Nike cuts most third-party online vendors in China to reclaim premium status

Sparks doubles China product team, names first VP-level product-creation head

The Wall Street Journal reported Monday that Nike will cut off most third-party online vendors in China as part of an effort to reclaim premium status that has eroded against nimble local competitors. Cathy Sparks, a longtime Nike executive who assumed the China post this spring, is leading the strategy shift, the Journal’s Jon Emont reported.

Sparks said third-party vendors like Topsports had created a fragmented online sales experience marked by heavy discounting, according to the Journal. That discounting has undercut the premium pricing power that once set Nike apart from local Chinese rivals.

The move carries commercial risk. Online third-party wholesalers account for an estimated high-teens share of Nike’s China sales — a notable share of revenue that could erode if partners pivot. Retail partners could redirect their online storefronts toward competing labels, including Adidas, and “this will hit sales,” the Journal reported.

The China decision differs from Nike’s earlier attempt to tighten distribution in the United States, where the company eventually concluded it had gone too far in restricting third-party retail and gave up ground to competitors in the process. In China, the new restrictions apply only to online channels; Nike will continue working with third-party retailers at bricks-and-mortar stores. The central question facing the strategy is whether a decline in overall sales is worth swallowing if it means selling a higher share of goods at full price.

To revive demand among Chinese consumers who have defected to local competitors, Sparks has been touring cities to study fitness trends. She is also dramatically expanding Nike’s China product-creation team — doubling its size — and appointing the company’s first head of local product-creation for China at the VP level, who will report directly to her.

The hiring push addresses a sensitivity that has dogged foreign brands in China. Chinese consumers often call out labels they feel lazily pander to Chinese tastes, the Journal reported — adding a dragon design and calling it a “Year of the Dragon” shoe, for example. Nike believes a sustained commitment to localized product development is required to recapture the attention of young Chinese shoppers, many of whom do not know who Michael Jordan is.

Rivals have already demonstrated what a serious localization effort can achieve. Adidas has paid homage to traditional Chinese design motifs with notable success in the Chinese market, according to the Journal. Nike’s product development historically has been run through a highly centralized system, and it remains to be seen whether Sparks’s newly empowered China team can produce comparable hits.

Sparks framed the approach as iterative. “We’re going to test and learn,” she said. Understanding the Chinese consumer, she added, “will get us to the right formula.”