Nike China, taking drastic measures to solve a problem

Last week, a report about Nike's planned restructuring of its online distribution system in China sent shockwaves through the industry.

The news stated that Nike intends to reclaim operational control over certain online channels, affecting core partners including Topsports. Following the leak, Topsports promptly issued a public statement without directly denying the rumors, noting only that it "has not yet received official notification from Nike," while disclosing that the two parties have maintained ongoing communication regarding cooperation models covering online sales arrangements.

If fully implemented eventually, this reform could impact approximately $1 billion worth of Nike's wholesale business in China, accounting for 17% of the Greater China region's total revenue in the previous fiscal year.

A few days later, during the fiscal 2026 fourth-quarter earnings call, in response to persistent questioning from analysts, Nike Global CEO Elliott Hill avoided directly addressing the rumor, stating only:

"Success in the China market requires deeper local partnerships, and we are continuously advancing adjustments across both online and offline channels."

On June 29, a source close to Nike told 36Kr that the aforementioned news is "basically true." According to the insider, Nike has internally prepared to endure short-term pain. "A genuine return to growth may not arrive until 2027, or even 2028."

Meanwhile, WWD cited analysis from BNP Paribas, suggesting that this adjustment was very likely initiated by Kathy Sparks, the newly appointed General Manager of Nike Greater China. "She has just arrived in China, and needs to implement changes that differ from past practices."

Profit Is Not the Sole Objective

In reality, however, this is far from a simple move of "reclaiming distribution rights." More accurately, Nike is attempting to restructure its entire retail system, enabling its distribution network to gradually gain operational capabilities comparable to those of a direct-to-consumer (DTC) system.

Over the past few years, online channels have become the biggest operational challenge for Nike China.

In the fourth quarter of fiscal 2026, Nike's digital business (its direct online sales segment) dropped 25% year-over-year, dragging overall DTC revenue down 17%, while revenue from physical DTC stores also fell 9%. Management explicitly stated that sustained online promotions and price competition in the China market are key factors undermining profitability.

At the same time, Topsports' latest announcement shows that in the fiscal year ending February 2026, online sales of Nike products accounted for approximately 22% of Topsports' total revenue. In other words, despite its massive scale, this business segment is also the most difficult part of the price system to regulate.

Many observers have concluded that Nike is refocusing its bets on DTC operations. But a footwear and apparel analyst revealed to 36Kr that this interpretation is inaccurate. The goal of this reform is not to bring all business in-house, but to redefine the division of responsibilities between the brand and its distributors. Nike aims to make its online distribution system operate according to DTC standards in the future: unified product launch schedules, unified membership systems, unified digital capabilities, and unified inventory management, while letting partners remain responsible for store operations. There is a more direct term for this — DTC-style transformation of the distribution system.

From a financial perspective, DTC operations are naturally more profitable.

The DTC business of sportswear brands typically carries a gross margin of around 50%, while the gross margin for wholesale business generally ranges only from 30% to 40%. As of February 2026, Topsports recorded a gross margin of 38.2%, while Pou Sheng International, another core distributor, posted a gross margin of only about 33.5% in its previous fiscal year.

However, after going through the DTC reforms of the past few years, Nike has realized that relying solely on DTC cannot solve all problems.

Around 2020, Nike aggressively pushed its DTC (Direct-to-Consumer) strategy by cutting back on wholesale channels, hoping to take full control of consumers, profits, and data. The results proved that this model did not go as smoothly as expected. After a large number of wholesale partners exited, Nike lost critical retail networks and local execution capabilities, leading to reduced inventory management efficiency and weakened market coverage — which later became one of the key reasons for sustained performance pressure in North America.

As such, this round of reform is more like a correction built on the foundation of the previous one. Nike wants to retain its wholesale partners, while exporting the digital capabilities it has accumulated over the past few years to these collaborators.

Inventory management is the core component of this effort. Nike plans to leverage its proprietary data systems to help distributors forecast demand, optimize restocking, and monitor inventory, while providing partners with support in brand training, retail operation courses, community management, content creation, and channel positioning. The ultimate goal is singular: to extend the full-price sales cycle of products as much as possible, and even when price reductions become necessary, to maintain control over the pace of discounts and inventory flow, instead of letting products quickly enter unregulated discount channels.

China Presents Greater Challenges Than the U.S.

For a long time, Nike China has not directly operated a large number of stores. The brand primarily relies on Topsports (under the Belle Group) and Pou Sheng (under the Yue Yuen Group) to build its nationwide retail network, and Yue Yuen is also Nike's most critical manufacturing partner. This cooperative relationship is far more intertwined than that in the U.S. market. During the period of fastest growth, Nike could even require distributors to permanently display products that yield low profits but help elevate brand image. The Nike global flagship store in Beijing's Wangfujing, opened in 2021 (now closed), was a representative project co-developed by Nike and Topsports.

It was China's e-commerce sector that fundamentally transformed this cooperative dynamic.

China is home to the world's most mature online retail ecosystem, which also means the most intense price competition on the planet. Adidas Global CEO Bjørn Gulden once stated bluntly during an earnings call that it is nearly impossible to achieve full-price sales in China's online market. For distributors, when offline inventory builds up pressure, livestream e-commerce often becomes the fastest channel to clear stock. A new pair of sneakers with a suggested retail price of 800 yuan can quickly drop to 600 yuan online, and even sell for as low as 400 yuan in livestream rooms.

And this only accounts for first-tier authorized distributors.

Second-tier distributors, cross-channel product flows, and the gray market further exacerbate price chaos. Research firm Re-Hub once calculated that as of 2023, within the gray market transactions of China's top 10 luxury brands, Dewu accounted for 73% of the market, while Taobao made up roughly 26%. Although Nike is not a luxury brand, its sneaker market also hosts a highly active gray distribution system. It is nearly impossible for the brand to stabilize prices simply by controlling product supply.

The channel restructuring now unfolding in China is a path Nike has already traversed in North America.

In 2017, under the leadership of then-CEO Mark Parker, Nike launched the "Consumer Direct Offensive" strategy, significantly increasing the proportion of DTC and digital channels while reducing the number of wholesale partners, in a bid to build more direct consumer relationships. That same year, Nike began supplying products directly to Amazon. But just two years later, Nike pulled out of Amazon, citing a desire to focus on "more direct, more personalized" consumer interactions.

In the subsequent years, Nike continued advancing its DTC reforms, further cutting small and medium-sized wholesale clients, and reducing resource investment in traditional distribution channels. As it turned out, the reform moved too fast. Starting in 2023, Nike began repairing its relationships with wholesale partners. Then-CEO John Donahoe listed "reinvesting in wholesale partners" as one of the group's four core strategic priorities; Foot Locker restored Nike's premium display space, and retailers including DSW and Macy's regained authorization to sell Nike products. In 2025, Nike also returned to Amazon's official sales ecosystem.

Daniel Heaf, Nike's Vice President of Direct-to-Consumer Operations, once summarized this shift: "Many people ask me whether Nike is fundamentally a DTC company or a wholesale company. The answer is that it is both." In his view, DTC and wholesale are not opposing forces, but integral components that together make up Nike's retail ecosystem.

For Nike China, the ongoing reform follows this exact same logic.

What the brand truly aims to rebuild is not ownership of channels, but the operational capabilities of these channels. In the short term, this means revenue pressure, adjustments to partnership frameworks, and continued fluctuations in market share; but if Nike can establish unified retail standards, a healthier price system, and more efficient inventory management, it will ultimately gain not just higher profit margins, but renewed control over its brand value.

Of course, the key underpinning all of this is stronger local product innovation capabilities. Elliott Hill revealed during the earnings call that a series of footwear products with "brand-new silhouettes" will be launched in the second half of fiscal 2027. The China market will also deliver its first batch of products developed by the local product creation team during the "2027 holiday season."

For a company that has already undergone one radical DTC transformation, this channel reform is more akin to a process of "breaking down before building up." Over the past few years, Nike tried to replace wholesale with DTC operations; today, it seeks to equip its wholesale network with DTC-level capabilities. If this reform succeeds, it will not only reshape the China market, but could also become a new blueprint for Nike's global channel strategy.