Opinion: Sports Direct’s Nike swipe smacks of desperation

The sporting goods retailer has called for a competition probe into the global sports goliaths, claiming their market dominance means they are able to control both the supply and price of their products.

It’s been nearly a month since Mike Ashley’s business climbed on to this proverbial soapbox, having already voiced its disapproval at JD Sports’ potential acquisition of Footasylum, the conduct of Debenhams’ board and the crisis at Goals Soccer Centres this year.

Let’s not forget Ashley has form in this field – he shook up the market after exposing the price-fixing of replica football shirts that had been led by former rivals JJB and AllSports, back in 2001.

“Ashley likes a gamble and he is betting the future of his business on securing closer relationships with the likes of Nike and Adidas”

Ashley’s latest battle cry came just days after The Sunday Times revealed Nike is slashing its supply agreements with dozens of independent retailers, as it seeks to sell more of its products direct to consumer.

Nike has reportedly sent letters to smaller retailers explaining that their way of stocking its goods was “no longer aligned” with the US company’s distribution strategy, and it would be terminating supply agreements with such retailers by 2021.

Nike boss Mark Parker revealed back in 2015 that he wanted half of its revenues to come from sales made through its own stores and ecommerce platform. In 2017, then brand president Trevor Edwards warned that “mediocre” retailers would not survive the cull of Nike’s wholesale partnerships.

Desperate times

It’s a move, therefore, that has been a long time coming, but one Sports Direct fears Adidas could replicate in years to come. Between them, Nike and Adidas banked around £50bn in sales last year.

Sports Direct believes “the industry as a whole would benefit from a wide market review by the appropriate authorities in both the UK and Europe” into that market dominance. The retailer says the pair’s stranglehold gives them “an extremely strong bargaining position vis-à-vis the retailers within their supply networks… to implement market-wide practices aimed at controlling the supply and, ultimately, the pricing of their products”.

It is a statement that smacks of desperation from Sports Direct’s perspective. 

Nike’s strategic shift – including heavy investment in its mobile app and bricks-and-mortar presence to drive customer engagement and loyalty – has coincided with Ashley’s “elevation” plan to take Sports Direct more upmarket.

The billionaire and his head of elevation – and future son-in-law – Michael Murray are attempting to move away from the ‘pile it high, sell it cheap’ model, sprucing up stores across its estate in a bid to convince third-party brands like Nike to supply it with top-tier stock. Ashley likes a gamble and he is betting the future of his business on securing closer relationships with the likes of Nike and Adidas.

However, if the sportswear titans continue to distance themselves from retail partners that don’t stock their products in the upmarket manner they demand, Sports Direct runs the risk of throwing a party before checking if anyone on the guestlist agrees to come.

Worryingly, Murray has already admitted the business is struggling to convince sceptical big-name brands that it is serious about rolling out its elevated store proposition, despite plans to refit 50 more shops during its current financial year.

“We’re working closely with [the brands] but it’s not fast enough. The level of product access that we are getting doesn’t justify the level of expenditure we are spending on these stores,” he said at Sports Direct’s full-year results in July.

Power plays

It would appear that, in the months since, Ashley and Murray have failed to bring Nike and Adidas onside – and have now opted to put down the carrot and pick up the stick. But will it be a wise move?

The power dynamics between brands and retailers are in a state of flux, but if Sports Direct has not done sufficient work to keep its store estate appealing to shoppers and brands alike, that should not be Adidas and Nike’s cross to bear. It is, after all, part of a brand’s job to protect the way its product is merchandised in retailers’ stores.

“Rubbing brands up the wrong way is not the way for Sports Direct to build the bridges it requires”

Having pinned his elevation plans on building better partnerships with brands, Ashley is understandably panicking about what Nike’s direct-to-consumer strategy means for Sports Direct’s supply of products.

But one can imagine that rival JD Sports’ boss Peter Cowgill, who has prioritised investment in creating a seamless multichannel experience and already has access to top-tier branded product as a result, is rather more sanguine.

Perhaps there is a case for a market review of Nike and Adidas’ dominance, but rubbing them up the wrong way is not how Sports Direct will build the bridges it requires.

Ashley would do better to stick to the task at hand of transforming his own store estate, rather than firing out irate media missives.