an effort to showcase Nike more elaborately. Kohl’s, for one gets about $800 million in sales a year from Nike. Overall, as one executive put it, Nike is eager to get out of “the heavily promotional environment we see today,” given how much discounting hurts its cachet and trains shoppers to expect deals.
For some chains, any reduction of exposure by Nike would be another hit as a number of national brands, ranging from Ralph Lauren (RL, -0.64%) , Coach (COH, +0.32%) and Michael Kors, (KORS, +0.07%) are or have pulled out of a number of department stores.
As for Nike, it and many of its peers took a hit from last year’s bankruptcies Sports Authority and City Sports. The company has been redoubling its efforts to get a bigger percentage of sales online by selling directly to customers via its web site, and by lining up new partners like Amazon.com (AMZN, +7.72%) and online luxury store Farfetch. Nike Chief Executive Mark Parker said at the conference that digital revenues should grow 15% to 30% per year over five years, while overall revenue growth would be in the high-single digit percentage range.