Nike’s Digital Ecosystem Paved the Way for D2C Transformation (original) (raw)

A suite of workout and retail apps tied together by rewards and membership sets Nike up for 50% digital penetration by 2022.

Just over two years ago, Nike outlined a plan to reach 30% digital penetration by mid-2024. At the time, the goal hovered between ambitious and realistic; digital commerce was steadily growing and the percentage of sales that came through digital was somewhere between 15% and 22% each quarter that year.

Fast-forward to June 2020, and Nike CEO John Donahoe shared a digital growth milestone: “In fiscal year ’18, we set a goal … We will reach that goal more than two years ahead of plan this coming year, and looking ahead, we now expect our overall business to reach 50% digital penetration.”

Upon first glance, the gap between the roughly 20% digital penetration Nike was hitting in 2017/2018 and the 30% milestone the retailer recently reached may not seem like a lot, but inside that 10% is a complex story: It represents billions of dollars in new digital revenue, millions of new Nike Digital members, and a wholesale shift to D2C retail, all made possible by one of the most ambitious digital transformation roadmaps in retail history.

Need to Know

Stitching digital into the Nike fabric

There’s no denying that the COVID-19 pandemic pushed Nike’s digital strategy forward and enabled the retailer to hit that 30% digital penetration mark years ahead of schedule. Including the most recent one, Nike has seen three consecutive quarters with digital sales growing more than 80%, a trend many other large retailers have also experienced.

Bumps in digital sales are nice, especially when they’re close to triple-digits, but it’s not the biggest indicator of digital prosperity for Nike. In fact, those surges are almost a byproduct of growth stemming from Nike’s investment in its entire digital ecosystem.

“We know a consumer who connects with us on two or more platforms has a lifetime value that’s four times higher than those who don’t.”

John Donahoe, CEO, Nike.

“Digital is now woven into everything we do as a company,” explained Donahoe in Nike’s most recent earnings call. “It’s how we operate and prioritize, from how we engage with members, to how we operate our supply chain, to how we serve consumers in the marketplace … Through innovation, we are serving consumers in ways no other brand can. We’re using digital to connect product to consumers like never before.”

Donahoe’s final comment illustrates what makes Nike a differentiator, and how many other retailers are trying to play catch-up. Nike products are sold in tens of thousands of stores, yet the retailer only operates about 1,000 of its own. Despite the ubiquity and availability of the brand, Nike is fulfilling its own destiny and becoming a D2C brand. Instead of going to the mall or a local sportswear shop, customers are buying Nike through direct channels. And it’s the way consumers are reaching those channels that is Nike’s biggest point of digital pride.

The scale of Nike’s app ecosystem

Nike’s ecosystem of apps is robust, to say the least. The Nike commerce app regularly moves in and out of the top 10 retail apps globally, and through it, customers can shop for shoes, athletic wear, and more. A huge amount of Nike’s digital success can be attributed to its primary commerce app, and 150%+ growth in mobile sales in back-to-back recent quarters cements that. But it’s three other apps that actually weave Nike’s digital strategy together: SNKRS, Nike Run Club, and Nike Training Club.

“What’s fascinating to watch is the consistency of the growth across digital … and our ability to reach consumers digitally in a variety of manners is just getting better and better as this pandemic goes on,” Donahoe said on the call.

SNKRS is the crown jewel of Nike Digital. The app, which has reportedly been downloaded up to half a billion times on iOS alone, offers exclusive footwear drops for customers in the US, China, and Japan. It functions as the most important piece of Nike’s D2C puzzle: By creating a digital platform that offers direct access to highly-desirable products, Nike creates demand that is accessible worldwide. That formula is obviously working, as Nike reported that SNKRS brought in over $1 billion in revenue for the first time in 2020.

A look at Nike’s SNKRS platform.

SNKRS offers a glimpse of Nike’s D2C magic. In October 2020, Nike hosted a live stream product drop of Air Jordan 4 PSG shoes via SNKRS. Every single pair sold out in two minutes. Shoe releases can change, too: The Kyrie 7s came in four colorways and were available only as mystery purchases through SNKRS. More recently, 23,000 Air Jordan 1s (between 90and90 and 90and170 a pair) went on sale earlier this month and sold out…one minute before they were supposed to launch.

Donahoe said that SNKRS “continues to push digital retail to the next level,” and called the app “one of Nike’s greatest competitive advantages.” When an app can deliver upwards of $4 million in sales in less than 30 seconds, it has earned its “competitive advantage” label.

Take Nike Run Club and Nike Training Club–two apps that have a decidedly-less intense focus on e-commerce. Whereas SNKRS is built for Nike shoppers, Run Club and Training Club are built for Nike fans, which is an important distinction. Through these two apps, users can plot workouts and runs and compete with themselves (or friends) to earn rewards through Nike’s platform. In fact, to make the platform more open to all kinds of users, Nike dropped its premium subscription fee for Training Club in March 2020.

Nike’s workout apps flourished in 2020. In the summer, 50% of Nike’s worldwide members logged a workout via the apps, and in April, Nike reported over 20 million workouts per month from Training Club—up from 1.8 million in 2016.

Run Club and Training Club are essential components of the Nike experience, as they allow the company to gather data about its top users and continually invite them back to the Nike world through gamified experiences and rewards. And, of course, the exercise apps have a small shopping section meant to reach people with specific workout gear and accessories.

Even though there is a retail element to Run Club and Training Club, Nike’s goals for the app move beyond the buy button. It’s obvious that SNKRS and the commerce app accomplish the D2C sales heavy lifting, and Donahoe has repeatedly stated that the apps—particularly Run Club and Training Club—exist to create a direct connection with consumers.

“After all, we know a consumer who connects with us on two or more platforms has a lifetime value that’s 4 times higher than those who don’t,” said Donahoe on a September 2020 earnings call.

Consistent digital engagement is more than a metric for Nike. It’s the retailer’s lifeblood. If Nike can deliver value to a shopper in more ways than simply buying a piece of clothing online, it literally quadruples their potential revenue. It could be argued then that Training Club and Run Club are even more valuable than the SNKRS and commerce app—by augmenting the Nike experience beyond retail, it creates an environment that blurs the line between shopper and user. That’s where Nike wants to live.

“It is no longer enough to have a good product,” Matthew Boss, JPMorgan’s head of US retailing summed up about Nike. “The key is to offer services that naturally fit within a consumer’s daily activities.”

Nike’s secret? Digital membership

Membership ties Nike’s digital presence together and creates a unified experience for users. Every time someone uses Training Club, Run Club, SNKRS, or the commerce app, they will log in to their member account. Being a member is the crux of Nike’s digital engagement, as rewards and milestones are connected through membership. Complete a half-marathon in Run Club? Earn some rewards. Buy a new pair of shoes through SNKRS? Earn even more. If each app is a leg and arm on Nike’s body, membership is the muscle that keeps them pushing forward.

During the pandemic, Nike added a whopping 70 million members and took that as a sign to deliver even more value. In late 2020, Nike hosted its first-ever Member Days across the world, reaching over 60 million members across 25 countries through unique digital offers and rewards. The plan was to increase engagement and drive older users back to the platform, and it worked, driving unprecedented conversion metrics for the quarter.

Nike’s app ecosystem, along with its massive membership program that bridges the gap between retail and community, are the key factors responsible for huge digital success over the past five years. The strategy was put in place in 2018 and survived the stress test that was the pandemic, with millions of people flocking to apps and billions of dollars in new digital sales. This is the secret sauce that allowed Nike to hit its 30% digital penetration goal early and surely exceed 50% within another three years.

“NIKE’s digital transformation strategy is not easily replicated,” said Donahoe in September. “While we have had tremendous success in digital and quickly pivoted to the accelerated consumer shift, I truly believe that NIKE is just scratching the surface of what’s possible.”