DNVB Sportswear giants gear-up — SwiftERM

DNVB sportswear giants gear up for a hot summer. Adidas and its larger US-listed rival Nike (US:NKE) have centred their attentions on e-commerce, while simultaneously capitalising on the shutdown of high streets to take greater control over their digital offerings. Indeed, both companies hope to lift the proportion of their revenues stemming from direct-to-consumer (DTC) engagement — effectively cutting out some of the middlemen, or third-party retailers, in their networks.

The potential benefits of such a strategy are clear. All being well, DTC should bring Adidas and Nike better margins, while granting them deeper customer insights — something that could, in turn, translate into higher sales.

But the digital and DTC transition requires considerable investment and is not without risk. It also has significant implications for both brands’ distribution partners.

Adidas and DTC

“Consumers expect to receive a brand and shopping experience tailored to their preferences, with personalised offerings in both digital and physical spaces,” Adidas said last month, as it explained that it would “evolve its operating model” to address customers more directly.

Key to such evolution is Adidas’s membership scheme, which rewards customers with points for making purchases and using Adidas apps. Members more than doubled last year to 165m across 15 countries, and the group hopes to triple this figure by 2025. In turn, as outlined in its ‘own the game’ growth strategy revealed on 10 March, the group expects DTC to account for half of total net sales.

Nike Consumer ‘direct offense’

Nike embarked on its own “consumer direct offense” in 2018. Management picked up the pace of this journey last June with a new phase termed the “consumer direct acceleration”. Like Adidas, Nike seeks to advance its digital sales via a membership platform that keeps customers engaged and loyal to its brand.

‘Nike Direct’ comprised almost two-fifths of total revenues for the group’s third quarter ending 28 February, having risen 16 per cent to $4bn. This improvement, buoyed by strong digital growth, helped to offset the impact of declines in Nike’s wholesale business after virus-induced supply chain challenges in North America and mandatory store closures.

Commenting on the group’s latest numbers, management said its direct-to-consumer strategy was “driving a meaningful and broader marketplace shift” and “transforming our financial model”. Overall, Nike’s quarterly sales rose 3 per cent to $10.4bn and its gross margin edged up 1.3 percentage points to 45.6 per cent — helped, bosses noted, by its “more profitable” Nike Direct business.

Within that market, “a large number of retailers selling third-party brands compete not only with each other, but also with major online pure-players and the increasingly powerful direct to consumer (DTC) operations of the international brands themselves”.

Topping expectations

Just as investors have backed Nike and Adidas over the past year — valuing them at $218bn and €54bn respectively .

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Originally published at https://www.swifterm.com on April 23, 2021.