Sneaker Distribution and Retail
As a sneaker lover, you may be curious as to how the products you know and love are created. How are sneakers manufactured, how does the process work, and where does it all happen? While every sneaker brand has its own manufacturing and distribution process, there are a few commonly seen methods used across several popular sneaker brands. Below, let’s review some of the most popular distribution channels and retail strategies utilized by all of your favorite brands.
Distribution is the process by which a brand makes their product or service available to the consumer or business that needs it. A distribution channel is the vehicle in which that product or service is delivered. Traditionally, there are two types of distribution channels- direct and indirect. These channels can include wholesalers, retailers, distributors, and places throughout the internet.
Direct Distribution Channels
Direct distribution channels come into play when a company sells goods or services directly to the customer. For example, direct distribution is one of the distribution channels Nike utilizes by selling their products directly to consumers via their website, mobile app or retail stores.
This type of distribution channel is managed and organized by the company itself, therefore the brand is responsible for all aspects of delivery and ensuring the customers receive their orders successfully. On one hand, this can be very capital intensive as companies often need a warehouse, logistics system, delivery staff, and much more. However, this allows the company to have full control over their distribution channel and it is easier to cut out inefficiencies.
Indirect Distribution Channels
The main difference between direct and indirect distribution is that with indirect channels the distribution process is outsourced to intermediaries who are then responsible for the delivery. Generally, these intermediaries come in the form of wholesalers. Wholesalers can be agents or retailers who buy large quantities of product for redistribution.
Using an indirect method of distribution can be beneficial since it allows companies to avoid large startup costs and provides easier scalability. Furthermore, finding the right vendor relationships can reduce shipping and storage costs which in turn can lower prices for consumers. Overall when done right, indirect distribution can avoid complexity and simplify distribution management.
Nike is an example of a brand utilizing both direct and indirect distribution with the largest portion of their revenue coming from sales to wholesalers. The brand sells to a plethora of wholesaler agents working at other brands like Dicks Sporting Goods, FootLocker, FinishLine, and several others. However, in more recent years Nike has turned their focus on improving their direct distribution channels, selling directly to consumers, as the margins are much higher.
Sneaker Retail Strategies
The retail strategies used in the sneaker industry are both unique and effective - some even credit the industry for creating these renowned ways of doing business. Beyond traditional retail strategies of printing ads and celebrity endorsed commercials, the sneaker industry has successfully learned how to build hype around their new releases. The cultural lore around an exciting dop can turn a $150 sneaker into a cultural/emotional object worth tens of thousands of dollars.
One strategy brands use to scale excitement is the incremental rollout. This can take form in many different shapes, but essentially it is done by bringing out a new product in small quantities to tease the consumer, to which distribution gradually increases but never fully satisfies the demand. We commonly see this play out through photos being ‘leaked’ or fans spotting a new model of sneakers on a celebrity who has exclusive access.
The perfect example of this strategy was the rollout of Adidas NMDs. The shoes were first made known through pre-launch events, then dropped in extremely limited quantities and sold out. In the following months, limited edition NMDs continued to launch, bringing more product onto the market but continued to stay sold out. This led to an increase in the consumer desire to own a pair of NMDs. Due to this, Adidas has continued to introduce new colorways and has ridden the success of this silhouette.
Another commonly used strategy in the sneaker industry is creating hype with local exclusives. Similar to the incremental rollout strategy, the local exclusive method also rides on providing a limited quantity in comparison to the demand. Despite the name, these drops are not necessarily exclusives for certain locations; rather they are exclusive in the quantity made. Usually, we see brands utilizing local exclusive strategies to gain excitement and visibility around the brand by surprise dropping new releases. There are several examples of this including the satin Air Jordan 1s surprise drop in New York City, the EQT ADV Art Basel 2016 exclusive, and ComplexCon’s “Kennedy’s” by New Balance.
Influencer marketing is another commonly used strategy which stems from the more traditional strategy of celebrity endorsements supporting new releases. The sneaker industry has not been one to shy away from utilizing social media to their advantage, and influencer marketing is a great way to leverage the social media presence of others. Influencer marketing encompasses celebrities too, like musicians and actors who already have a large following.
Brands often use influencer marketing to set the direction of their products rather than try to make quick sales. For example, Adidas sent Ellen DeGeneres a customized pair of Stan Smith sneakers prior to relaunching the classic model. This led to DeGeneres posting about the shoes on her Instagram. Rather than directly posting a link to purchase the shoes, DeGeneres posted about the shoes in an organic way for fans to build a connection between her and the shoes. When brands use influencer marketing, it is more focused on building the association of a product with that influencer, rather than using it as another vehicle to make sales. This allows a more long standing relationship between the consumer and the brand.
Retail vs. Resale
It is important to note that while the resale market is huge in the sneaker industry, and can be a tell-tale sign of a design’s success, brands have no control over the resale markets and therefore aim their focus mainly on retail. Brands may have the resale market in mind while campaigning and planning out new releases, but they won’t directly profit from sales made on the secondary market. In fact, the resale market can trigger brands to bring back old launches, run re-editions of popular models, and drive additional marketing insights.
Some retail sites function in a multitude of ways. Their collection of rare and exclusives can be purchased for fashion, collectibles, or in some cases, the store itself serves as a museum to moments of cultural impact in the sneaker game. One company, Sneak Peek, provides a glimpse of a day in the life of a sneaker-shop owner.
Why Distribution Channels and Retail Strategies Matter
Especially in the sneaker industry, distribution channels and retail strategies can make or break the outlook of a new release. Different modes of distribution can inflate or lower costs for consumers and can also determine the scale at which a product reaches. Much of a sneaker's afterlife is determined by the retail strategy used by the brand. Whether that shoe becomes a beater worn throughout everyday life, or a sought after sneaker artifact, can all be determined by the retail strategy chosen.