Nike, Inc. revealed plans to cut off thousands of online distributors in China beginning in January, shifting to selling online through its own website and app, as well as on new Nike-branded digital storefronts on popular Chinese e-commerce platforms Tmall, JD.com and Douyin.
Cathy Sparks, VP and general manager of Greater China, told Reuters that key sportswear retailers in China, including Topsports and Pou Sheng, will pivot to in-store selling. By restricting wholesale distributors’ online sales, Nike aims to rebuild trust with Chinese shoppers and sell more products at full price.
“Our marketplace has become so fragmented and cluttered,” Sparks, a 25-year Nike veteran who was appointed to oversee Chinese operations earlier this year, told Reuters. “What consumers want is an experience that’s premium, true to the brand, trustworthy, and certainly connected between digital and physical.”
Nike has seen seven consecutive quarters of declining sales in the region, including a 12 percent (negative 17 percent currency-neutral) year-over-year decline in the fiscal fourth quarter ended May 31. The declines were attributed to slowing consumer demand in the region amid a broader economic downturn as well as fierce domestic competition from local brands like Anta and Li-Ning, which offer similar footwear and apparel at significantly lower price points.
Elevated inventory levels in China have been a major, persistent problem for Nike in China, leading to heavy discounting for the brand.
The move runs counter to how most other major sports brands operate in Mainland China, with a focus on expanding both online and in-store distribution to reach more customers in a market that has recently struggled for growth. While making Nike products available online across Nike’s brick-and-mortar partner sites in the region as well as a network of secondary distributors expands access, it’s also created an inconsistent branding and pricing experience.
“Consumers expect authentic product, consistent storytelling and a seamless experience across every touchpoint,” Sparks wrote in a letter posted on Nike’s website. “By creating a more consistent, premium and connected marketplace, we can reduce fragmentation, strengthen trust and deliver a better Nike and Jordan experience wherever consumers choose to engage.
“So, we are taking actions with a focused strategy to reimagine our marketplace end to end, starting with digital.”
She said Nike is aiming to create “flagship experiences” on Tmall, JD.com and Douyin, as well as Nike.com.cn and the Nike App.
“These new flagships will serve as the single, elevated destination for Nike within these ecosystems, with clearer product presentation, stronger storytelling and more connected consumer journeys,” said Sparks. “This is about strengthening the platforms where consumers already begin and end their shopping journey, making sure those experiences are direct, consistent and unmistakably Nike.”
Sparks added, “This is not about reducing access. It is about reducing fragmentation and strengthening the consumer journey. When the experience is consistent, the brand becomes stronger.”
At the same time, Sparks added that Nike and Jordan physical stores “remain central to how athletes experience our brands” while noting that the company has invested in new concepts, including ACG Basecamp and Rookie Kids stores, that are delivering positive comps and improved traffic. It’s also working on “locally led retail concepts” in collaboration with its retail partners that will debut within the next six months..
Sparks continued, “We will continue working closely with partners to elevate product presentation, improve service, sharpen assortments and create more meaningful sport-led experiences in stores. When we make these improvements, consumers respond, and we see clear opportunity to further strengthen the marketplace while creating value for our partners.”
She added, “Our partner relationships are built on the shared understanding that short-term change is sometimes necessary to build a healthier marketplace for the long term.”
Sparks’ post included a quote from Yu Wu, chairman, CEO & executive director, Topsports International Holdings Ltd. Wu stated, “As Nike’s largest distributor in the Chinese mainland, Topsports has worked with Nike for 27 years based on the principle of mutual benefit and shared growth. This adjustment will bring some short-term pressure to our business. But we firmly believe that, over the medium– to long-term, this direction will help promote a healthier, more orderly, and more sustainable retail ecosystem in China, while further improving consumer experience and product appeal.
“Looking ahead, we will continue to work closely with Nike, leveraging our strengths in offline retail operations, local consumer service, and deep market development across city tiers. Through new concept sport stores and high-quality physical retail experiences, we will bring Chinese consumers richer and more meaningful sport experiences.”
Other changes in the region called out by Sparks included appointing its first-ever Greater China VP of local product creation, expanding local activations, and investing in regional teams.
Sparks concluded, “That is the strategy: a more premium digital marketplace, a stronger retail experience, more locally created product and teams empowered closer to the consumer, all working together to deliver a consistent, elevated Nike experience.”
On Wednesday, July 22, shares of TopSports crashed 24 percent while shares of Pou Sheng fell 8.7 percent following Nike’s announcement.
Topsports, which generates 22 percent of its revenue from online sales of Nike products, said in an exchange filing on Wednesday it expects a “significant” short-term negative impact. In its own filing, Pou Sheng said online sales of Nike’s products accounted for approximately 15 percent of its revenue.
Both firms said they remain committed to continuing to work closely with Nike.
Topsports said in a brief statement, “Notwithstanding the short-term negative impact, the Company remains committed to working closely with Nike on the offline sales arrangements on a mutually beneficial basis.”
Pou Sheng said, “The Group remains committed to fostering a robust business collaboration with Nike, aiming to collectively enhance the market channel ecosystem and deliver a superior consumer experience.”
News about Nike’s plans to cut off online distributors first came to light late last month in a local Chinese media report. It prompted a note from BNP Paribas equity analyst Laurent Vasilescu, who wrote the move is reminiscent of Nike’s ill-fated decision to cut off wholesalers in North America, which contributed to its collapse of market dominance in the region, as well as steep declines in sales and margins.
Vasilescu wrote in a note issued Wednesday, “Our key takeaway: Nike has a product problem. The decision to terminate this very important channel is a strategic misstep in our view. Wholesale.com is a very important channel in China, as it’s how many Chinese shop, particularly young consumers. The online channel is also a crucial channel for distributors to sell excess inventory as there is little to no Nike factory store outlet presence in China. So we are curious to know how Nike will sell excess inventory in China going forward as it terminates wholesale.com for Topsports and Pou Sheng. This official decision reminds us of when Nike decided to exit certain North American wholesale partners and it then ceded market share to competitors. We think the same will happen with the Topsports and Pou Sheng official news. Reiterate Underperform.”
Peter McGoldrick at Stifel in a note said he move reflects Nike’s ongoing efforts “to improve marketplace integrity, pricing discipline, and premium brand positioning in Greater China, despite near-term revenue pressure.” He noted that his firm’s Active Brands in China webcast, which featured an interview with Allison Malmsten of Daxue Consulting, showed Chinese consumers increasingly perceive Nike as a “generalist brand.”
McGoldrick added, “Actions to premiumize the market is sound, but will take time, as the company works to improve margins in FY27. We model Greater China revenue declines persist through F1H28E, and the region represents a -100bps structural headwind to long-term EBIT margin capacity.”
Paul Lejuez, who covers Nike for Citi Research, said Nike’s online sales to Topsports and Pou Sheng translates to $750 million revenue to Nike, or 9.5 percent of Nike’s China sales and 1.5 percent of Nikes overall sales.
Lejuez said in a note, “Our initial view is that this is an extreme move and a risky strategy for two reasons: (1) It opens the door for others to capture share in the market as China is an omni-channel market; this may force NKE’s partners (mentioned above) to focus more on other brands, and (2) We are concerned this move will result in negative press that impacts how the NKE brand is viewed by the China consumer. We expect NKE stock to be pressured as a result of this move.”
Monique Pollard, who covers Adidas and Puma for Citi Research, saw Nike’s distribution pivot in China as “slightly positive” for Adidas and Puma “given potential opportunity to gain share of shelf.” She noted that Adidas is already seeing strong recent momentum in the region, with its China sales up 17 percent on a currency-neutral basis in the first quarter. Puma is also seen as better positioned for China expansion following Anta Sports’ acquisition of a 29 percent stake in the German brand.
Image courtesy Nike, Inc.
