{"id":22509,"date":"2017-11-14T16:49:12","date_gmt":"2017-11-14T21:49:12","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/will-dicks-sporting-goods-be-tackled-by-digitalization\/"},"modified":"2017-11-14T16:49:12","modified_gmt":"2017-11-14T21:49:12","slug":"i-thought-we-were-teammates","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/i-thought-we-were-teammates\/","title":{"rendered":"I Thought we were Teammates!"},"content":{"rendered":"

“Undifferentiated, mediocre retail won’t survive,” at least according to Nike Brand President Trevor Edwards.1<\/sup> Sporting good retail companies like Dick\u2019s Sporting Goods (DSG) historically built their value proposition on connecting high quality brands to passionate, scattered consumers. However, the middleman\u2019s value is deteriorating in the digital age. While only 28% of Nike brand sales were direct-to-consumer (DTC) in FY2017, these sales were 70% of Nike\u2019s growth.2<\/sup> Nike, and other apparel companies like Under Armor and Adidas, are increasingly pursuing DTC growth and decreasing their reliance on wholesalers because digital technology allows them to (1) provide consumers direct access<\/em> to their products, and (2) it lets them supply<\/em> and manage<\/em> those products with higher efficiency and lower risk than ever before.<\/p>\n

Access<\/em><\/strong><\/p>\n

Historically, exclusive Nike sneakers were sold through hip, boutique shops, while mass-market bestsellers were distributed through retailers like DSG, and the lower-end shoes were on the shelves of Designer Shoe Warehouse (DSW). Multiple third-party channels enabled the stratification of one brand, but apparel companies are now able to create their own digital spaces that cater to distinct audiences. For example, Nike\u2019s innovative SNKRS app lets consumers know about exclusive sneaker \u2018drops\u2019 and provides backstories behind new designs.3<\/sup> The Nike App lets customers easily browse the standard Nike collection and connects them with athletes and experts providing product advice, while the Nike website filters products by relevant categories such as \u201csale\u201d items. Consumers can easily learn about, locate and order the products that are right for them through direct, online catered experiences.<\/p>\n

Managing Supply<\/em><\/strong><\/p>\n

Nike is also expanding their network of retail stores, enabled by production efficiencies gained through a fully integrated, digitally enabled, end-to-end supply chain. In this model, known as Supply Chain 4.0, \u201cplanning becomes a continuous process that is able to react dynamically to changing requirements or constraints.\u201d4 <\/sup>Apparel companies can now manage and even customize inventory, without risking high holding costs or backlogs, while making last-second adjustments to orders in real time. Serving customers directly enhances the consumer experience while decreasing costs and driving up margins.<\/p>\n

DSG\u2019s Response<\/em><\/strong><\/p>\n

While DTC becomes an appealing channel for brands, DSG is also committed to taking advantage of digital capabilities, and they\u2019re playing defense against the emerging market share threats. On the digital side, they\u2019ve invested heavily in their eCommerce platform and mobile app to create a better online shopping experience. They introduced the \u201cPick-up in Store\u201d feature which allows customers to shop online until noon on Christmas Eve and pick up their order same-day, and the \u201cEndless Aisle\u201d experience which gives associates mobile devices to check inventory and order out-of-stock items for free, home delivery on the spot.5<\/sup> These enhancements, also driven significantly by Supply Chain 4.0, importantly allow DSG to keep pace with the service provided by the DTC apparel brands, but they don\u2019t do enough to differentiate the firm amidst this new competition.<\/p>\n

In discussing further responses to the broadening of apparel distribution, DSG CEO Edward Stack told investors that, \u201cwe will be aggressive marketing and promoting this category to protect our market share.\u201d In an era when consumers scan barcodes in DSG aisles and compare online prices across vendors, DSG has introduced their \u201cBest Price Guarantee,\u201d and they engage in aggressive pricing discounts that they feel they have the financial positioning to weather. However, Stack admits this new pricing landscape is likely here to stay, and I\u2019m concerned that irrationally dampened pricing is not a long term solution.6<\/sup><\/p>\n

\"\"<\/a><\/p>\n

Given the expected persistence of this pricing dynamic, DSG must do more to create a differentiating experience for consumers. They should build off of their current differentiating features as a company, which include:<\/p>\n