Nike to Cut Thousands of Online Distributors in China

Nike is planning to cut off thousands of online distributors in China beginning in January as the sneaker giant looks to clean up what's become a messy digital marketplace and get the region back to growth, the company said Tuesday.

Starting next year, Nike's online footprint will shift primarily to the retailer's official website and app, and the storefronts it operates on Tmall, JD.com and Douyin, some of China's largest online marketplaces and social platforms.

Currently, consumers can shop Nike through all of those channels as well as thousands of other online storefronts powered by Nike's brick-and-mortar partners in the region and a network of secondary distributors. While the vast digital network has led to widespread consumer access to Nike's products, it's also created an inconsistent branding and pricing experience and hampered the company's efforts to reverse a sales decline in the region.

"These new flagships will serve as the single, elevated destination for Nike within these ecosystems, with clearer product presentation, stronger storytelling and more connected consumer journeys," Cathy Sparks, Nike's new vice president and general manager of Greater China, wrote in a letter. "This is about strengthening the platforms where consumers already begin and end their shopping journey, making sure those experiences are direct, consistent and unmistakably Nike."

"This is not about reducing access. It is about reducing fragmentation and strengthening the consumer journey," she said. "When the experience is consistent, the brand becomes stronger."

Nike's plans to pare back its online footprint are designed to create a better, more consistent experience for the consumer and allow it to take back pricing control online. However, there are also concerns it could lead to a material drop in revenue in a region that's already shrunk about 30% in the last five years.

News about Nike's plans to cut off online distributors first came to light late last month in a local Chinese media report. It prompted a note from BNP Paribas equity analyst Laurent Vasilescu, who wrote the move is reminiscent of Nike's ill-fated decision to cut off wholesalers in North America, which contributed to its collapse of market dominance in the region, as well as steep declines in sales and margins.

"This strategy opened up shelf space for competitors and the strategy ended poorly for Nike. We believe the same could happen if it takes the same approach in China," Vasilescu wrote last month, adding that BNP was sticking with its underperform rating for the company. "We don't think Nike has a distributor problem but rather a product problem which also applies in other markets."

The change is also expected to hurt Nike's brick-and-mortar partners in the region, which have expanded their online presence in recent years to grow their own businesses.

Still, Topsports, Nike's largest distributor in mainland China, said it supports the company's decision.

"Topsports has worked with Nike for 27 years based on the principle of mutual benefit and shared growth," Topsports CEO Yu Wu said in a statement. "This adjustment will bring some short-term pressure to our business. But we firmly believe that, over the medium- to long-term, this direction will help promote a healthier, more orderly, and more sustainable retail ecosystem in China, while further improving consumer experience and product appeal."

"Looking ahead, we will continue to work closely with Nike, leveraging our strengths in offline retail operations, local consumer service, and deep market development across city tiers," Wu said. "Through new concept sport stores and high-quality physical retail experiences, we will bring Chinese consumers richer and more meaningful sport experiences."