The Flagship Store Concept Gets Another Upgrade — This Time From Nike

Another big company has opened a superflagship store. But this one, "Nike Shanghai 001," looks like a lot of small shops stitched together.

On October 4, Nike's first House of Innovation anywhere in the world, Nike Shanghai 001, officially opened. As direct-to-consumer sales matter more and more to Nike, the design-minded sportswear giant is pushing its imagination past products and advertising and into retail.

Nike Shanghai 001 takes up four floors and 3,822 square meters of Shimao Plaza, at the west end of the East Nanjing Road pedestrian street. The site already held one of Shanghai's earliest Nike flagship stores; it closed for renovation a year ago and now reopens together with Shimao Plaza itself, which has just come through 18 months of rebuilding. A Lego flagship store, a Starbucks Reserve store and an M&M's flagship store opened alongside it, giving the whole building the feel of a city square.

At Nike's store, two-story-high, specially made glass fills the entire street-facing wall. Every pane is a bulging curve; from a distance the wall looks assembled out of the famous air units in Nike's Air Max soles. Nike calls it the "Window of Innovation."

For the three days left of Golden Week, lines of sneakerheads, tourists and local shoppers ran the length of these glass walls.

"It is a one-of-a-kind glass." When Dennis van Oossanen, who runs Nike's direct-to-consumer retail in Greater China, describes what is new about this store, the glass comes first: the angled cut of each pane matches the direction of the Nike logo; on ordinary nights it reflects the street lights; and when needed it can light up in different colors for a brand campaign — a rainbow for LGBT Pride Month, say.

The Air Max unit was itself first inspired by architecture, by the exterior pipes that leave the insides of the Centre Pompidou on show. Now Nike has turned the air unit back into a building material.

The "air-bubble aesthetic" of the outside wall is only part one. Walk in, and what catches your eye is a huge LED scoreboard running up all four floors, updating in real time with the standings of shoppers taking the challenges that day at the Core Midfield on B1.

The Core Midfield is an interactive court on B1, the men's floor, big enough to host all sorts of brand events and to receive athletes and celebrities, with three challenge games — vertical jump, speed step and agility shuttle — to help customers test shoes. It has the best sightlines in the store; the point of the atrium design is to gather a big enough crowd of onlookers.

Through the main door on the first floor is a brand display area called Nike Arena. During the opening it showed Breaking2 — the sub-two-hour marathon attempt Nike put so much into last year — and its lead, Eliud Kipchoge, who had just broken the world record, along with the shoes he ran in. Nike copied the workbench used to show how that pair was designed and rebuilt it in the store, detail for detail.

The store holds so many details that when Nike walked a crowd of reporters, celebrities and athletes through it on October 15, there was something to stop and explain at nearly every turn. All of it adds up to what Nike calls the "Brand Define" experience.

Plants stand everywhere, meant to calm customers when the floor is crowded or the fitting-room line is long. The walls beside the stairs borrow the brickwork of Shanghai's longtang alleys. About 200 staff, called "athletes," give customers one-on-one service wherever they can, with a target time from first question to checkout. And the terrazzo floors, flecked with colored grains, are made with recycled soccer cleat studs.

"This is my favorite place, the fitting room." Joaquin Chou, a Spaniard, led this tour; he is Nike's retail district manager in Shanghai, in charge of every Nike-run store in the city, including the flagships, NikeLab and this Shanghai 001. Shanghai 001 has one fitting room on the basement floor and one on the second, the women's and kids' floor. A button inside switches among three lighting settings (daylight, yoga studio, gym), and the iridescent mirrored doors are made for selfies. "Adjust the light, take a few pictures. We've found customers spend an average of 15 to 20 minutes trying clothes on here. The sales floor is an experience, and so is the fitting room."

That is also why there is a large lounge outside the women's fitting room on the second floor, with Swiss cheese plants and areca palms, stronger air conditioning, and mineral water on offer, room temperature or chilled.

"We have a new concept every year, and this time it is about how to define a brand-new flagship store," Dong Wei, Nike's global vice president and general manager for Greater China, told QDaily. "All of these new concepts will shape the way we meet consumers."

You can think of Shanghai 001 as Nike's version of the Starbucks Reserve Roastery: the same dense in-store detail, mobile payment everywhere, the "black apron" replaced by an "athlete" in a T-shirt.

It is not the largest Nike flagship in the world, but the name "001" alone says how much it matters. Next in line is Nike New York, on Fifth Avenue, which does not open until the end of this year.

Behind this is how seriously Nike takes the Chinese market. In Nike's earnings reports, Greater China has now posted 17 straight quarters of double-digit growth, and, in van Oossanen's words, "digital and physical retail have become very integrated here," which makes it an ideal place for the brand to experiment with direct-to-consumer retail.

The first time you walk into a Starbucks Reserve Roastery, you may feel it and an ordinary Starbucks were made by two different companies. Shanghai 001 is not that strange. The store in fact carries traces of the store formats Nike has tried out over the past few years.

You can find several small "stores within the store" in 001, each clearly marked off.

The "Only in Shanghai" zone on the first floor sells nothing but goods themed on local Shanghai culture: souvenir T-shirts printed with soup dumplings, and Nike Renegade, the first Shanghai city series, made for the Shanghai Marathon in November.

"Only in Shanghai" grew out of Nike's experiments with community stores in North America, ground van Oossanen knows well. Before his transfer to China in 2016 he led those community formats, steeped in the character of particular American places. Because American cities and local universities have their own teams, the community stores burrow deep into the neighborhood, selling products and jerseys with strong local flavor; more than 80% of the staff come from within a five-mile radius. The community store in Detroit, for instance, was "a commitment to Michigan."

White dominates the women's area on the second floor (the windows here still show off the "sport glass"). The displays do not follow the old product categories of running, training and sportswear, nor the sport-by-sport layout of the women's flagship at Shanghai's iAPM mall. They are almost completely mixed up. One mannequin might wear a running shirt, a training bra and a pair of fashion sneakers at once. "We want consumers to come here looking for a look."

Nike announced its Nike Women strategy back in 2014 and opened a women's experience store in Shanghai the same year. After that store had been running a while, Nike's answer on serving women shoppers still came down to stocking enough bras — 29 different types. But fashion has reshaped the sportswear market over the past two years, women's especially, and store formats have had to change with it.

In February 2018, Nike staged a pop-up called Unlaced at Paris Fashion Week, billed as "the destination for women who love sneakers." It was put together by Sarah Andelman, co-founder of Colette, the famous Paris concept boutique that has since closed.

While preparing Unlaced, Nike assembled a 14-person all-women design team to remake the brand's classic Air Force 1 and Air Jordan 1 lines; those shoes now sit on the second floor of Shanghai 001. And during Shanghai Fashion Week this week, Nike Women also ran a fan showroom pop-up in the city, stocked entirely with fashion pieces.

The third floor, the busiest, is covered wall to wall in shoes and holds three zones: Nike Sneaker Club, plus Nike Expert Studio and Nike By You, both open only to Nike Plus members. On this floor you can see the shadows of two more store formats, NikeLab and Kicks Lounge (the Sneaker Frenzy Club): the first is the boutique concept store Nike launched in 2014, the second curates sneakers across categories.

The shoe wall on the third floor drops the standard Nike-store habit of stacking the same model over and over; each pair appears once or twice, reaching for the feel of an upscale fashion boutique. The arched fitting rooms inside Nike Expert Studio are laid out much like the ones at Dover Street Market.

Mixing store formats this way is a hint at how finely the sportswear market has split. Nike needs sharply different displays, store positioning and details tuned to particular tastes in order to reach a varied crowd — sneakerheads, yoga fans, fashion people, or local marathon runners.

The mixed setup had in fact already appeared in 2016, when Nike opened its five-floor flagship in New York's SoHo. Matt Powell, then a sports-industry analyst at NPD Group, said he had never seen a retailer try to reach so many kinds of customer under one roof: "Can sneakerheads and yoga fanatics get along? I think that remains to be seen."

"From a retail point of view, Nike Shanghai 001 sets a new benchmark," van Oossanen said. "From the point of view of Nike China and Shanghai, we are connecting with Shanghai consumers locally."

Nike's direct-to-consumer business (DTC) became a formal company strategy at the end of 2015, announced alongside a $50 billion revenue target for 2020. The DTC share has climbed ever since: 26% three years ago, 30% in fiscal 2018.

At first the only problem seemed to be e-commerce eating into the sporting-goods retail market. But from 2016 the sportswear market, pulled into fashion, began moving faster, and physical sporting-goods channels could not keep up with the shifts in consumer taste. The clearest sign was the bankruptcy of the American sporting-goods chain Sports Authority in March 2016.

Compared with fashion's boutiques in every major city, sporting-goods retail has gone years without a single channel worth calling stylish. A label like Vetements, which cares intensely about design and brand-building, can put its energy into product and marketing and hand all the selling to tasteful distributors in New York and Tokyo. That model is hard for Nike to run today, since it has to face fashion buyers and the mass market at once — and still make up its shortfall among women.

At the end of 2016, Nike decided to stop reporting futures orders in its quarterly results, long a key number for a brand whose business ran on wholesale. With the DTC share rising, Nike judged that futures orders could no longer "foretell the future." In other words, Nike's old way of selling had stopped working.

At its 2017 investor day Nike announced a sweeping overhaul of its retail channels, saying it would concentrate on the 40% of its current partners it counted as key. A Nike executive said at the time: "Undifferentiated, mediocre retail will not survive." He added that Nike would leave its old position behind within five years.

The more direct benefit of selling direct is that Nike cuts out the middleman and keeps more of the margin. The cost is heavier inventory pressure, especially now that sneakers move with fashion. That risk used to be passed on to distributors. In 2017, short of innovative product, Nike was upstaged by Adidas; by October, more than 200 items on its North American site went on a 40%-off flash sale over 48 hours, including quite a few high-end Jordan products.

So even though Nike has been growing again since 2018 — spending more on new store design and digital sales channels, pushing product innovation, gaining pricing power, leaning less on discounts — investors remain cautious about its financial performance ahead. Nike is no longer the typical wholesale brand it once was, and its short-term uncertainty is higher than before.

To keep a firm hold on the street in an era when even luxury houses rush to make sneakers, one important turning point came in 2017: both Nike and Adidas began paying unprecedented attention to the once-niche sneaker boutiques.

But Nike cannot do without a retail face of its own — especially now, when it has to show the professional-sport side of itself, tell the brand stories e-commerce cannot carry, and pass on styling ideas as well, so that competitors do not take the spotlight. Shanghai 001, which Nike began planning two years ago, is the result of that thinking.

This superflagship is built out of exactly the pieces described above: the community store, the women's store, the sneaker store. But behind all of Shanghai 001 sits one more, hidden "membership store," the entry point that connects it to a much larger pool of Nike fans.

"I think this is the ultimate digital solution. Membership gives us the chance to connect the digital and the physical experience," Dong Wei said. "I'd describe this stage as the 'logged-in era' — everyone is online all the time, you are always on a social platform."

On September 21, Nike launched its official WeChat mini program, with three functions: "Member Store," "Latest Trends" and "My Account." Through it members can book the member-only services on the third floor of Shanghai 001, "Nike Expert Studio" and "Nike By You." The first gives a member an hour of in-store shopping, styling and training advice; the second is an upgraded version of NIKEiD custom shoes. Members talk one-on-one with a designer, and the priciest option, Bespoke, builds a shoe from nothing at $1,000; bookings already run to the end of November.

Nike WeChat mini program

Nike's SNKRS app also runs raffles for some limited-edition shoes; members who win can collect them in the store with an SNKRS Pass. Nike launched the app in China in 2017, and it was downloaded about 2 million times in its first month.

For now, 001's digital flow still has rough spots. Booking through the mini program, for instance, means going back and forth with a human customer-service agent instead of simply seeing the open time slots.

The precedent for fusing a membership system with a physical store may be Nike Live, the format Nike opened in Los Angeles this July, where the merchandise changes every two weeks according to what local members like and need, and members can also get more sports-related services in store. In China, most of those functions have moved onto the WeChat mini program.

In the end, all of these experiments are about building a retail model that can shape a much wider network of distributors. It is easy to see this cross-category flagship being broken into different versions and spread across the national market.

Most of the fine details clearly cannot be copied — those beguiling glass panes, for one. Asked which of the many elements inside Shanghai 001 would survive into later retail stores, van Oossanen named only one: the Nike membership program. That, he said, is because it is the only way to serve consumers at scale today.

Cover image from Nike; images in the story from QDaily, Nike and Kiks