Nike is focusing on its ‘connected-inventory’ play and opening stores for sales and fulfillment as it races to deliver at Amazon’s speed

Amazon has gotten consumers accustomed to two-day deliveries. Nike would like to catch up.

While Nike has been characteristically quiet about specifics, the term “connected inventory” is increasingly being used by Nike executives as a catchall for online-to-offline sales and bringing together all Nike sales channels, including its stores and apps, as well as those of its retail partners.

The company’s connected-inventory plan also plays into a larger Nike shift to more regional shipping, including out of a wider fleet of Nike stores and warehouses.

Analysts said the plan was a response to consumer demand for faster shipping, and some big-box stores — notably, Target, Walmart, and Dick’s — are already known for shipping directly from stores.  The larger connected-inventory plan is the latest example of the pressure Amazon has put on companies, even one of the largest companies in the world, to compete on delivery speed.

“Everyone has gotten used to Amazon,” Brian Yarbrough, an Edward Jones senior research analyst, said. “Most retailers are trying to get it down to two to three days. Amazon created this. Amazon does same day now. Amazon has conditioned consumers to have much higher expectations for fast shipping times.”

Nike did not respond to a request for comment for this story.

‘The whole goal is to give the consumers what they want, when they want it, how they want it.’

Nike CEO John Donahoe spoke about the company’s connected-inventory efforts twice on Nike’s most recent earnings call, giving the example of hypothetical customers at Dick’s.

“If they’re in a Dick’s, and they see what they want, and they don’t have it in stock, we can fulfill it through our connected inventory,” Donahoe said. “And so the whole goal is to give the consumers what they want, when they want it, how they want it.”

While the plan can get products to consumers quicker, it also provides Nike and Dick’s with more data.

“It’s all about knowing you better and communicating with you and providing you the product when and where you want it,” said Sam Poser, an equity analyst for Williams Trading. “It’s more about the connection than the inventory.”

At the company’s annual meeting last week, Donahoe once again talked about Nike’s connected-inventory efforts, adding that all of the company’s North American stores offer at least one online service.

The phrase first came up on October 25, 2017, when Wall Street analysts and financial journalists gathered on Nike’s 500-acre suburban Beaverton, Oregon, campus for an investor day. During his remarks, Elliott Hill, then the president of geographies and integrated marketplace, introduced the term.

Hill described the work as an effort to tie together all of Nike’s digital and physical shopping channels, including with its retail partners.

The term didn’t find its way into news accounts about the day, likely on account of Hill’s remark two minutes earlier that Nike would shift away from 30,000 retail partners to focus on “about 40 partners” as part of a new direct-to-consumer focus.

About that time, Nike also started selling directly on Amazon. (It pulled its products from Amazon in 2019.) 

Nike has since closed about 50% of its wholesale accounts, but its executives have suggested the retail partners that remain could play a role in its connected inventory.

Then-CEO Mark Parker returned to the phrase on a December 2018 earnings call, saying the strategy would help the company realize its goal of getting products to customers two times as fast it historically delivered.

“Through two-times speed, we’re elevating the industry, creating an end-to-end value chain that’s centered on the consumer,” Parker said. 

By that time, Parker said he was bullish on connected inventory, with a pilot at 19 Nike stores in South Korea and two unnamed retail partners.

In November, Nike announced an enhanced partnership with Dick’s through which Nike and Dick’s would share information on members.

As part of that, the companies said they agreed to “work together across their respective physical and digital properties to deliver enhanced convenience, new experiences and content for customers and better anticipate and fulfill their evolving needs.”

Nike is trying to ship its products at Amazon’s speed. Gloria Dawson More retail stores, more warehouses

As part of the overall effort to serve customers “when they want it, how they want it,” Nike is adding retail stores and distribution centers. Nike, which historically distributed the bulk of its products out of a warehouse in Memphis, Tennessee, has opened distribution centers in Los Angeles, Dallas, and Bethlehem, Pennsylvania, in the past two years. 

New retail locations offer opportunities for sales, as well as getting inventory closer to consumers.

In 2018, the sportswear company opened its first Nike Live store. Nike uses local data gathered from its apps and website to stock Live stores with locally relevant products. The Los Angeles store, for instance, stocked a lot of Nike Cortez sneakers, a popular model in Southern California. The Live concept has been a hit and is now being rolled out to more cities. 

While most of Nike’s stores are in major metropolitan areas, stores are increasingly popping up in second-tier cities. A Live store will open in a Salt Lake City suburb later this month, according to a LinkedIn post by a Nike manager. And two Nike Lives stores are on the way in Kentucky, including stores in Lexington and Louisville, according to news stories and permits obtained by Insider.

Nike has $399 million worth of construction in progress, according to its most recent annual report, a 28% increase from fiscal year 2021. Job openings at Nike include a specialist for real-estate business development and one for real-estate marketplace development. 

Today, Nike has 257 stores in the US, according to its most recent annual report. But most of them, 209, are outlet, or “factory,” stores. Only 48 are Nike stores. (The company also operates 87 Converse stores.) 

Even with more stores and more retail partners, logistics experts said the big challenge is still basic inventory management.

“Stores are an important component, but ultimately, it comes down to being able to accurately deploy inventory closer to demand,” Nate Skiver, the founder of LPF Spend Management, said. “That sounds obvious, but that’s really what it comes down to.” 

On its previous earnings report, Nike noted a 44% increase in North America inventory. The company, like its competitors, continues to address supply-chain problems caused by the pandemic. 

The new stores are traditional and full price, and many will include new tech-forward shopping features, which fits nicely into Nike’s strategy, Simeon Siegel, the managing director for equity research at BMO Capital Markets, said.

“It’s important to remember that stores are a part of direct sales,” Siegel said. “If the whole reason to pivot is to elevate the brand and pricing power, stores need to be full price and brand-elevating.”

While details remain elusive, analysts said “connected inventory” made sense.

“Five years ago, retailers would ship from a distribution center, and the product might have been in a store 5 miles from your house,” Yarbrough, the Edward Jones analyst, said. “Connected inventory is about getting it to you faster. If you go into Dick’s, and Dick’s doesn’t have it, and they have it at the Nike store, they ship it to your house. They hope that keeps the consumer from either walking away from the product or the brand.”

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