American shoe and clothing manufacturer Nike leaves Russia

Nike did not renew its franchise agreement with Inventive Retail Group (IRG), which owns the country’s largest single-brand chain of US retail stores.

This follows from a letter from IRG President Tikhon Smykov to the company’s employees, which Vedomosti has read.

He explains this decision by the fact that Nike cannot “in the foreseeable future” organize the supply of goods to Russia. “As inventory is depleted, IRG will be forced to close all of its stores under this brand,” Smykov writes, adding that this news is the same shock for him as it is for all employees. “We started a joint business in 2012, lovingly built the best chain of stores in the country, and as a result, 10 years later, we found ourselves in a situation where this business cannot exist,” he sums up.

IRG PR director Lyudmila Semushina confirmed that supplies of Nike products have been suspended, and the goods themselves are in short supply. “In the current realities, we cannot continue to support the work of mono-brand stores and will be forced to close them,” she said, declining to comment on relations with the manufacturer. Due to operational difficulties, Nike has decided not to renew existing or enter into new business relationships, including UP & Run (part of IRG – Vedomosti), a representative of the American retailer responded to a request from Vedomosti. According to him, business activity in the country has been suspended, but the company continues to make all payments to its employees.

The non-renewal of the agreement with IRG as a whole may mean Nike’s exit from the Russian market, Marina Malakhatko, director of the Core.XP retail department, believes. In March 2022, the company already stated that it “cannot guarantee the delivery of goods to customers in Russia.” She stopped deliveries, stopped the operation of the Russian online store and delivery to the region, and also temporarily closed all stores under direct control. From March to May, the number of Nike single-brand stores in the country has already dropped from 116 to 56, according to the company’s official website. Of these, 19 are temporarily closed.

IRG operates 37 Nike outlets. From the information on its website it follows that nine stores are not working now.

According to Rospatent, a franchise agreement with Nike’s subsidiary in Russia was concluded with Up and Run and A3 Sport (part of IRG). For both, it expires on May 26, as does another franchisee, Yar LLC (trades the Nike brand in Siberia). May 26 also expires the license. A request to this company went unanswered. It is obvious that all these contracts will not be extended, summarizes Anna Rozhdestvenskaya, an expert from the Franshiza.ru portal. According to her, the reason lies in the geopolitical situation. In addition, according to her, many companies still have not been able to solve logistical issues.

Nevertheless, products under the Nike brand will not disappear from the Russian market at all. Since wholesale distributors continue to work, it will be possible to buy it in multi-brand stores, says Evgenia Khakberdieva, regional director of the retail real estate department at Knight Frank Russia. Rozhdestvenskaya agrees with her, adding that the peculiarity of retailers leaving the country is that, fearing to compromise the brand, they remove signs from mono-brand stores, while trying to maintain their presence in multi-brand channels and partner projects. IRG also sells Nike-branded merchandise at Street Beat’s multi-brand stores. A spokesman for the company did not answer the question of whether Nike products will remain in the range of multi-brand boutiques.

The trademark owner may not renew the concession agreement, but there have been no precedents for the mass early termination of such agreements due to the termination of work in Russia on the Russian market in 2022, says Mikhail Burmistrov, CEO of Infoline-analytics. According to him, forcing franchisees to close is not an easy task, and while the agreement is in effect, partners can use the brand. At some point, they may run out of goods, and Nike, most likely, will no longer continue deliveries, in which case the issue of parallel imports will arise, Burmistrov believes. Then, according to him, franchisees will even be able to significantly increase sales if the contract does not explicitly prohibit purchases from non-official importers.

But replacing Nike with a similar global brand is now impossible, since all of them also froze development in the country, Rozhdestvenskaya notes. Malakhatko agrees with her, saying that for this you need to find a brand that can replace such a powerful recognizable brand as Nike, calculate the business model, conclude an agreement and organize logistics, purchase equipment, place an order for the collection and then bring it to Russia. It takes at least a year to build all these processes, she believes.

But landlords shouldn’t have any problems. Such retailers have traditionally rented good sites in street retail and shopping centers, it will not be difficult to find applicants for their premises, Hakberdiyeva believes. According to her, they will be re-let in a short time, so the losses from downtime for landlords will not be so significant. Malakhatko agrees with this, adding that most likely it will be either local players (for example, Russian designers) or international sports brands like Chinese Anta, Li-ning and Turkish Kinetix.