Is Nike the next luxury fashion house?

Nike Inc is so on trend right now. By making its hottest sneakers harder to find, it’s on its way to becoming more a top-end name, like Gucci or Louis Vuitton, than a mainstream product. That’s of immense value to both the sportswear giant’s brand equity and its profits. And with American luxury on a tear, it’s a strategy the company should take even further.
The pivot has not been so good for Foot Locker Inc, which has lost about a quarter of its market value since revealing it would receive a slimmer supply of Nike’s most in-demand styles. Foot Locker said that no single vendor — Nike is its largest supplier — would account for more than 60% of the chain’s total purchases this year, down from 70% in fiscal 2021 and 75% in the year earlier. Foot Locker shares then fell the most in four decades, although they recovered slightly.
But for Nike, this is part of a broader shift away from selling through third-party retailers. Reaching customers instead through channels that it controls is more profitable, because it gives Nike greater power over its pricing and its image. If the company’s stores, website or app are the only places selling a particular sneaker, then there’s no risk that it might be available somewhere else at a discount. Markdowns damage not only profits but also, crucially, the Nike brand’s standing in the market.
Selling through its own channels also enables Nike to forge closer relationships with its customers, generating valuable data, which is something that grows even more useful as products that are tailored to individual customers become more important.
In deciding to sell more of its products directly, Nike is following in the footsteps of luxury brands that have, for example, stopped supplying certain department stores that they no longer consider to be upmarket enough. This keeps their own pricing power and brand cachet intact. Luxury adviser Mario Ortelli estimates that for multi-billion-dollar luxury brands, direct-to-consumer channels account for more than 90% of sales, on average. For Nike, the share is nearing 40% and could reach 60% by 2025.
Nike has already made one smart move. Its challenge now is to make a more dramatic shift toward becoming a luxury house.

—Bloomberg