Issue #11: Nike Is Struggling

Thank you for continuing to support Retail Is Not Dead? This week I wrote the second long-form piece, this time on trends I am seeing in the space and how to capitalize on it. What did you think of it?

Trend of the Week:

Long before the rise of Name Image and Likeness (NIL) in college sports, a former college athlete and his coach identified a gap in the running market - a lack of quality running shoes. Being two entrepreneurial-minded people, these Oregon track legends took matters into their own hands and started Blue Ribbon Sports to meet their needs. The two men? Phil Knight and Bill Bowerman. What is Blue Ribbon Sports? The company that would go on to become Nike, the athletic apparel company we all know and probably have used at some point (I highly recommend the book Shoe Dog on its founding and journey). While Nike got its start in running, it has evolved to be known across sports, especially basketball.

In the past couple of years, like many that focused on retail, Nike has undergone a seismic shift. For them, the shift has not worked out. As illustrated in a Linkedin post of an executive who had been there for over 20 years, there are some key reasons why. In January 2020, John Donahue joined as CEO and quickly made his stamp on the company. He had three philosophies:

• Nike will eliminate departments and will not group products by sport anymore

• Nike will be a D2C company

• Nike will be a data-driven and digitally-led marketing company

On the surface, it seems like a good plan. However, it represents a fundamental misunderstanding of the business and customers. Here is why each point was a mistake.

• Along with this department shift, Nike simplified their offerings, instead of going by sport or occasion, they just had three categories: Mens, Womens, and Kids. However, that is not how you use apparel, especially shoes, which is Nike’s largest revenue stream. Shoes are much more occasion-focused. Additionally, that shift included the consolidation of resources that led to inferior products. Instead of having a product person focused on basketball and one on running, they just had one product person with no specialization.

• Shifting to a D2C company is a misunderstanding of how consumers behave As shown in the EY study which I will dive into later, people want to touch and feel goods. Consumers want to try goods on, especially shoes. Additionally, as part of emphasizing D2C, Nike shifted their focus away from the wholesale business in stores they don’t own. Consumers are typically choose Nike from a variety of goods at their local sporting store, but if Nike goes away they switch to something else, not go online.

• Digital marketing is expensive. One of the characteristics of Nike marketing over the years is that they had marketing no one else could replicate. Why? They had the talent, from a sports star perspective, like Michael Jordan. But also, they had the talent from an artistic perspective. This type of brand-building media and domination doesn’t always translate to digital advertising, but does succeed when you are selling in a sporting goods store.

On top of all these issues, fulfilling ecommerce orders is challenging and expensive, especially for bulky goods like shoes. It was a big swing and clearly didn’t pay off. This error has been noticed and Nike has been reverting to prior strategies of categories and wholesale. Unfortunately, it may be too late. OnCloud and Hoka are on the rise, would that have happened if Nike hadn’t made a mistake? It will be interesting to follow what happens. Can Nike recover from its stock price being down 30% YTD? My take is Nike needs to get back to basics. Focus on products by sport/occasion and make a big push to retail, whether it is stores Nike owns or wholesale accounts.

News of the Week:

Positive:

1. New York’s Largest Bathhouse is Bustling - This summer, Othership, a sauna and ice bath focused relaxation spa, opened a 7,000-square-foot location in NYC. This location is their first in the United States, after launching two spas in Toronto. Bathhouses have tended to be popular in other countries outside the US, but the trend is catching on here too. Othership is capitalizing on this trend with their first location in NYC, and a second in Williamsburg on the way. With regard to what makes them special, Othership is not just a place to go for an ice bath or sauna. Instead, it is focused on experiences and community, and the method just happens to be via an ice bath or sauna. They offer guided classes and work to build community as part of the membership. What Othership has done is a great lesson for emerging brands in the retail space, people want connection and community, so make sure you are giving those opportunities to customers with your offering.

2. Ernst & Young (EY) Says Retail Is Alive - This week EY released their 14th Future Consumer Index interviewing thousands of people across the world. In the report, there were a couple of key statistics that stood out:

   • 66% of consumers find private label just as good as branded products

   • In North America, private label purchases are driven by High Income consumers

   • The brand is less of an influence in purchasing, 48% of consumers say brands are not very important in the purchase decision

   • 72% of consumers are focused on value

   • Consumers are spending more time at home and less money on non-essentials

   • 57% of consumers want to see, touch, and feel items before they buy them

   As the world continues to evolve, this research can play a part in how CPG and retailers approach their future strategy. Constant evolution is needed when you are focused on consumers. As illustrated in the Nike analysis, straying away from these core values can hurt your company. You can read the full report here.

Negative:

1. Consumers Rely Heavily on Discounts - Simplycodes, a coupon software, released a report looking into discount code trends this year compared to last year. On average, retailers are issuing 9 unique codes, offering 17.6% discounts, and a savings of $33.25. Last year, retailers issued an average of about 7 codes with a 17.17% savings and a dollar savings of $27.26. Across the board, consumers are showing they respond to discounts with purchases. This could be negative, but also positive. With the rising cost of acquiring customers, if a discount can get you an existing customer to order again or a new customer that didn’t require paid marketing, it could be a win for the brand/retailer. If this is coupled with paid marketing, it can become very expensive to get a customer to purchase. Something to balance as consumers illustrate how they want to purchase goods.

Startup Tool of the Week: Kaikaku

• Summary: Using robotics and AI to augment and supplement food and beverage operations/production in restaurants

• Founder(s): Josef Chen, Piers Millar, David Sharp, Ivan Tregear

• Amount raised & investors: $2.4M HodlCo, 7Percent Ventures, 10 Bond, and Interface Capital

• Why should you use this technology?: Robotic technology can be very useful, but it can also be very expensive to be highly customized, which most restaurants need. Kaikaku’s modular system and rapid prototyping ability allow for cheaper and more custom solutions.

• Notable Clients: Common Room has been around for 3 months, sold over 15,000 bowls, is rated over 4.8 on Google Maps, and has 95% uptime.

• My take: Restaurants only can have so much labor and that labor is increasingly harder to find/retain. For restaurants that serve more of a commodity, like fast food and fast casual, I believe the labor should be focused on the service (and upsells). Food production should be as automated as possible.

• Interested? Book a demo here

Link of the Week: What should restaurants think about credit card companies acquiring reservation platforms? Hint: its complicated. (read more here)

Additional Links:

1. An analysis of OpenTable’s new partnership with Visa (read more here)

2. Starbucks is closing its Astor Place location due to rent increases (read more here)

3. Chipotle Launches Guac proof lipstick in partnership with Wonderskin (read more here)

4. Whole Foods launching smaller footprint store in the East Village (read more here)

   • My take: this area is perfect for their busy, grab-and-go target market

5. Bulk ecommerce company Boxed is back (read more here)

6. Siddhi Capital raises $135M to focus on CPG brands and food tech companies (read more here)

7. How Pals, a fast food restaurant, is able to serve burgers 4x faster with 10x fewer errors (read more here)

   • My take: Constant training and retraining is crucial

8. Creator Nick Giovani launches partnership with Dunkin for new Coffee flavors (read more here)

9. DoorDash releases earnings, stock price up due to records for orders and revenue (read more here)

10. Instacart launches recipes, occasions, and bundles within the app (read more here)

    • My take: great opportunity for brands advertising to be involved in these new features

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