Nike Inc Is Totally Rethinking Retail in North America

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Nike (NYSE: NKE) has been struggling in North America, reporting a 5% year-over-year revenue decline for its wholesale business in the most recent quarter. This should not surprise investors who have been following the so-called "retail apocalypse" in the U.S. Nike's wholesale results have been weakening for several years, and the company threw down the gauntlet to its retail partners during the most recent earnings call.

Knowing that a differentiated in-store experience is a must for today's shoppers, Nike wants its retail partners to up their brick-and-mortar game.

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A tough message

CEO Mark Parker was clear about expectations for domestic retail partners in the call:

Parker went on to say that the apparel giant is "working closely with a select group of our strategic partners to define the new consumer experience together." This is not so surprising when you look at the decelerating growth of the company's wholesale business in North America and globally.

Nike has taken steps to engage its customers in a more personal way with its "consumer direct offense" and company-owned retail stores that offer a unique experience, such as its five-story New York brand showcase.

Why experiences matter to brick-and-mortar

It has become even more difficult for brick-and-mortar retailers to compete with the convenience of online shopping. Add to that a scalable business model which enables the online juggernauts like Amazon to constantly lower costs, and it's no wonder that e-commerce in the U.S. has a long track record of growth. Since brick-and-mortar retailers can't compete on price or convenience, they're increasingly focused on what they can deliver: a great in-store experience.

Home Depot and Lowe's have long followed this strategy, one part of the moat that has largely made them "Amazon-proof".

Nike knows that it needs to engage customers wherever they choose to shop, and Parker made that clear:

The company wants to extend that same personalized experience that's been successful in its company-owned stores to retail partners who will buy into the vision.

Not without its partners

Nike's wholesale business, which sells to retail stores around the world, made up 72% of the company's revenue in its most recent fiscal year. While Nike has been aggressively growing its direct-to-consumer business, Parker is fully aware of the company's dependence on brick-and-mortar retail partners but wishes to take the helm in shaping the future of the sportswear customer experience.

Nike mentioned a few retail partners by name that were part of the "select group": Dick's Sporting Goods, Foot Locker, and Nordstrom. These retailers understand the changing landscape and are pursuing initiatives to stay relevant to consumers.

Edward Stack, Dick's chairman and CEO, talked about the company's classic "local store" approach to customer service on the last earnings call:

It'll be interesting to watch as Nike and its partners work together to optimize the in-store retail experience for consumers. Investors can be sure that this won't be the last time they hear from Nike on this important transition.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Brian Withers owns shares of Amazon and Nike. The Motley Fool owns shares of and recommends Amazon and Nike. The Motley Fool has the following options: long January 2018 $170 calls on Home Depot and long January 2020 $110 calls on Home Depot. The Motley Fool recommends Home Depot, Lowe's, and Nordstrom. The Motley Fool has a disclosure policy.