Speaking of Brand Retail Strategies…..

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.

 

10 replies
  1. CSS
    CSS says:

    Great points raised here. Small core shops should definitely pay attention.

    I think things might have changed in the way a brand build its credibility.

    In the pre-internet world, you had to be in certain shops to be credible, legit. Your point is totally right. A few ads here and there in mags with decent distribution, a few riders with famous names and here you were.

    What if today you could bypass those core shops and build your own credibility directly online, with your potential customers, noticeably by producing videos that talk to a younger audience ? And one should not underestimate the cost of such video production…

    By that you add a bit of love from the main snowboard websites around the world (there are not so many important in the end : TWS, snowboarder, yobeat, fluofun, method, pleasure, onboard) and BOOM, you are core to the kids, who grow and become your customers. All efforts done by the 6.0 times are paying now…

    More generally I would enjoy reading more of your thoughts about media strategies in our -small- world. :-)

    ***Sorry for the bad english, not my first language…***

    • jeff
      jeff says:

      Hi CSS,

      Your English seems fine to me. Better than some of the people who live here.

      Certainly the way a brand builds credibility has changed. Yes, it’s social media and the internet. But what I’d say is that you can no longer “tell” customers anything. You have to “ask” what they think. I’m afraid much of traditional advertising has lost whatever power it ever had. And remember that we are now competing, like it or not, in the much bigger fashion/youth culture market. Most brands coming out of action sports just don’t have the resources to compete with the really big players in that space (and perhaps shouldn’t). As a result, the approach you suggest may the only choice some of these brands have.

      Thanks for the comment,

      J.

  2. Dave Stargate
    Dave Stargate says:

    Hi Jeff,

    For info, I understand the Adidas minimum order value is a UK-wide policy introduced in 2013 (not just the London area) and has already seen some long standing Adidas retailers lose their accounts. Many smaller local sports stores and specialist shoe retailers will be unable to reach the £25k threshold and as such it appears they have cast them adrift to concentrate on larger accounts.

    As an interesting note, Adidas do not open any new Online only/Pure Play retailer accounts in the UK so maybe it thinks it can squeeze more sales out of it’s existing larger retailers? Both brands have also banned all third party marketplace selling (Amazon and eBay) in the UK and Europe in recent times.

    Although I understand the smaller retailers may not seem important (they must consider them more trouble than they are worth), but they do have an important role in putting brands in front of customers in a high street environment.

    As a result of this policy, the only place you will see Adidas and Nike in many towns in the UK is the large discount retailers such as Sports Direct and DW Sports and the brands will have pretty much disappeared from all specialist running shoe stores. The consolidation of the sports retail industry continues!

    Do you have any thoughts on why this policy has hit the UK only, and not other countries in Europe?

    • jeff
      jeff says:

      Hi Dave,
      Thanks for the great info on what’s going on in the UK. I had no idea of GBP 25,000 was a lot or a little. As I said in the article, it feels like big brands think they can rely on their own retail stores for showcasing the brand. It occurs to me that this might be a big opportunity for a brand like Brooks.

      I’ve got no idea why it’s UK only, but I would not expect it to remain that way. They had to start trying it somewhere I guess.

      Thanks for the comment.

      J.

  3. Nick Adcock
    Nick Adcock says:

    Hi Jeff – firstly Happy New Year and I look forward to another year of great topical articles from you.

    Reading this article, and specifically thinking about London as a market I was kind of shocked at how low this minimum order was.

    Taking into consideration the cost of retail rent (one of most expensive in the world) you would have to think a retail store would need to be doing minimum £1m annual turnover to justify its existence (also being conservative here I feel but easier to calculate).

    When you then look at £25k in minimal annual purchases against that revenue you certainly don’t get an impression of “brand statement” retail partner.

    Based on the old “less is more” analogy you would think any brand would be better of financially and strategically with having one retailer who commits 25% OTB as “brand partner” than 10 retailers giving you 2.5% of their OTB (and your brand being given very little representation but at 10 times the work load).

    I’m tipping this decision is a combination of both financial upside (servicing fewer doors) and increased brand focus (more focus & impact with fewer doors).

    I also wonder if this is a reaction to an “excessive” segmentation/distribution strategy of their brand. Resulting in “lots of stores” taking a “few of many different styles” – no financial upside in that!

    • jeff
      jeff says:

      Howdy Nick,
      Happy New Year to you too. Don’t suppose you’ll be at Surf Expo or Agenda? My sense was that 25K seemed low too, but I really didn’t have any information on the greater London market. Thanks for giving me a way to think about it. At least here, brands used to spend a lot of time trying to get specialty retailers to take more so they could represent the brand well. But they ran up against the store not wanting to look like a brand store. So perhaps, as you suggest, there’s a conflict between selling to smaller retailers and representing the brand well. At least for bigger brands, selling in a much broader, I’m afraid the smaller retailers just aren’t as important to them as they used to be for credibility. I don’t like that, but I think it’s true. Lesson for specialty retailers: Take lots of risk on new brands. It doesn’t matter what discount you get from big brands or if it’s on consignment if it doesn’t sell at a margin that lets you make money.

      Thanks Nick,

      J.

  4. Micky
    Micky says:

    A happy new year Jeff and a good article to start the year and head into the trade show season.
    The “go to market” strategies of the major sports companies is constantly evolving and this is another example of that evolution. It is entirely possible that when Adidas (A) or Nike (N) launch and new product or product line they will re-open lines of distribution that suit that particular launch. Good retailers and suppliers should be evolving and changing their strategies to suit both their financial situation and also the market situation. Good retailers will also welcome A & N back to their stores when they do want to launch something new.
    Nick’s comment also resonated with me; the minimum $ value is low – especially for London. Good stores should be turning at least $3500 a month with a major brand like N or A. If they are not then it could be argued that it is detrimental for brands to continue to supply retailers who don’t turn inventory quickly enough. I also think back to your theory on GMROII.
    Change also brings opportunity and this is an opportunity for other brands to fill the gap that A & N are creating with the smaller retailers. So this available OTB also may the the chance for smaller/new brands to get the long awaited foot in the door with some of these stores.
    Good retailers will have nothing to worry about from this strategy. Change is good.

    • jeff
      jeff says:

      Hi Micky,

      It never occurred to me that either the retailer or a brand would carry, not carry, then carry again product. Or at least it wouldn’t happen to quickly. What do the customers think when a retailer has a brand, then doesn’t have it, then has it again? How would they react to that? Would they know to come to the retailer for the brand once it hasn’t been there a while?

      Obviously, Nike and Adidas agree with you about what a good store should be doing, and share your concern about being represented well.

      Thanks for the comment and happy new year to you too.

      J.

      • Micky
        Micky says:

        Hi Jeff,
        Customers would be conditioned to know that certain retailers are the “go to” store when the big guys make their newest/latest foray into actionsports. I completely agree with your opinion that the actionsports market is tiny compared to others but it can be a useful launch platform for these bigger brands to bring new products to the early adopters and seed the market for the volume sales of (similar not same) products to follow.
        The brands know that some stores are considered opinion leaders and their consumers are conditioned to expect the latest and greatest from those retailers. The chosen retailers would no longer want to carry the product once it was distributed to the mass market as the price and probably margin would be reduced, and possible more importantly, they would have already moved on to the next new “thing”. The big brands have the power to financially motivate these retailers to take the new product on, and share the risk through good partnership.

        Going to the Know Show tomorrow to see what is going on locally, then probably heading to ISPO to see what is going on over there.
        Hope you are well and our paths cross again soon.

        • jeff
          jeff says:

          Hi Micky,

          I don’t think what you’re describing is any different from how brands have always moved into and out of the specialty retail channel once they got to a certain size. If you are talking the brand moving in and out and in again, I’m still not sure how that will work, if that’s what you meant in your first note. Of course, there’s less specialty retail than their used to be, and I don’t see that changing. How will that change how new brands get traction and the role of early adopters? Good questions. I’m thinking on it all the time.

          Any chance you’ll be in Denver for SIA?

          J.

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