Nike (NYSE:NKE) has been struggling in North America, reporting a 5% year-over-year revenue decline for its wholesale business in the most recent quarter. This should not surprise investors who have been following the so-called "retail apocalypse" in the U.S. Nike's wholesale results have been weakening for several years, and the company threw down the gauntlet to its retail partners during the most recent earnings call.

Knowing that a differentiated in-store experience is a must for today's shoppers, Nike wants its retail partners to up their brick-and-mortar game.

A tough message

CEO Mark Parker was clear about expectations for domestic retail partners in the call:

[...] a developed market like North America must embrace change to its legacy retail infrastructure [...] Retailers who don't embrace distinction will be left behind.

Parker went on to say that the apparel giant is "working closely with a select group of our strategic partners to define the new consumer experience together." This is not so surprising when you look at the decelerating growth of the company's wholesale business in North America and globally.

Bar chart showing Nike's North American and global wholesale revenue growth slowing. North America has slowed from 10.2% YOY growth in FY2015 to -4.8% in Q1-2018. Overall growth for the same time periods has gone from 6.1% to -2.1%

Chart by author. Data from Nike's earnings reports.

Nike has taken steps to engage its customers in a more personal way with its "consumer direct offense" and company-owned retail stores that offer a unique experience, such as its five-story New York brand showcase.

Why experiences matter to brick-and-mortar

It has become even more difficult for brick-and-mortar retailers to compete with the convenience of online shopping. Add to that a scalable business model which enables the online juggernauts like Amazon to constantly lower costs, and it's no wonder that e-commerce in the U.S. has a long track record of growth. Since brick-and-mortar retailers can't compete on price or convenience, they're increasingly focused on what they can deliver: a great in-store experience.

Women walking on the street arm in arm with numerous colorful shopping bags.

Image source: Getty Images.

Home Depot and Lowe's have long followed this strategy, one part of the moat that has largely made them "Amazon-proof".

Nike knows that it needs to engage customers wherever they choose to shop, and Parker made that clear:

Our vision is for every consumer who engages with the NIKE brand to enjoy an elevated, consistent experience regardless of channel.

The company wants to extend that same personalized experience that's been successful in its company-owned stores to retail partners who will buy into the vision.

Not without its partners

Nike's wholesale business, which sells to retail stores around the world, made up 72% of the company's revenue in its most recent fiscal year. While Nike has been aggressively growing its direct-to-consumer business, Parker is fully aware of the company's dependence on brick-and-mortar retail partners but wishes to take the helm in shaping the future of the sportswear customer experience.

As the leader, we are fully committed to energizing and growing the marketplace through both our own NIKE Direct businesses and with strategic wholesale partners.

Nike mentioned a few retail partners by name that were part of the "select group": Dick's Sporting Goods, Foot Locker, and Nordstrom. These retailers understand the changing landscape and are pursuing initiatives to stay relevant to consumers.

Edward Stack, Dick's chairman and CEO, talked about the company's classic "local store" approach to customer service on the last earnings call:

Our stores provide us an opportunity to deeply engage in the communities we serve and build relationships with local teams, coaches, players, and parents.

It'll be interesting to watch as Nike and its partners work together to optimize the in-store retail experience for consumers. Investors can be sure that this won't be the last time they hear from Nike on this important transition.

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