Nike should be the next luxury fashion house

The pivot hasn’t been so good for Foot Locker Inc., which has lost about a quarter of its market value since revealing it would receive a smaller supply of Nike’s most in-demand styles. On Friday, Foot Locker said no single supplier – Nike is its largest supplier – would account for more than 60% of the chain’s total purchases this year, down from 70% in fiscal 2021 and 75% the year former. Shares of Foot Locker then fell the most in four decades, although they rallied slightly on Monday.

But for Nike, it’s part of a broader move away from selling through third-party retailers. Instead, reaching customers through channels it controls is more profitable, as it gives Nike greater power over its pricing and image. If the company’s stores, website, or app are the only places selling a particular sneaker, there’s no risk it’ll be available elsewhere at a discount. Markdowns not only harm profits, but also, and more importantly, the position of the Nike brand in the market.

Selling through its own channels also allows Nike to build closer relationships with its customers, generating valuable data, which becomes even more useful as products tailored to individual customers – sneakers in specially chosen colors bags bearing the buyer’s name. – become more important.

By deciding to sell more of its products directly, Nike is following in the footsteps of luxury brands which have, for example, stopped supplying certain department stores that they no longer considered to be high-end enough. This retains their own pricing power and brand cachet.

Luxury advisor Mario Ortelli estimates that for multi-billion dollar luxury brands, direct-to-consumer channels account for more than 90% of sales on average. For Nike, the share is approaching 40% and could reach 60% by 2025.

This is a concern for Foot Locker and other retail partners such as Dick’s Sporting Goods Inc. and JD Sports Fashion Plc in Europe. But for Nike, it’s an opportunity. The U.S. luxury market is on fire right now, fueled by a new generation of buyers, fueled – until recently at least – by stock market and crypto gains.

Nike could take more pages from the luxury playbook. While still partly a mainstream retailer, it could sell more ambitious and expensive sneakers and apparel at the high end. Demand for luxury brands’ own casual shoe collections – popular with these young shoppers – demonstrates there’s plenty of room for it.

Even more limited edition pieces would increase the appeal of the Nike name. In a virtuous circle, this should allow the company to forge more collaborations with luxury houses. Nike’s Jordan brand has previously teamed up with LVMH Moet Hennessy Louis Vuitton SE’s Christian Dior, while Louis Vuitton menswear creative director Virgil Abloh has created new versions of Nike’s Air Force One.

And Nike may have other moves of its own. The company is reportedly eyeing Peloton, a company that, despite all its recent troubles, operates in the luxury home fitness space.

Foot Locker, for its part, will have to find a way to fill the void as its Nike inventory shrinks – no easy task. There may be a silver lining: the retailer gets exclusive access to basketball shoes from Reebok. If Authentic Brands Group Inc. succeeds in reviving Reebok, it could be good for sales and profits.

Nike has already made a smart move. His challenge now is to make a more radical change to become a luxury house.

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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail sectors. She previously worked at the Financial Times.