No. 289: Nike and hyperlocalization

NikeHyper

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. Nike.com‘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.

Additional reading: Can a DNVB Achieve Modern Luxury? 

By Web Smith | About 2PM

Issue No. 219: On TheSkimm

Opinion: The Skimm treats its readers like they’ve never read an article, looked at a map, or accidentally seen a CNN segment in their dentists’ waiting rooms. Its patronizing tone assumes that female news consumers tune out anything of import if it’s not processed through verbal eye-rolls. The very existence of such a service, especially one marketed specifically to women, is insulting.
As a fan of The Skimm’s business, I can understand how a lack of intellectualism can seem demeaning to an educated audience. But I also applaud the two founders for accomplishing two things with their unique style of content: a) keeping a very busy professional class semi-informed b) helping to make a general populace curious for real, intellectual depth. 
See more of the issue here.

Issue No. 197: Urbanization Outfitters.

A last word: seven thoughts on DNVB’s

We discuss the macroeconomics of eCommerce quite a bit. At least once a week, we will discuss digitally-native vertical brands (DNVB’s) ranging from consumer packaged goods startups to athletic apparel and high fashion upstarts.

Here’s a great definition of what constitutes a DNVB by Andy Dunn, CEO of Bonobos.

In a recent discussion with Hendrik Laubscher on the longterm viability of vertical brands, he made some interesting points on influences that will determine brand durability.

  1. How do DNVB’s succeed in an economy that places premiums on horizontal eCommerce (Walmart, Amazon, Target)? They enter new spaces and establish consumer loyalty. The consumer relationship can be just as important as the product itself.
  2. There is no middle of the eCommerce market in any vertical. Either you’re great or you’re gone. Amazon destroys “middle” by using their financial muscle to drive said business into the ground.
  3. So how are the DNVB’s doing as a whole? A lot of the supposed winners are cash hungry, burning platforms of doom. I am not going to name anyone but ask yourself one question — why are certain brands constantly in publications such as Recode, TechCrunch, or Fortune? Fashion public relations is often a cost-center disguised as a profit-center.
  4. Consumer Packaged Goods startups (Harry’s, Walker and Co., Dollar Shave Club) have a lot of upside as publicly-traded incumbents are in need of millennials for continued growth. There is a premium on CPG-specific DNVB’s for this reason.
  5. For DNVB’s to survive they must be both vertical and specific. What do they possess? (1) A limited selection of products with marketing and operations optimized for longterm margin growth and (2) an authentic story. TracksmithTuft and Needle, and M.Gemi have stayed true to their roots, are cash efficient, and are run by driven entrepreneurs. They have solved customer retention woes by using tech, clever brand-differentiation, and the sourcing of excellent products.
  6. The sudden growth of the vitamin and supplement category has long term growth prospects. As health becomes a global driver of decisions these MLCs are able to access educated customers with a new breed of products that are cost effective and have repeat purchase implications.
  7. For DNVB’s to be sustainable — LTV, retention costs, and unit economics need to be the priority on day one. The brands that succeed have to operate like they’ve raised little to no money at all.

See more of the issue here.