The sportswear giant will sever supply to the vast majority of its online third-party distributors, tightening its channel control.

China is Nike's (NKE) third-largest global market, and the company is working to reverse two consecutive years of sales declines there.

Starting January 1st next year, Nike (NKE) will cut off the vast majority of its online third-party distributor channels in the Chinese market, aiming to turn around two consecutive years of revenue decline in the country.

Nike (NKE, down 1.17%) is restructuring its troubled China business. The company is betting that streamlining sneaker purchasing channels in this third-largest global market will ultimately boost sales.

The sportswear giant announced that effective January 1, 2027, it will terminate the sales qualifications for the vast majority of its online third-party distributors in China. The bulk of its online business will be consolidated into around a dozen official flagship stores on major domestic e-commerce platforms, as well as Nike's Chinese website and official app.

This move is a key step for Nike in reversing its performance decline in China. Once one of its most reliable growth engines, the market has now become the group's most problematic regional operation after two years of sales declines. This reform is being spearheaded by veteran Nike executive Cathy Sparks. In the spring of this year, CEO Elliott Hill appointed her to lead Nike's China business, tasking her with turning the market around.

Sparks stated that the current online channel landscape in China is overly fragmented, plagued by counterfeit goods, chaotic pricing, and inconsistent brand presentation. Nike's channel integration aims to address these issues. The brand will phase out online stores operated by third-party retailers, with a few exceptions retained. She emphasized that this is not about limiting consumer purchasing channels, but about creating a unified and consistent brand experience in China's fiercely competitive online retail environment.

In an interview, Sparks said there are currently over 1,000 online stores in China selling Nike products, and the disorderly expansion of channels has led to an "excessively fragmented consumer experience." Nike plans to guide Chinese consumers toward its official direct-operated stores on platforms like Tmall, JD.com, and Douyin, thereby gaining control over pricing, inventory, and brand presentation.

Many of the operators of these online stores also run physical brick-and-mortar stores. The largest among them is Topsports International, a leading Chinese sportswear retailer with over 5,000 offline stores. Following the announcement, Topsports International's Hong Kong-listed shares experienced a historically rare plunge, falling as much as 30% intraday.

In an internal notice posted on Nike's website, Topsports International's Chairman and CEO, Wu Yu, commented: This adjustment "will bring short-term pressure to our business. However, we firmly believe that, in the medium to long term, this direction is conducive to building a healthier, more orderly, and sustainable retail ecosystem in China, while continuously optimizing consumer experience and product appeal."

As part of its China business reform plan, Nike intends to launch new-format physical stores, develop more products designed specifically for Chinese consumers, and deepen sponsorship partnerships with local sports teams in China. The brand has already opened three standalone stores for its ACG professional outdoor series and will continue to expand, while also creating a dedicated store model for its running category.

Domestic brands like Anta and Li-Ning continue to narrow the gap in product quality and innovation, rapidly gaining ground by leveraging the wave of national trend culture.

Simultaneously, Nike was slow to enter China's live-streaming e-commerce space, only opening an official flagship store on Douyin in 2024, lagging significantly behind local competitors. Currently, live-streaming commerce accounts for nearly 32% of total online sales in China.

BNP Paribas analyst Laurent Vasilescu cautioned investors that this reform plan is reminiscent of the DTC (direct-to-consumer) strategy Nike implemented in Europe and the US in 2020, which ultimately failed. Former CEO John Donahoe launched the "Nike Direct" plan, which de-emphasized wholesale partnerships in favor of developing its own channels, eventually leading to inventory pile-up and creating market space for competitors like Hoka and On. At the end of 2023, Nike halted its direct-sales-first strategy and booked approximately $2 billion in restructuring charges.

Vasilescu wrote in a June investor note (when rumors of Nike's channel reform in China first surfaced in local media): "This strategy allowed competitors to seize shelf space, and Nike ultimately lost more than it gained. If a similar model is replicated in China, history may repeat itself."

A Nike spokesperson disagreed with this comparison: "This is not a strategic retreat, not a withdrawal from online retail or an abandonment of the wholesale business... It is a readjustment of our channel layout tailored to the unique current market conditions in China."

Sparks stated that the scope of this China plan differs from the previous Nike Direct strategy: the reform targets only online distributors, while wholesale partnerships with physical retailers like Topsports remain unchanged. Hill has also repeatedly acknowledged that a turnaround in China's performance will not happen overnight.

Hill stated during a March earnings call: "We are cleaning up market channels, unifying online and offline retail execution standards, and rebuilding local brand influence through sports culture. This process takes time, but we remain convinced that serving China's 1.4 billion potential sports enthusiasts represents one of the most promising opportunities in the sports industry."