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Shiekh’s Bankruptcy Plan Being Contingent on Nike Is Flawed

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Source: https://sgbonline.com/sheikh-shoes-betting-on-nike-for-turnaround/

Sheikh Shoes ultimately blamed its trip to bankruptcy court on its inability to secure shipments from Nike, by far its largest supplier that holds an unsecured

During Investor’s Day Nike stated clearly they were going to begin cutting off mediocre retail outlets. The Swoosh is looking at owning 80% of its retail doors for its products. The cut will be from 30,000 wholesale relationships to 40 partners. Shiekh is entering bankruptcy protection. In the SGB article it states that the acquisition of stores by Shiekh in 2012 in the midwest didn’t come with Nike accounts. I know this firsthand so let me tell you a couple of stories.

There is only one Shiekh location here in Memphis, their store sits in a mall that has lost its anchor in Macy’s and the other anchor (Sears) is on its last leg. The mall lost power in half of its stores on Black Friday causing Hibbett, City Gear, Footaction, and Finish Line to lose their ability to sell the Air Jordan Heiress 11 for several hours until the power was restored (which speaks to the state of the mall). All customers formed a line at Foot Locker at the other end of the mall to buy the shoes there (actually wasn’t much of a line).

What is even more interesting is that the Shiekh location in Memphis is directly across from a City Gear. I initially thought that because the City Gear is there Shiekh couldn’t sell Nike footwear. The store doesn’t carry a single pair of Nike shoes. The store is primarily a women’s footwear store with a small selection of adidas, Timberland, Puma and last year’s Under Armour models. The SGB article has clarified the reason why Shiekh doesn’t have Nike in some of its stores:

As negotiations progressed, Sheikh Shoes acquired 34 “of the most promising locations” by the time the deal closed in late 2012 and Sheikh Shoes began dedicating significant resources to converting the 34 stores to Sheikh Shoes and continuing to “work on solidifying approval” from Nike’s Midwest team. However, as construction was nearing completion, Sheikh Shoes was unable to obtain approval from Nike’s Midwest team so the company “immediately pivoted and began developing a store-closure plan to get out of the Midwest,”according to court papers.

Currently, only four of the original 34 Midwest stores remain in operation. By early 2018, the goal is to close all of its Midwest stores.

I’m not sure if the Memphis store is considered midwest, but it does not carry Nike and my personal experience tells me that Nike won’t save Shiekh because Shiekh doesn’t know what it is and being “urban” no longer matters. I have another story to convey, but first I need to establish something about Black shoppers. Yes, Black , and well Latino Shoppers… Yesterday I wrote this about a new Amazon program:

How Amazon Plans To Reach Those Who Use Cash to Buy Kicks | Amazon Cash

In this article I explained that “urban” accounts need to analyze the entire market in retail and pay attention to every advent coming from Amazon and ecommerce businesses. In the SGB article they state clearly that Shiekh was affected by ecommerce growth. Amazon Cash may not take off like a rocket, but over time as shoppers who are unbanked and underbanked are educated via social media on the benefits of Amazon Cash, “urban” accounts will be affected.

Another fact is Urban accounts are now ruined. Urban is code for Black. Outside of several major shoe releases Blacks aren’t buying shoes at full price anymore. In the last year this market has been able to take advantage of Clearance store prices at every retail outlet. This market is now conditioned to red stickers that read 25-50% off. The only must have product is the Jordan 11 and everything else can really wait because the consumer has a better understanding of the market. Stores that created the promotional environment trained and taught the customers they built their businesses on, that they can wait to get a better deal.

Back to Shiekh and the second story I need to share with you.

The biggest threat to stores carrying sneakers has been their reliance on Nike; which I explained in my initial response to Shiekh’s bankruptcy news. I realize that Nike controls half of footwear, but it’s extremely hard to run a business built on a company that is looking to own 80% of its retail sales!

I discussed the story of Okuns before on the site during the analysis of DTLR and Villa’s merger:

What Does the Merger of DTLR and Sneaker Villa Mean?

In that post I wrote this:

Two years ago I was involved in a similar merger as a third party broker for a chain named Okuns. I had to liquidate inventory for the retailer which owned 7 stores, but eventually sold the remaining stores to Jimmy Jazz. I saw firsthand what happened as Nike began to force smaller account holders to meet stringent requirements such as building out the stores to retain their Jordan Brand accounts. I saw a small chain in the same area lose their accounts which led me to do a story on store closures and what was going to start happening. Two years ago Nike was a dominant force in footwear and could literally do whatever they wanted. The market has shifted and this is not the case anymore; but the damage is done to the market.

I recently did a podcast with the FDRA where I discussed in detail what happened with Okuns. In reading this article on SGB it was like deja vu. The SGB article states:

As such,  Shiekh Shoes has expended ”considerable resources” over the years in order to maintain its relationship with Nike, including constructing specially-branded space in each of its stores for Nike product, developing special marketing campaigns and launch events, providing dedicated training of store managers and sales associates on all Nike product, as well as executing on Nike’s biggest initiative to date requiring the remodeling all the Shiekh Shoes stores beginning in 2015.

Shiekh is hanging its growth and resurgence on Nike. Nike is the same company that cut off credit to Shiekh. Nike is the same company that forced the store to take on 15 million dollars in debt to redesign stores to keep Nike. Nike is the same company that has stated clearly in a talk with shareholders at Investor’s Day that in the next 5 years the company is planning to get closer to 80% control of selling Nike.

I know a company needs Nike to remain relevant as a sneaker store, but maybe there is a way to remain Shiekh without Nike by looking to reach more than just the “urban” consumer.

Relying on the Black dollar ain’t what it used to be and the retail outlets can thank themselves for being the best educators when it comes to retail.