Even before the pandemic, Nike was looking to take more control of its brand and how its products got into the hands of consumers. Those efforts are paying off during the Covid-19 era, and the company is leaning into that strategy.
Susquehanna analyst Sam Poser writes that his research shows Nike (ticker: NKE) is closing wholesale accounts from a number of multibrand retailers. That includes the usual suspects like department stores (Belk’s and Dillard’s [DDS] among them), but also athletic chains like City Blue and big online player Zappos.com.
The decision is “positive for Nike, as it takes control of more of its own destiny,” writes Poser, who has a Positive rating and a $150 price target on the stock. The stock is trading around $112 as of early Tuesday morning.
He also thinks it could be a tailwind for retailers that still carry Nike products—including Dick’s Sporting Goods (DKS), Hibbett Sports (HIBB), and Shoe Carnival (SCVL)—especially at locations close to those department stores that will no longer be carrying Nike. The decision is also good news, or provides a potential break, for other retailers calling Nike, such as Caleres ’ (CAL), Famous Footwear and Designer Brands’ (DBI) DSW, and Foot Locker (FL), Poser argues.
It’s not that surprising that Nike would look to limit its partnerships with other retail outlets. Even before the pandemic hit, Nike had seen success as it invested heavily in improving its online sales and selling directly to consumers.
Given how much emphasis Covid-19 has put on e-commerce, it’s clear why Nike would want to double down on its digital presence, especially as consumers have demonstrated that they’re still willing to spend money, particularly on health and wellness. The company is seeing just as much value in reaching consumers directly in store and online.
Direct-to-consumer business models have become very popular, not just in retail, but across the spectrum. The theory is that this not only allows companies to control the narrative around its products, but limit discounting and preserve brand value—and of course collect data from shoppers who buy online.
Nike stock is up 10% year to date against the S&P 500’s 6% gain. Barron’s has reported that Nike might be one of the few retail winners to benefit from this odd back-to-school shopping season.
Write to Teresa Rivas at teresa.rivas@barrons.com
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August 25, 2020 at 09:34PM
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Nike Stock: It’s Time to Buy Because Company Is Taking ‘Control of Its Own Destiny‘ - Barron's
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