Cool sneaker maker Nike's (NKE) big bet to consciously move away from selling its products through wholesale/retail channels in order to build its own distribution channels seems to have paid off. Thus far.
Nike reported a 17% rise in direct-to-consumer (DTC) sales in the three months ended February 28 contributing 42.3% to the sneaker and athletic apparel maker's overall revenue of $10.9 billion for the fiscal third quarter.
In recent years, Nike has cut around half of its wholesale accounts in North America while focusing on sales through its own apps, websites and stores. Basically, if a store did not feature Nike and make it appear special, the company pulled its products.
The retailer clocked direct sales of $4.6 billion in the quarter even as it combatted supply chain hurdles.
"We're looking at fiscal '23 and believe the foundation is set for another year of strong growth, and that's because our Consumer Direct Acceleration strategy is working," said Nike Chief Financial Officer Matt Friend during the company's fiscal third-quarter earnings call.
"We see this marketplace strategy positioning us even more strongly for healthy, sustainable growth in North America. And it starts with Digital," said CEO Jon Donahoe.
As a result of the success of its direct-to-consumer business, last month, Nike left its largest vendor Foot Locker (FL) in a tough postion as it limited its sales to the New York City-based footwear and apparel retailer.
Nike's Online Sales Jump
Nike's digital sales through Nike's apps and websites grew 22%, led by a 33% growth in North America, the company said.
"As it relates to Digital.. the growth we continue to deliver through that channel continues to be fantastic and it's the consumer that's leading that transition. To be able to deliver double-digit traffic -- growth in traffic in North America this past quarter really stood out as an outlier relative to where other brands and retailers were seeing traffic growth,"
The Oregon, Beaverton-based company sells its shoes and related merchandize online through the flagship Nike app, the SNKRS app, which the company made the first place—and sometimes the only place—people could get certain limited-edition shoes, and its websites.
Nike,, which sells iconic shoes like Air Jordan 1, a bonafide pop culture hit, has seen demand outstrip supply.
"Marketplace demand continues to significantly exceed available inventory supply, with a healthy pull market across our geographies. When inventory supply is available in region, we are quickly moving it to the appropriate channels to serve consumer demand. Consumers continue to shift toward digital to find the products they love, and NIKE's digital experience continues to build deep consumer connections and capture digital market share," said Donahoe.
Friend added that while Nike has not been able to meet consumer demand over the past couple of quarters, that the company was in a "healthy pull market" with that strong demand.
Nike's Fourth Quarter Expectations
Going forward the sneaker giant expects supply constraints to ease in the April quarter.
"While transit times remain elevated, particularly getting into the North America marketplace, beginning in the fourth quarter, we're going to start seeing an improved flow of supply," said Friend.
"We're going to see inventory supply normalize this quarter, which gives us increased confidence that we'll have supply to meet the heightened levels of demand," Friend added.
Nike said it expects a drop in revenue in the U.S. for the fourth quarter but is confident it will deliver mid-single-digit revenue growth on a full-year basis.
