When Nike expanded into retail and it’s own e-commerce site, it began to compete with their wholesale distributors. In 2021, as Covid raged and more shopping moved online, Nike exited about 50% of its retail partners including DSW Designer Shoe Warehouse, Dillard’s and Zappos. In order to concentrate more on its own DTC channel, Nike reduced its supply to other large retailers such as Foot Locker and Dick’s Sporting Goods. Nike’s digital sales hit 30% of its total, but the end of Covid also marked a shift in consumer behavior back to in-store sales. Nike’s digital sales began to fall. Nike has since reversed course and is sending more inventory to its retail partners such as Foot Locker, Macy’s and Dick’s. It is also focusing again on specialty retailers, especially those focused on running. However, rivals such as Hoka, Brooks, On, Mizuno, New Balance and others have all taken up space at these retailers. This illustrates that Nike is struggling to deal with which administrative cost of vertical integration?单项选择题
A
distribution channel
B
market power
C
competitive effects
D
compounding risk

Question

When Nike expanded into retail and it’s own e-commerce site, it began to compete with their wholesale distributors. In 2021, as Covid raged and more shopping moved online, Nike exited about 50% of its retail partners including DSW Designer Shoe Warehouse, Dillard’s and Zappos. In order to concentrate more on its own DTC channel, Nike reduced its supply to other large retailers such as Foot Locker and Dick’s Sporting Goods. Nike’s digital sales hit 30% of its total, but the end of Covid also marked a shift in consumer behavior back to in-store sales. Nike’s digital sales began to fall. Nike has since reversed course and is sending more inventory to its retail partners such as Foot Locker, Macy’s and Dick’s. It is also focusing again on specialty retailers, especially those focused on running. However, rivals such as Hoka, Brooks, On, Mizuno, New Balance and others have all taken up space at these retailers. This illustrates that Nike is struggling to deal with which administrative cost of vertical integration?单项选择题

A

distribution channel

B

market power

C

competitive effects

D

compounding risk

BlackTom AI · Accepted Answer

Channel conflict (the distribution channel administrative cost) occurs when a manufacturer’s move into retailing or direct-to-consumer (DTC) sales undermines relationships and coordination with existing wholesale partners.

1) Relevant knowledge points and concepts
- Vertical integration means a firm controls multiple stages of the value chain (manufacturing, wholesale, retail, e-commerce). 
- Administrative costs of vertical integration include difficulties in managing distribution channels (channel conflict, inventory allocation, partner relations), potential market power/antitrust concerns, competitive effects on rivals and buyers, and compounding risk across stages. 
- “Distribution channel” costs specifically refer to the costs of coordinating and sustaining relationships with intermediaries when the firm competes with them.

2) Step-by-step reasoning
- Nike expanded into retail and DTC, directly competing with its wholesalers and retailers.
- In 2021 Nike cut supply to many retail partners and pulled out of ~50% of retail accounts to favor its DTC channel.
- As consumer behavior shifted back to in-store shopping, Nike’s digital share fell and Nike needed to resupply partner retailers.
- Because Nike had reduced supply and presence, retailers filled shelf space with competing brands (Hoka, Brooks, etc.), making it hard for Nike to regain distribution and sales at those outlets.
- These events are textbook channel conflict/coordination problems: managing relationships, allocation of inventory, and retailer goodwill.

3) Calculations
- None required for this conceptual question.

4) Why the correct answer is correct
- The problem described is fundamentally about the breakdown and costs of the distribution channel: lost retail partners, difficulty reallocating inventory, and competitors taking shelf space. Those are administrative costs arising from channel conflict due to vertical integration.

5) Why the other options are incorrect
- Market power: would describe an ability to exert leverage over suppliers or buyers (or antitrust exposure), not the relational and allocation problems described here.
- Competitive effects: is broader and refers to how integration changes market competition; the scenario focuses on internal channel coordination costs rather than a market-structure effect.
- Compounding risk: refers to increased exposure because the firm now bears more stages’ risks; the issue here is partner loss and channel management, not concentrated operational risk.

6) Conclusion
This scenario best illustrates the distribution channel administrative cost of vertical integration. The correct answer is: distribution channel.