The pandemic has changed many sectors, but in the majority of cases it has accelerated processes that were already underway. The sports distribution sector is dominated by two main international players: Nike and Adidas. For years, both players have set the pace followed by the rest of their competitors.
For decades, the main sales channel for sports brands has been B2B, through their distributors. Using a wholesale sales system, the companies that do the designing and producing get to their clients through third parties who distribute their products and bear the costs of final distribution. In this way, brands focus on design and marketing, while their partners are in charge of delivering the products to the customer.
However, over the last few years the growth of e-commerce has given brands an opportunity to get to their end clients without intermediaries. This has been accomplished by boosting D2C (Direct to Consumer) tactics, through communication over social networks as well as sales from their online stores and apps.
If you can get to your client more directly, why would you need distributors?
In a global context of margin reduction, the benefits to not having an intermediary are clear to see in your operating account – firstly, because you don’t have to divide up your margin, and secondly, if you dominate a larger portion of distribution, you control the price and sales activity.
Another large advantage of selling directly to the consumer is getting to know them. If data is the oil of the 21st century, the most cutting-edge brands cannot leave all the knowledge of their customers in the hands of third parties. Getting to know your customers, properly understanding their segmentation, and discerning their needs will all allow you to personalize your communication strategy and integrate customers into your community.
In an environment in which distribution and marketing online are dominated by Amazon and Google, elevating the profile of your brand is essential and creating loyal customers a necessity.
In any case, not everything is an advantage for brands. In its very beginning stages of Nike, founder Phil Knights conceived of a system of “futures,” through which its distributors made binding orders months in advance in exchange for a greater margin. With these orders, Nike was able to schedule their purchases in a way that guaranteed the sale of everything they produced, minimizing the surplus product and the financial risk. This system has not changed in decades, and the wholesale channel has been the bulk of the company’s sales across the globe.
Then, how did the new D2C strategy affect this planning and distribution strategy?
Apart from taking on the costs of online marketing and the last mile logistics, the greatest challenge for brands will be making accurate product selection decisions, reassessing their product planning strategies and all of its timing.
At a moment in which sport and fashion are increasingly linked, the largest brands will perhaps pivot towards a business model closer to that of fast fashion. They may look at it under the lens of companies like Inditex in regard to optimization of supply and distribution channels, and decision-making based on market feedback.
And what is the future for sports sector distributors?
The motto will be “fewer, bigger, better.” Over the next months and years we will be witness to the disappearance of some distributors and the merging of others. It will be natural (or forced) selection, in which only the best are left standing. In any case, the wholesale channel will have an even greater impact on sales. The partners who will survive will be those who are relevant for consumers and brands. Generalist distributors with a price-based model will no longer fit. And the specialists with a client-based strategy will remain, also benefitting from the disappearance of their competitors from this new stage.
The rules of the game have changed, and the result of the match is still up in the air for many players. Nobody is going to want to sit on the bench at the decisive moment.