Alright I need you to ignore the picture that looks like I’m about to bust the dopest freestyle you’ve heard at the BET Cypher on this link:
What I need you to hear is the reality that analysts continue to overlook when watching Nike work. Almost two years ago I began giving very detailed analysis of Nike’s movement to pull people to their platform(online and retail). I’ve written countless articles explaining that of all of the retail outlets that sell Nike products online, Nike has the most traffic of any of their wholesale accounts. That has increased in the last two years as NDC and SNKRS function in the same capacity as Foot Locker.com and other retail store e-commerce platforms. As a matter of fact Nike’s online platform is more efficient and continues to chip into every online place that sells the brand.
It’s the reason that Nike actually increased revenue from last year although they lost “RETAIL” market share to adidas. Nike also lost margins though and that is what is most disturbing to analysts. The -24% drop in profit was directly related to promo. The analyst and marketing people see Nike as losing the cool factor amongst teens. Nike is doing too many sales. The narrative is “Nike has never done this type of sale online.” Which is a completely false narrative. If any person is on the Nike list they’ve gotten 50% off sale notifications and blow out sales on products that even had an additional 30% off. It happens often in store, but not so much online and that’s where this “surprise” at a Nike Flash sale is being dogged by people on social media and sneaker analysts.
The problem is this idea that Nike doesn’t do this or hasn’t is absolutely wrong. It’s happened before, but not at this level because is wasn’t until last month that Nike announced its Consumer Direct Offensive. Which changes the entire discussion and takes us back to my article above where I talk about DTC. The reason I had to explain why Nike was killing mom and pop shops remains at the forefront of why Nike is doing this Flash sale. Let me type this in big letters:
The Flash Sale is a marketing tactic which drives engagement on Nike’s platform, and gives customers the perception they are getting an awesome deal.
Does Nike have too much inventory? OF COURSE!!!! They overproduced in the process of building DTC. Nike took on more RTVs as they wiped out smaller accounts. These RTVs are in their warehouses and stores; it has to be liquidated, and if you look at the prices on the Flash Sale you can break down the pricing as follows:
Kobe AD NXT
Nike Flash Sale: $109.97
If Nike sold the Kobe to Foot Locker at wholesale the cost would be about 50% off of Retail or $100.00. Nike’s Flash sale actually makes the brand more money than selling to a wholesale account. The margins are small, but it’s more money.
Now let’s look at a low end shoe.
Nike Roshe Two
Nike Flash Sale: $44.97
If Nike sold this shoe wholesale they would get $49.50. In this instance the production cost of the Roshe is probably at $35.00 per pair. The margin on this shoe at $44.97 after shipping is razor thin, but if the product sells they can now apply Edit to Amplify and no longer produce that model.
The most important aspect to consider here is Nike is pulling an Amazon. A flash sale will garner visitors who would traditionally shop online with Amazon. Once a customer logs in and sets up an account on NDC Nike can now add a new customer to their e-mail list and market directly to that customer. When you consider that brands have to spend on influencers, social media ads and Google ads to drive traffic to their online platform, Nike’s announcement of a Flash Sale at “historic” sale prices is the best form of marketing the company can do with so much inventory available.
Does this continue to focus on a promotional environment? Of course it does, but ultimately the goal is to move kicks and extend the reach of the DTC platform.