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Nike Threatens Consequences for Retailers Acting in Bad Faith

When an investigation into a sneaker resale enterprise connected a high-ranking Nike executive with her son’s shoe-flipping business, the fallout was quick.

The implicated leader—vice president and general manager, North America, Ann Hebert—resigned within days. Less than two weeks passed before Nike held an internal all-hands meeting where CEO John Donahoe laid out a plan to restore consumer confidence.

According to Complex, which reviewed a recording of the virtual meeting, these steps included auditing the launch process, doubling down on anti-bot technology and updating policies to make it clearer what is and is not appropriate for employees and their immediate family.

It appears Nike is following through on this plan. According to The Sunday Times, the footwear titan has warned its retail partners they could face a “supply curtailment” should they fail to stop employees from quietly providing multiple pairs of sneakers to resellers who then flip them for a profit.

The warning comes as Nike continues to prune its retail partners. Sam Poser, an analyst at Williams Trading, reported last month that the company had notified six retailers—DSW, Urban Outfitters, Shoe Show, Dunham’s Sports, Olympia Sports and Big 5 Sporting Goods—that it will no longer sell them wholesale product. A spokesperson from DSW’s parent company Designer Brands Inc. confirmed that Nike is indeed ending its wholesale relationship with the retailer.

In August, Poser had reported that Nike was closing its accounts with nine other chains: Fred Meyer, Zappos, Dillard’s, City Blue, VIM, EbLens, Belk, Bob’s Stores and Boscov’s. Based on when the last shipments to these retailers arrived, Poser estimated the final shipments to this latest round of affected businesses would come around October.

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As Nike continues to detach itself from retail partners in favor of a direct-to-consumer focus, the company is also taking steps to grow an in-house resale apparatus. Nike Refurbished, a program designed to spruce up and resell pre-owned sneakers, launched last week at eight outlet stores nationwide.

The initiative represents the culmination of nearly two years of “extensive research,” Nike said. A spokesperson told Sourcing Journal the circular program gives the company an “opportunity to give millions of pairs of shoes a second life.” However, the “value-driven prices” of Nike Refurbished likely mean it does not yet pose a risk to sneaker resellers like StockX and GOAT, which often sell limited-supply sneakers at marked-up prices.

Nike enthusiasts queue up on Air Max Day outside the Major in Washington, D.C. The brand has reportedly warned some retail partners that it would cease shipping product if store employees continue flipping sneakers for a profit and keeping hard-to-get kicks out of fans' hands.
Nike enthusiasts queue up on Air Max Day outside the Major store in Washington, D.C. The brand has reportedly warned some retail partners that it would cease shipping product if store employees continue enabling resellers who keep hard-to-get kicks out of fans’ hands. mpi34/MediaPunch

Carrera Kurnik, director of culture and consumer insights at Fashion Snoops, has theorized that Nike could rework the incentives of the sneaker resale market if it began linking its shoes to blockchain-based non-fungible tokens. A company like Nike or Adidas, she said, “could write into the NFT of their real-world shoe that every time it is resold, 20 percent of that sale goes back to Nike specifically.” On the flip side, she added, they also could potentially write the NFT such that it cannot be resold above a certain threshold price as a way of pushing back against professional resellers.

“It could be a strategy to ensure that real people and users get the access to shoes, to whittle away at the resale market,” Kurnik continued. “But then again, the resale market does help these brands by selling out their shoes.”

Nike is certainly aware of NFTs. Since filing its patent “System and method for providing cryptographically secured digital assets” in May 2019—it was published less than seven months later in December—the footwear titan has filed several additional patents, including ones related to the event-based distribution and video game integration of “cryptographically secured digital assets.” Still, none of these patents seem to suggest it will begin using NFTs to take on resellers any time soon.