Nike switches business model in South America

09/02/2020

Nike changes its business model in South America. The U.S.-based company announced that it will operate in the country through a distributor, the Mexican firm Grupo Axo, which lands through this "strategic alliance," as defined by executives from both companies.

The Nike sports brand has been affected by the devaluation in Argentina, Chile and Uruguay. Photo: Pxfuel
The Nike sports brand has been affected by the devaluation in Argentina, Chile and Uruguay. Photo: Pxfuel

The redefinition of the scheme of Nike was communicated today to the U.S. stock market, where the company was born in the state of Oregon (United States), and implies that the firm gives the operation of its local business, both the sale of products in the wholesale segment and the management of all its stores in the country in the hands of Grupo Axo.

According to a statement issued by Nike this morning, Grupo Axo "will acquire Nike's operations in Argentina, Chile, and Uruguay".

"This is not purely commercial or transactional management. We are going to co-create plans and define strategies. We have been in the country for more than 25 years, with a strong presence as a brand, and we are looking for the distributor to contribute its know-how to add and continue having a strong presence in the region", said Carlos Homedes, General Manager for Argentina of the company, in a dialogue with LA NACION. The executive explained that the decision replicates the model that the company implements in other markets in Central America and Eastern Europe.

Grupo Axo is a Mexican company founded in 1994, which also has a presence in Chile. In both markets, it operates as a local distributor of brands such as Tommy Hilfiger, Guess, Calvin Klein or Crate, and Barrel, among other clothing companies. This is how the link between the two was born: Axo operates Nike stores in Mexico.

There was much speculation in the sector about the future of the pipe brand in Argentina. The versions, which even shot up on social networks, were accentuated after the end of his link with Boca Juniors, the club that had been wearing his brand since 1996, was confirmed.

The contract ended at the end of 2019, and although it had the possibility of matching offers from competitors, Nike did not activate that clause. That paved the way for Adidas, his main competitor. The German brand secured its place as a technical sponsor with the blue and gold club for 10 years and a bond of about US$10 million per season.

According to Homedes, the decision to change Nike's business model in Argentina is not due to the particular situation of the local market, which is now conditioned by the foreign exchange clamp and the prohibition of foreign currency transfers for companies, but rather a redefinition of the company's commercial approach to Latin America. In addition to Argentina, Axo will distribute the brand in Chile and Uruguay, while a similar model will be implemented in Brazil, the largest economy in the region.

According to the statement issued by the U.S. firm, a subsidiary of the SBF group acquired the operation and "will become the owner of virtually all Nike operations in Brazil. The company owns the Centauro brand and operates 209 retail sports stores.

"What we are looking for is to strengthen our relationship with Nike, and it goes hand in hand with our strategy of geographic growth in Latin America," Carlos Miranda, COO of Grupo Axo, which operates 800 stores and 5,000 points of sale in shopping centers, as well as a dozen e-commerce sites in the markets where it operates, told LA NACION.

After the formal announcement, both parties said they will move forward with a business plan and commercial goals. The goal, they said, is for the operation to be completed by mid-2020. Axo will be in charge of Nike's wholesale sales and will manage its own stores, in addition to its online sales channels.

"We cannot discuss contractual terms but conceptually what we are looking for is a very long term relationship," said Miranda, when asked about the duration of the link. Nor did they specify expectations of sales or growth.

Meanwhile, Homedes said that Nike will maintain its brand presence and will keep its links with athletes and entities. Although it left Boca Juniors, the company is a technical sponsor of San Lorenzo, the Argentine Rugby Union (Los Pumas, Jaguares) and the basketball teams, through the Jordan brand.

"The plan is to maintain continuity and we will continue with our brand actions. As for the team, there is a genuine interest in maintaining the highest number of employees," said the executive.

"As a result of the transactions, during the third quarter of the fiscal year 2020, Nike will classify the assets and liabilities of the entities held for sale in the Consolidated Balance Sheet and will recognize a one-time, non-recurring charge of approximately $425 million," the company said in a statement.

By Mexicanist