It’s a Wednesday morning in Tokyo and the streets of this Harajuku neighborhood are buzzing. Scores of tourists — many from Southeast Asia — and millennial-aged locals are bouncing up and down on the sidewalks and spilling out of bubble tea shops, ramen cafes and a stretch of mid- to high-end retail shops.
The 10-year-old — but newly remodeled — Nike Harajuku store has opened its doors for the day. In minutes, all three of its floors are brimming with shoppers. The 16,000-square-foot space — one of Nike’s tricked-out large-format stores — is situated at the competitive epicenter of Tokyo tourism.
Just two or so miles from this space is a newly opened “Nike Live” store. That location is one of the brand’s “hyper-local, data-driven” small-format spaces, as Cathy Sparks, global VP and GM of Nike Direct Stores, described it. At just 1,900 square feet, this outpost, modeled after “konbinis,” the Japanese term for 7-Eleven-style convenient stores, sits inside Shabuya Scramble Square, a 47-story shopping and office complex that debuted last month and is adjacent to one of the busiest and most iconic pedestrian crossings in the world, Shibuya Scramble. About 1,000 people can be seen crossing — or “scrambling” — the multi-cornered intersection at any time of day.
Nike by Shibuya Scramble will likely nab wallet share from millions of tourists who frequent the area. But when FN joined the brand’s executives in Tokyo recently as they were putting the finishing touches on the store, they said they’re particularly focused on the roughly 3 million commuters who pass daily through the Shibuya Station complex, which sits above the busy train station.
Despite the store’s super-localized features, its ecosystem has been highly influenced by an unlikely source: A year-and-a-half-old Nike outpost located more than 5,000 miles away on Melrose Avenue in Los Angeles.
“For the last year, we’ve adopted the mindset of ‘test and learn.’ The consumer is moving so fast that having a sense of urgency to move quickly [is important] — but we also want to make sure what we’re doing is truly in tune to them,” explained Sparks. “Since we opened ‘Nike by Melrose,’ we spent that whole year testing 80 different things in the consumer journey — from product to experiences to digital connection to different consumer activations.”
The successful concepts filtered through the Melrose store, along with several regional-specific ideas, have found their way into the “Nike Live” door in Shibuya and another location, in Long Beach, Calif., both opened in the past month.
Nike has long been admired, and even analyzed, for its size and dominance. Now, as it chips away at a plan it unveiled two years ago, dubbed the “Consumer Direct Offense,” aimed at selling more of its wares directly to consumers, this is how a behemoth brand builds scale.
All of these stores, part of the company’s burgeoning portfolio of owned doors, marry three of Nike’s most critical objectives right now: sell more product directly to consumers, make sure a large number of those consumers are women and inform all of it through data and digital.
Connecting the Dots
Since Nike embarked on the new DTC strategy in 2017, the company has enjoyed sizable gains in a difficult climate. For fiscal 2019, the Swoosh’s direct revenues spiked 16% to $11.8 billion, driven by a 35% increase in digital commerce and 6% growth in comparable store sales. The firm’s wholesale revenues also advanced 10%.
On the brick-and-mortar side, the brand’s “Live” outposts in Long Beach, Melrose and Shibuya best exemplify — informed heavily by data from its apps — its “micro” approach to building tighter consumer bonds. A significant facet of Nike’s direct offense includes a focus on 12 cities: New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul and Milan. These key locales are expected to represent over 80% of Nike’s projected growth through 2020.
“We believe this is a concept that connects our digital and physical ecosystem in service to the member and allows us to build the types of relationships we want to have with our [customers] moving forward,” noted Sparks.
Case in point: Nicole Otto, VP and GM for Nike Direct North America, said nearly everything in the Long Beach store — from its female-focused design to the kinds of products that are front and center — was driven by data gleaned from user-generated patterns on Nike’s four apps.
“We looked at our member information and saw we had a high density of females participating with us and driving activity both in our running app and our Nike Training Club app. So we leaned a little heavier into the women’s aesthetic and thinking about how we were going to serve her,” Otto said. “We have pant hemming and bra fitting, and we’re really thinking about how we remove friction at any stage with buy online, pickup in store, ‘reserve for you’ and ‘scan to try on.’ ”
It’s no secret that female consumers have challenged sportswear firms for years, and Nike’s latest efforts are focused on this sector of the market with a goal to advance its women’s sales to $11 billion by 2020. In 2015, when Nike released that goal, the women’s division was bringing in $5.7 billion in revenues. “We like to use the language ‘from her for all,’ ” said Sparks. “What that means is that when you take her insights and you build strategies and experiences from those, the [results] are better for everybody. We know she’ll shop for her whole family and that we can help her make sport a bigger part of her life, especially in a market like Tokyo.”
This push will be vital for the brand in the lead-up to the 2020 Summer Games in Tokyo: “The Olympics are a moment when sports take hold of everyone’s life, and that’s right where Nike is,” said Sparks. “Our ability to be in the hearts and minds of our consumers and members when everyone is watching sports on the main stage [is significant]. We put a ton of effort into making sure our athletes are heroed. Especially now, with our focus on making sport a daily habit as a company. We see this as an opportunity — just as we did with the women’s World Cup — to make it mean more than the event.”
Where the Tokyo market is concerned, Angie Callaway, GM of Nike Direct Stores for Asia-Pacific and Latin America, said Japanese consumers — a prime target for brands because of their affinity for luxury goods and willingness to pay premium prices for convenience — are embracing technology in a way that has created a new inroad for Nike. “[We’ve] watched how comfortable people in Tokyo are with [online] shopping and leveraging their mobile devices, [as well as] their ability, when it’s easy, to work with the technology,” explained Callaway. “How that helps consumer experiences is game-changing.”
One significant end goal of Nike’s “test and learn” efforts in the DTC channel is to find the right balance of local flair and global brand messaging for each of its key cities.
“In Nike by Shibuya Scramble, we have a very cool concept called ‘Nike Store Chat’ because culturally chat resonates better than text does,” explained Sparks of one regional-focused concept the brand is using in Tokyo. “And we’re doing the text through ‘Line’ — the No. 1 social media platform in Japan.”
Still, when a Japanese consumer enters the Shibuya store, his or her experience will be driven by the brand’s global platform. Shoppers who have the Nike app on their mobile devices will find it is instantly aware of their location when they enter a Nike outpost and can aid their shopping experience with features like “scan to price check.”
“The good news is that Nike has thought about their digital platforms to serve the world,” explained Otto. “So we run a single platform in most of the countries we’re in. With that common backbone, as we think about these services, we can think about how to nuance them for the community and also leverage the capabilities around building for scale and service across the globe.”
It boils down to this: Nike is making small, targeted steps, but the goal is always to be big.
Even with its apparent successes, Nike’s DTC path is not without casualties. The company signaled two years ago that its journey would mean moving away from certain wholesale partners it believes no longer share its vision. Then-brand president Trevor Edwards notably told investors, “We know that undifferentiated, mediocre retail won’t survive.” Still, it seems the industry at large is just waking up to the reality of what the execution means.
The brand over the past few months has faced scrutiny for its decision to pull out of several, smaller independent stores. Headlines hinted that mom and pop retailers, in particular, were feeling pinched by the company’s decision to stop supplying sellers whose methods were no longer aligned with its new goals. Even e-tail giant Amazon didn’t go unscathed: Nike last month announced it ended a two-year pilot program to sell its shoes and clothing directly on Amazon’s website.
Despite the noise, market watchers have been largely bullish, viewing Nike’s refined distribution strategy as a necessary business step, even as reports implicating the brand in the demise of some smaller retailers struck a nerve with certain groups. “For Nike, the ‘Consumer Direct Offense’ is about the consumer connection and the brand-building — that’s what eventually results in higher sales. It’s a long-term plan,” explained Sam Poser, an analyst with Susquehanna Financial Group LLLP. “The way they’re communicating with their customers and trying to personalize the experiences is being done in a very methodical manner. Nike wants to strengthen and enhance its brand — not just sell stuff.”
Plus, as Sparks points out, the firm has identified certain top-tier partners — like Foot Locker, which it recently collaborated with on an innovative location in New York City’s Washington Heights — with whom it will cultivate new ideas.
“This is what ideally happens: We’ll grow with the long-term partners, and we’ll work to make sure we differentiate and map the marketplace in the right way,” said Sparks, calling out Foot Locker and Nordstrom as examples of partners the brand is working with more closely as part of its expanded ‘Nike Network.’ “The ‘Nike by Nordstrom’ space [in New York] is focused on the style side. It’s very different from a typical Nike environment. … The way we can have our physical destinations work together like that is powerful.”
As the company forges ahead with its objectives to more seamlessly fuse digital and physical, Sparks expects the ‘test and learn’ approach will persist. “We adapted the mentality that some things aren’t going to work,” she said. “Culturally at Nike, we like to win and failing is hard. But what’s been really fun about the past few months is that we’ve said, ‘Our job is to fail at some of this and prove it wrong before we go to scale.’ ”