In September, Mark Parker, Chairman, President, and CEO, of NIKE, Inc. announced first quarter 2018 earnings for the world’s biggest sportswear maker. Despite product innovations in the running shoe segment with premium priced Air VaporMax and in the women’s sportswear category with more stylish offerings, the company reported a 3 percent decline in North American revenues and flat year-over-year revenues company-wide [1,2].
Nike’s struggles are indicative of a larger problem, as major U.S. retailers have shown lackluster performance over the past 18 months. Digitalization and recent online trends have increased customer expectations; people are demanding more customization, faster, at improved service levels [3,4]. Additionally, digitalization has led to an expanded definition of the value proposition of the retail industry. Companies can no longer compete solely on the functionality of discrete products, but rather need to distinguish themselves on the value and performance of their broader product system . With this increase in customer expectations and an expanded business model, traditional retailers have a decision to make: either meet these new customer and industry demands by rethinking the way they design their supply chain, or move over for someone who will.
During its 2017 Investor Day, Nike addressed these near-term customer needs and business-model challenges head-on. The Company expanded on its new “Consumer Direct Offense” which aims to serve the athlete faster and more personally through its “Triple Double Strategy” – a focus to drive double digit growth in three core areas: speed, direct, and innovation .
In response to changing customer needs, Nike announced a focus on supply chain efficiency improvement (speed) and direct-to-consumer emphasis (direct). With “2X Speed” – Nike will invest in end-to-end digital capabilities to improve the efficiency of its supply chain and serve consumers faster, doubling the speed to market by reducing the average product creation timeline by over 50 percent. In “2X Direct”, Nike is changing the structure of its supply chain – focusing more on direct-to-consumer distribution by aiming to double direct consumer connections through its NIKE.com platform and other initiatives. Lastly, the “2X Innovation” initiative addresses the changing retail industry, as Nike promises to lead with more distinct platforms that give consumers new aesthetics, spanning both sport and style .
In response to medium-term strategic challenges, Nike is also pursuing new channels for distribution, including a pilot program it began earlier this year to sell lower-end items through Amazon. Additionally, Nike also alluded to discontinuing some of its distributor channels, only focusing on those that are “differentiated retailers” that present Nike’s products in a heightened, curated way .
Although it is reassuring to see Nike’s shift in focus towards the direct-to-consumer space, if the company truly wants to have a “Consumer Direct Offense” and transform its supply chain to keep up with today’s digitalization, it needs to “Just Do It”. First, Nike needs to invest in more initiatives that drive e-commerce purchases. An increase in social and other digital ad-spend could drive increased traffic to NIKE.com and allow the company to double down on its direct-to-consumer strategy. Second, Nike needs to figure out Amazon’s long-term role in the company’s strategy. Recognizing that the internet giant has a role to play if Nike truly wants to go all-in on direct-to-consumer is an important step, but a pilot program for only lower-end items isn’t enough. Despite concerns about loss of pricing power and brand control, Nike needs to make its relationship with Amazon more permanent and all-encompassing across product lines. Leveraging Amazon’s expansive supply chain would be the quickest and easiest way for Nike to digitalize its own.
Digitalization may be the cause of the retail industry’s woes, but it can also be its savior. The digitization of the supply chain enables companies to address the new requirements of customers, the challenges on the supply side, and the remaining expectations in efficiency improvement . With increasing pressure to transform its supply chain to be faster, more flexible, granular, accurate, and efficient, what role do traditional partnerships play in Nike’s “Consumer Direct Offense”? Is there any value in investing in “differentiated retailers” such as Nike’s relationship with Nordstrom Inc.? What about more traditional wholesale partners such as the independent running and sporting goods stores? In overlooking these intermediary retailers, is Nike missing a big opportunity to influence athletes that are true champions of the brand? Or do these retailers only pose an additional cog in the outdated supply chain wheel?
 “Nike, Inc. Reports Fiscal 2018 First Quarter Results,” press release, September 26, 2017, on Nike, Inc. website, [https://news.nike.com/news/nike-inc-reports-fiscal-2018-first-quarter-results], accessed November 2017.
 Pamela N. Danziger, “Nike’s Challenges In The U.S. Market,” Forbes, October 27, 2017, [https://www.forbes.com/sites/pamdanziger/2017/10/27/nikes-challenges-in-the-u-s-market/#64d4cb9427df], accessed November 2017.
 Matthew Townsend, “Nike Declines After Athletic Giant Gives Bleak U.S. Outlook,” Bloomberg, September 26, 2017, [https://www.bloomberg.com/news/articles/2017-09-26/nike-s-anemic-u-s-growth-forces-company-to-rely-more-on-asia], accessed November 2017.
 Alicke, K., D. Rexhausen, and A. Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company.
 Porter, M. and J. Heppelmann, “How smart, connected products are transforming competition,” Harvard Business Review (Nov. 2014).
 “Nike, Inc. is Accelerating a Consumer-led Transformation to Ignite its Next Phase of Long-Term Growth,” press release, October 25, 2017, on Nike, Inc. website, [https://news.nike.com/news/nike-inc-is-accelerating-a-consumer-led-transformation-to-ignite-its-next-phase-of-long-term-growth], accessed November 2017.
 Sarah Halzack, “Nike’s Solid Game Plan Has an Amazon-Shaped Hole,” Bloomberg, October 26, 2017, [https://www.bloomberg.com/gadfly/articles/2017-10-26/nike-investor-day-solid-game-plan-amazon-shaped-hole], accessed November 2017.
 Rexhausen and Seyfert, “Supply Chain 4.0 in consumer goods,” McKinsey & Company.