The real reason why Nikes are disappearing off store shelves.
By Luis Sanchez, Arts and Culture Staff Writer
There is a reason why premium products from Nike are becoming less available in wholesale retailers. Recently, Nike has devoted attention to getting customers to buy products directly from their channels and an exclusive group of retail partners, while cutting ties with most wholesale stores. The change means that shoppers will find fewer stores that sell these leading brands, and puts pressure on Nike’s competitors that can no longer stock popular shoes. Nike’s strategy increases customer demand and profits while maintaining the company’s monopoly over the sneaker and activewear market.
The practice of reducing the number of wholesale items available while keeping hype and popularity level allows for higher profits to be made. Nike exploits the economic theory of supply and demand for the sake of better business. They are releasing a tighter collection that is gradually less accessible unless it’s direct-to-consumer, while keeping a sustainable high level of need. As a result, customers are encouraged to turn from brick-and-mortar stores to an online format where Nike reaps a higher reward. The artificial creation of product shortages raises prices and profits, and protects the company from possible branding image devaluation by having too much supply. Nike’s monopoly on the market allows them to call the shots and pressure the partnering retailers to showcase apparel precisely the way they want in in-store displays.
The pandemic has only accelerated the impending doom that retailers were facing. With stores closed, there was no other choice but to push customers to purchase products online, putting those without the framework to do so at a disadvantage. Then, when stores reopened and new clothes launched, there was such high demand that there was virtually no excess stock to send to retailers, as Nike prioritized its own stores and channels.
This approach is not without criticism. Long-time independent sneaker shops feel betrayed after helping grow the Nike brand over the years, and small and large businesses alike can no longer rely on Nike to attract customers and profit. This could possibly hurt Nike in the long run. Just as in any market, new products and innovations constantly emerge. Other retailers now have no choice other than to pursue alternatives to Nike.
Photo credit: Craig Patterson
While it may sound like Nike is engaging in the purposeful destruction of smaller businesses, this is an economically sound decision and is far from discriminatory. The process by which free markets such as the sneaker market change and adjust to keep up with business innovations is called creative destruction. Creative destruction drives out competitors that employ inefficient business practices, such as smaller independent brick-and-mortar stores and larger retail chains like Urban Outfitters. It is only natural in an oligopoly, where few brands such as Nike and Adidas have all the power to reduce the barriers for entry for rival competitors. Nike is a price maker, and businesses must adapt or die. It’s not personal, just business.
