Nike
has spent the better part of the last six years cutting ties with bricks-and-mortar retail partners to build up its direct-to-consumer business.
That’s why recent announcements that the company is rekindling partnerships with well-known wholesalers have surprised investors.
On Thursday, DSW parent company
Designer Brands
(ticker: DBI) said it would carry Nike (NKE) athletic gear starting in October—nearly two years after the company first announced that Nike would no longer ship products to DSW.
The news followed
Macy’s
(M) announcement earlier this month that it was “bringing Nike back to the Macy’s nameplate” in the fall. Macy’s currently sells Nike shoes, but the expanded assortment will also include apparel and accessories, both online and in “key locations.”
Both retailers celebrated the renewed relationship, and it’s no secret why. In 2020, Nike accounted for about 7% of DSW’s sales—so clawing some of that revenue back would be a top-line boon.
More puzzling is why Nike seems to be walking back on its so-called “Consumer Direct Offense” strategy, which the company announced in 2017. The strategy saw Nike sever ties with dozens of retailers to focus on its direct-to-consumer capabilities and its relationship with a few key retail partners, such as
Dick’s Sporting Goods
(DKS) and
Foot Locker
(FL). By September 2021, the company had exited about 50% of its retail partnerships after announcing the strategy.
Nike didn’t respond to Barron’s request for comment, but on a March call with investors, CEO John Donahoe said wholesale “continues to be an important part of our strategy.”
The change may be partially due to Nike adapting to a “dynamic and uncertain” macroeconomic environment where shoppers are pulling back on spending, posited Guggenheim analyst Robert Drbul in a Friday note to clients. Drbul has a Buy rating on the stock, but he trimmed his price target to $135 from $145.
“We believe the company is adapting its strategy to include a pivot to its wholesale strategy where the pendulum appears to have swung too far,” Drbul wrote. “We believe it is logical for the company to foster and nurture wholesale partnerships in the fragmented and highly competitive apparel segment as well as the highly competitive running category.”
Piper Sandler analyst Abbie Zvejnieks agrees, writing that both announcements reflected a shift away from the DTC strategy, as Nike has “lost share in select categories, such as children and performance run.” Zvejnieks rates Nike shares Neutral with a $112 price target.
While wholesale sales grew 18% in Nike’s most recent quarter, Drbul wrote that heading into the next fiscal year, the company will see difficult year-over-year same-store sale comparisons in its wholesale channel. Drbul predicts wholesale sales could decline by 6% in fiscal 2024. Nike expects wholesale revenue growth to moderate in the next few quarters.
“Wholesale challenges will likely persist into the [second half of the year], longer than previously anticipated,” Zvejnieks wrote.
Nike reports fourth-quarter earnings at the end of June, when investors will be listening for updates about the company’s wholesale strategy. Shares of Nike were down 0.3% on Friday, trading at $105. 87 each. Nike stock has dropped about 10% so far this year, while the
S&P 500
is up 12%.
Write to Sabrina Escobar at [email protected]
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