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Takeaway: Brands putting the screws to Wholesale partners by upping E-commerce agenda

Specialty Retailer Christy Sports tired of competing with its vendors as they make DTC push 


This is a major trend developing in retail as brands make the DTC push. Essentially competing with its historical wholesale partners on price to push growth through a direct agenda. And, the brands have a lot of margin dollars to work with in the DTC channel by eliminating the wholesale markup.

Take Nike, for example, which generates about a 51% Gross Margin when it sells a $100 pair of shoes to Foot Locker. But it garners about a 68% margin when it sells on nike.com. That’s nice, but it’s not what we care about. We care about the Gross Margin dollars – not the rate. On that very pair of sneakers, Nike gets about $23 in Gross Profit from that ‘wholesale’ sale to Foot Locker. But it gets about $85 (by our math) when it sells direct. In other words, there is a magnifier effect, and the dot.com margin dollars go up by a factor of 3-4x.

All it takes is a few sales hiccups for retailers to the give the stiff arm to vendors who are selling the same product behind their backs. But, that doesn't work when one brand is 75%+ of sales volume.

For a full run down on how the DTC push affects the traditional wholesale model, especially Foot Locker, see our note: NKE/FL | Critical Context on NikeLocker.

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