In a significant move to streamline its digital presence and reignite growth in the region, Nike (NKE.US) announced on Tuesday that it will cease supplying thousands of online resellers in China starting in January.

The company's online business in China will now be concentrated on its official website, mobile app, and its flagship stores on major platforms such as Tmall, JD.com, and Douyin. This marks a shift away from the current model where consumers can also purchase Nike products through a vast network of local physical partners and secondary resellers operating numerous other online stores.

While this extensive digital network has provided wide accessibility to Nike products, it has also led to inconsistencies in brand presentation and pricing, hindering efforts to reverse declining sales trends in the region. Catherine Sparks, Nike's new Vice President and General Manager for Greater China, outlined the strategy in a communication.

Focus on Brand Experience

"These new flagship stores will become Nike's singular, premium destinations within these ecosystems, featuring clearer product presentation, a stronger brand narrative, and a more connected consumer journey," Sparks wrote. "The goal is to consolidate the platforms where consumers begin and end their shopping journey, ensuring these experiences are intuitive, consistent, and distinctly Nike."

She emphasized that the plan is "not about reducing access, but about reducing fragmentation and strengthening the consumer journey," adding that "when the experience is consistent, the brand becomes stronger."

The initiative to scale back its online wholesale footprint is designed to create a better, more uniform consumer experience and allow Nike to reclaim greater control over its online pricing. However, concerns exist that this could lead to a substantial drop in revenue for a regional market that has already contracted by approximately 30% over the past five years.

Analyst Concerns and Historical Parallels

News of Nike's plan to cut off online reseller partnerships first surfaced in late November in local Chinese media. This prompted analysis from Laurent Vasilescu, an equity analyst at BNP Paribas, who drew parallels to Nike's previous decision to reduce wholesale partnerships in North America.

Vasilescu noted that the North American strategy ultimately led to a loss of market dominance and significant declines in sales and gross margins for Nike. "That strategy freed up shelf space for competitors, and Nike ultimately lost that battle. We believe the same could happen if the same approach is taken in China," he wrote last month, maintaining an "underperform" rating on the stock. "We believe Nike's problem is not a distribution problem, but a product problem, which also applies to other markets."

Impact on Partners and Local Support

The change is also expected to affect Nike's local physical partners, many of whom have expanded their own online businesses in recent years. Despite this, Top Sports, Nike's largest distributor in mainland China, has expressed support for the decision.

In a statement, Top Sports said, "Based on the principle of mutual benefit and shared growth, Top Sports has partnered with Nike for 27 years." The company acknowledged that "this adjustment will bring some short-term pressure to our business. However, we firmly believe that, in the medium to long term, this direction will help promote a healthier, more orderly, and sustainable retail ecosystem in China, while further enhancing consumer experience and product appeal."

"Looking ahead, we will continue to work closely with Nike, leveraging our strengths in offline retail operations, local consumer services, and deep market penetration across city tiers," the statement continued. "Through new concept sports experience stores and high-quality physical retail experiences, we will bring Chinese consumers richer and more meaningful sports experiences."