Summary of Key Points
Taobao has recently faced a significant challenge: Nike has announced that it will take back its online distribution rights starting in 2027, which has caused Taobao’s stock price to plummet by over 20% (with online Nike revenue accounting for 22% of total sales). Additionally, Taobao has closed nearly 4,000 stores in the past six years, reducing its store count from 8,359 to 4,360, due to a decline in foot traffic, brands’ desire to sell directly, and changes in consumer behavior. Taobao is in the process of transforming: it will retain large stores for customer experiences, engage in instant retail, and represent high-end, niche brands. However, it still relies heavily on Nike and Adidas (which account for 86.7% of its revenue), and the contribution from new brands is minimal, meaning the transformation path is still long.
Detailed Analysis
Why Does Nike Want to Take Back Online Distribution Rights?
Nike’s main goal is to control prices. In the past, distributors (such as Taobao) would sell Nike products online and sometimes discount them to compete, leading to inconsistent prices across different platforms. For example, a shoe that costs 1,000 yuan at the official flagship store might be sold for 800 yuan by a distributor, which not only damages Nike’s brand image but also reduces sales at the official stores.
Now, Nike wants to manage its online channels directly, allowing customers to purchase products only through its official flagship stores on platforms like Tmall, JD.com, Douyin, or via its website and app. This approach ensures price consistency, direct customer contact, better data collection, and higher profits (without sharing them with distributors).
The Impact of Taobao’s Stock Price Drop
Taobao’s stock price dropped by 20%, indicating a significant short-term loss in revenue. With online Nike revenue accounting for 22% of total sales, this means the company will lose one-fifth of its annual income starting in 2027. Moreover, the stock price had already fallen by 14.58% when the news was first rumored in June, so shareholders have suffered substantial losses.
The situation is even more challenging for Taobao, which has been closing stores and experiencing declining revenue and profits (a 4.7% decrease in sales and a 1.5% decrease in net profit for the fiscal year 2025/26). Losing online Nike revenue will put additional pressure on its financial performance, potentially leading to further layoffs or store closures.
Which Stores Were Closed Over the Past Six Years?
Taobao’s store closures were targeted at inefficient and outdated outlets:
- Inefficient stores: Small, poorly located stores that sold basic products, with limited foot traffic. With mobile shopping becoming more popular, these stores became unprofitable.
- Stores Out of Step with Consumer Trends: Nike stores in third-tier cities saw a sharp drop in transaction rates from 25% to 10%, as customers preferred cheaper options online after trying products in-store. These stores also sold professional running shoes to a student and price-sensitive audience, making them unprofitable.
- Weak Brand Stores: Stores representing less popular brands, located in poorly accessible areas with high rent, struggled to sell products.
- Stores Incompetent at Instant Retail: Traditional store staff were unable to effectively use digital tools like video marketing and live streaming, resulting in low efficiency.
How Is Taobao Responding?
Taobao is taking proactive measures to adapt:
- Retaining Valuable Large Stores: It will keep large flagship stores in prime locations that offer a good customer experience, such as the ACG store at Nanjing Wuxiang Tian Di, which attracts dedicated customers looking for specific products.
- Implementing Omnichannel Strategies: It has integrated instant retail into 3,800 of its stores, with over 700 Douyin and video accounts, and more than 3,700 mini-program stores, allowing customers to shop both online and in-store.
- Representing High-End Niche Brands: Taobao is representing brands like Norda (running shoes) and Norrøna (outdoor apparel) to diversify its revenue sources and reduce its reliance on Nike and Adidas. It has also opened collaborative stores and organized community events to build brand loyalty.
Challenges in the Transformation
The main obstacle to Taobao’s transformation is the limited contribution of new brands, which currently account for only 12.6% of revenue compared to 86.7% from Nike and Adidas. Brands like Norrøna are still in their early stages of growth, with high consumer education costs and narrow target markets, making it difficult for them to become significant revenue generators. In contrast, companies like Sanfu Outdoor (which developed its own brand X-BIONIC after losing the rights to Asics) have seen more success.
In summary, Taobao is transitioning from a traditional distributor to a brand operator, but the loss of online distribution rights from Nike has dealt a blow to its finances. The growth of new brands will take time, and Taobao must continue to navigate these challenges in the coming years.