No. 289: Nike and hyperlocalization


I walked into the Melrose store and I didn’t think that it was for me at all. I’m not the millennial luxury consumer. And that’s who Nike’s after. The Los Angeles retail fixture is very specific to the area, in aesthetic and in offering. Every square foot of the store is built for Instagram. And for a moment, I realized that though I am a millennial, I am not the millennial that Nike pines for. This store is for them.

In July, Nike opened its first “Live” retail concept in the Melrose area of Los Angeles.  The brand joins Amazon and Nordstrom in the use of consumer data to inform in-store product and marketing decisions. Nike by Melrose is a 4,557 sq. ft. retail space located at 8552 Melrose Avenue in the West Hollywood area of Los Angeles. Further affirming Nike’s move towards luxury positioning, the storefront is located on a fashionable retail development in an area that’s home to $6,000 / month condos and illustrious, single family homes. Just down the road is Nordstrom’s take on the local concept.

Nike is making its push into luxury by attracting high margin consumers.

2PM Data

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Nike plans on emphasizing in-line stores, while deemphasizing outlet retail in 2019 – on
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As Nike moves to a higher margin DTC model, revenue will fall while profitability rises.
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Pre vs. Post Kaepernick: Nike’s marketing will emphasize high margin millennials

By greenlighting millennial-driven, experiential retail, Nike is leveraging its sizable eCommerce traffic to direct their merchandising decisions. Participation in brand development is at the top of mind for millennials. The more that enthusiastic consumers are a part of the process, the more interested the more interested they’ll be in the result.

Best customers are the place where you want to make the investment. They have a greater affinity for the brand, buy more than the non-customer and the cost of acquisition of non-customer is high.

Matt Powell of NPD

Hyperlocalization of physical retail considers the following variables for the consumer experience:

  1. direct-to-consumer commerce data
  2.‘s best sellers
  3. Nike Plus member engagement
  4. buyer population within 3-5 miles of the the physical location
  5. median household income of the adjacent parcels
  6. gender and fitness data (Nike Plus)

Nike by Melrose offers styles specific to the geography, which isn’t revolutionary. It’s not uncommon to see stores like Dick’s Sporting Goods lean on team merchandising for local markets or stock types of sports gear for higher class suburbs. But these styles will be determined solely by: the area’s buying patterns, app usage, and engagement. This means that Nike by Melrose could ignore wider trends (national and city-wide) in lieu of products preferred by the neighborhood’s brand advocates.

A sea change is clearly taking place in the retail market — but it is not the retail apocalypse. In our view, it is instead a renaissance — driven by huge shifts in economics, competition, and consumer access to options, all fueled by exponential advancement in technology.

The Great Retail Bifurcation [.pdf] by Deloitte

And this is part of the appeal. Nike, like Amazon Go and others in the online-to-offline space, are working to remove friction. In store, customers can use the Nike app to scan products for context. Through the app, members also have access to curbside pickup and phone-locked lockers to house their potential purchases while they’re en route to the store. By catering to customers and stocking high-probability purchases, Nike is employing data to reduce customer acquisition cost (CAC), online and in store.

Nike’s store is pushing the limits of how we view eCommerce today. In a way, the store reinforces our dependency on eCommerce and digital media. Nike’s GM of Direct Stores Cathy Sparks is tracking KPIs like member engagement and participation to gauge the success of the stores. Scale come next, Nike is looking at expanding its “Live” stores across America and Europe. The shoe brand’s number one priority? Consumer loyalty.

Additional reading: Can a DNVB Achieve Modern Luxury? 

By Web Smith | About 2PM

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