Shortly after I posted my article on Quiksilver’s annual results, a reader of mine sent me this brief article (thanks YKW!). Here’s another article on the same subject with a little more information (don’t be confused because it has the same picture). Basically, what they say is that “Nike and Adidas recently dealt an additional blow to small-scale commerce by severing ties with those accounts unable to sell £25,000 GBP (approximately $41,000 USD) worth of sportswear in a 12-month time frame.”
Apparently the decision, at present, is just for shops in the London area and impacts about 50 retailers. But if Nike and Adidas think it good business strategy for shops in the London area, I’m hard pressed to think of a reason why they won’t come to the same conclusion for other shops in other locations, though perhaps with a different minimum sales number.
On the one hand, I suppose we shouldn’t be all that surprised by this development. We’ve had various brands bemoan the decline of the small shops and the difficulty of working with some of them. It was years ago I pointed out what we all already knew; that as a brand got bigger the financial contribution of small shops to a brand’s success became less significant to the point of being unimportant. And I’ll tell you from personal experience that if you’ve got a shop that orders small and then can’t pay, you don’t make any money from that shop- no matter how cool the shop is and how much you want to work with it.
It’s not like a minimum order is a new development in the industry. They’ve been used in combination with discount structures and order breadth to encourage/require not just larger orders, but a better representation of the brand. The question is whether a $41,000 order is of a size that makes it impossible for a shop to carry a brand. That is, is it Nike’s or Adidas’ intention to flat out exit these smaller shops or is it just that they don’t want to do business with accounts they can’t make money with.
Whatever the financial motivation, more interesting is the market implication. Talking about the United States, I once wrote that there might be 50 “core” shops (and maybe and number is smaller or larger) that every brand needs to be in to be credible with the core market where a brand’s legitimacy comes from. At some level, Nike and Adidas are making a statement that what used to be considered a marketing imperative just isn’t as important any more. For neither brand were the number of dollars (or pounds) they received from the affected shops ever very important, but now the financial considerations, minimal though they may be, seem to trump the market ones.
It’s also true that larger brands now have their own retail outlets and very specifically rely on those stores to present the brand image. This makes the smaller, independent retailer seem less important to those larger brands.
Neither Nike nor Adidas are action sport based companies, so I suppose they can more easily make this decision than some other brands. Nike’s credibility with its larger target market is just fine and Adidas, from my perspective, has never really penetrated the core market anyway. I always had to smile when I walked past a booth labeled “Adidas Skateboarding” at a trade show. I’ll be sure to get by the Adidas booth at the shows and somebody can tell me why I’m wrong. Actually, I’m going to ask.
I won’t bore you by re-re-re-repeating my thesis that the real action sports market is and always has been pretty small. The internet, lack of product differentiation and a lousy economy are pushing the youth culture market into larger companies, chain retailers, and broader distribution. This announcement is just one small occurrence in an ongoing process. Pay attention independent specialty retailers.
Tags: Adidas, Nike, Retail Strategy