Nike Overhauls Its China Strategy to Halt Discounting and Rebuild Premium Cachet
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Nike is overhauling its approach to its second-largest market, moving to reclaim its premium status by cutting off most third-party online vendors in China, Jon Emont writes in The Wall Street Journal.
Cathy Sparks, a Nike lifer who assumed her post this spring, says third-party vendors like Topsports have created a fragmented online sales experience marked by heavy discounting.
But it’s a risky decision. A large share of Nike sales in China—estimated in the high teens—come from online third-party wholesalers.
To reinvigorate demand among consumers who have defected to nimble local competitors, Sparks is touring cities to study fitness trends and dramatically expanding Nike’s local product-creation team.
“We’re going to test and learn,” Sparks said. Understanding the Chinese consumer “will get us to the right formula.”
I asked Jon for more on this key piece of Nike’s turnaround effort.
In the U.S., Nike eventually decided it had gone too far in restricting third-party retail, giving up ground to competitors in the process. Why might the situation be different in China?
In China, the company’s restrictions are limited to online retailers, so they’re still working with third parties at bricks-and-mortar stores. But of course the strategy carries the risks you allude to—that its retail partners will simply sell Adidas shoes on their online storefronts rather than Nike’s, and this will hit sales. The question is whether a decline in overall sales is worth swallowing if it means selling a higher share of goods at full price.
You report that Sparks has appointed the company’s first head of local product-creation for China at the VP level, reporting to her, and that the local product-creation team is doubling in size. What’s their plan to recapture the resonance that Nike once had?
Jon: Chinese consumers often call out foreign brands that they feel lazily pander to Chinese tastes—like adding a dragon design and calling it a “Year of the Dragon” shoe. Nike believes it must commit to localized product development if it’s going to capture the attention of young Chinese people who don’t know who Michael Jordan is.
The plan is to rev up the engine of locally designed products, including by paying homage to traditional Chinese design motifs—something that rivals like Adidas have done very successfully in China. Nike is known to have a very centralized system of product development, so it will be interesting to watch whether Sparks’s China team is able to churn out hits.