Soon, you might find it challenging to purchase a pair of Nike shoes in some of the world’s most renowned retail stores. It’s not because retailers like Urban Outfitters and Macy’s don’t want to carry Air Jordans and Air Force 1s—quite the opposite. Nike has dramatically shifted its business model in recent years, focusing on a direct-to-consumer (DTC) approach. This Nike DTC strategy is largely credited for the company’s impressive 19% increase in annual revenue last year, reaching $44.5 billion. While wholesale once accounted for about 84% of all Nike brand sales, that figure has now dropped to 61%, with DTC sales making up around 39%.
DTC has taken off in recent years, especially as we stare down the barrel of a cookie-less future, and Nike is an example of how the business model can work. Let’s explore why.
What is DTC?
Just what do we mean by direct-to-consumer though? Bigcommerce has a definition that encapsulates the term’s meaning pretty succinctly:
“A direct-to-consumer business sells its own product directly to its end customers, without the help of third-party wholesalers or retailers. Though much more common now, the DTC trend was initially a big departure from the traditional model.”
Tesla is perhaps the world’s most famous DTC brand. Unlike most car manufacturers that rely on independent dealerships, Elon Musk’s electric vehicle company sells directly to consumers through online channels and its more than 100 stores and galleries worldwide. Similarly, the Nike DTC model exemplifies this approach, as Nike has shifted its focus towards direct sales, bypassing traditional retail channels. Tesla’s commitment to its DTC model is so strong that it has fought legal battles in various states across the USA to secure the right to sell directly to consumers, challenging state laws that mandate automobile sales through independent dealers.
Online-only brands like Dollar Shave Club are also good examples of solid DTC businesses. The subscription men’s grooming company sells directly to consumers via its website and focuses on slick marketing for brand awareness (such as podcast advertisem*nts) instead of relying on having its products placed in pharmacies and shops like other razor brands.
4 keys to Nike DTC Strategy Success
Now that we have a grasp of what it means to operate with Nike DTC model, let’s dive into the factors that have made Nike’s approach a hit.
Owning the data
The ‘direct’ in DTC means exactly what it implies—it gives brands direct access to their consumers. For Nike, this means bypassing middlemen like Foot Locker or other retailers, allowing the company to control the entire purchase journey. A clear advantage of the Nike DTC strategy is the ability to better manage the brand experience and product presentation. However, an even more significant benefit lies in the access to valuable consumer data, which is crucial for driving personalized marketing and product development.
When a customer browses or buys via the Nike website or one of several apps the brand has on offer, their browsing and purchasing activity is much easier for the brand to access than it would be via a partner retailer. This gives Nike and other DTC brands the opportunity to gather customer insights and then use that information to optimize the shopping experience.
The DTC model provides brands with valuable insights into customer behavior, such as how they navigate the website, which search terms they use, and their overall satisfaction. This contrasts sharply with the traditional retail experience, where a customer might walk into a mall and buy shoes from a retail partner—Nike has no way of knowing if that customer researched the shoes on the Nike website beforehand or not. However, with the Nike DTC strategy, when a consumer makes a purchase through the Nike website or app and uses their account, Nike can leverage that data to deliver personalized recommendations, enhancing the customer experience and driving further engagement.
Nike has recognized the power of owning customer data and has also invested in making the best use of that data by acquiring specialist data companies. While not every business has annual revenue of more than US$44 billion and the luxury of spending big on expert help to better exploit data, improving your usage of data is no longer as cost-prohibitive as it once was.
Read more: 3D eCommerce – What is it, Why it matters, and Production
Added consumer value
One of the key mobile apps contributing to Nike’s DTC success is the SNKRS app. Sneaker culture drives the app’s popularity by offering consumers “insider access to the latest launches, hottest events, and exclusive releases from Nike and Jordan Brand,” according to its App Store description. The SNKRS app has become an integral part of the Nike DTC strategy, providing a direct and engaging way for the brand to connect with its most dedicated fans and customers.
The SNKRS app is a great example of providing added value to customers through a DTC strategy. Unless you’ve been living under a rock in recent years, you’ll know how highly anticipated new sneaker releases are. Queues and even violent fights are commonplace when a hot new sneaker drops, and Nike is well aware of that. By providing “insider access” and “exclusive releases”, the brand is giving consumers what they want and strengthening their relationship with the brand. The SNKRS app also feeds into the data collection and analysis part of the DTC model, as the more consumers use the app, the more Nike understands what they want.
“This approach delivers personalized purchase offers to members based on their engagement with SNKRS, past purchase attempts, and other criteria—leveraging data science to enhance digital member targeting,” CEO John Donahoe explained during an investor call in 2021. This strategy is a crucial component of the Nike DTC model, allowing the brand to tailor its offerings and deepen customer relationships through data-driven insights.
3. Content
It’s almost 30 years since Bill Gates penned his ‘Content is King’ essay, and the titular maxim is as true today as it was back in 1996. When it comes to content from what is ostensibly a footwear and athletic apparel company, Nike is a king among kings and long has been. Its advertisem*nts have been iconic for a long time, but the brand’s pivot to DTC has included a greater focus on digital content.
It’s intuitive that a successful DTC strategy should incorporate engaging content. After all, if your customers are spending significant time on your website and apps, you want to keep them entertained, not bored. As part of the Nike DTC strategy, the brand has invested in content through initiatives like Nike Playlist on YouTube. These videos feature world-famous athletes such as LeBron James, Rory McIlroy, and Naomi Osaka, and are aimed at kids, offering fun topics like dances and games. This approach has led to Nike’s kids’ sales being driven more by digital channels than physical ones, allowing the brand to gather valuable data on its future adult customers.
4. Sustainability
On the same earnings call mentioned earlier, Nike CEO John Donahoe touched on how the brand’s customers are beating the drum for sustainability.
“Consumers are clearly responding to sustainability, as we’re seeing very strong full-price sell-through for this family of products with vast opportunity to drive continued consumer and business value still ahead,” he said.
What Donahoe and Nike have experienced is a growing trend across eCommerce—consumers increasingly care about a company’s impact on the planet. As part of the Nike DTC strategy, the brand has embraced sustainability with products like its Space Hippie shoes, which are “inspired by life on Mars” and crafted from recycled materials, primarily scrap plastic. While convincing all consumers that a company as large as Nike has a minimal environmental impact might be challenging, product lines like Space Hippie effectively communicate to many customers that the brand aligns with their values.
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Finish line
While some analysts say Nike has started to bang its Swoosh-shaped head against the ceiling of what DTC can provide a business, that doesn’t change the early rip-roaring success, so there’s still plenty to learn from Nike.
For more on the DTC revolution, check out our interview with Jerry Smith of Ogilvy.
Instead of praying to Nike (the Greek goddess of victory, that is) for eCommerce success, get in touch with SmartOSC today for all your needs. Contact us now to have more information!
