Direct-to-Consumer's Impact on Hoka's Sales Growth

Direct-to-consumer (DTC) has been a big trend over the last decade or so across a range of industries, running and sports included. In practice that means that companies have been trying to increase the proportion of their sales that take place directly via their own eCommerce channels and retail stores vs wholesale and sales going via distributors.

In the world of running, Nike got a lot of praise for the success of its DTC initiative when it announced its 2021 fiscal year results in June 2021. But focus on DTC is not limited to Nike, so after my post on Hoka's sales growth last week, I took a look at what role DTC played in driving that growth. Here are a few charts, please read on.

Direct-to-consumer is important for Hoka's parent company Deckers. As per its 2022 annual report:

...our DTC online and retail sales channels interact with each other and largely overlap to provide a fluid purchasing experience, which engenders brand loyalty while increasing product sales and improving our inventory productivity.

And here's DTC percentage change over time for Deckers and all its brands.

So, how does Hoka fare against its peers in Deckers portfolio?

• Hoka's DTC business grew seven times over that four year period in actual dollar terms (as per the first chart above). However its overall sales grew a lot too - four times, so the DTC percentage of total moved only from 17% to 29.5%.
• That places Hoka's DTC percentage significantly lower than that of UGG - Decker's largest brand - at 45% as well as Deckers overall at 38.5%.
• It also places Hoka's DTC percentage higher than that for Teva (decreasing over the last year), Other Brands (increasing), and puts it on par with Sanuk.

What about Nike?

Let me start with a caveat. While Hoka is a running brand, Running is just one of the six categories that constitute Nike's business. And the period in the chart below is the four years to the 2021 fiscal year, since Nike has not yet announced its 2022 fiscal year results.

Nike won accolades for the performance of its DTC business after it reported its 2021 annual results last year. Nike started what they call a Consumer Direct Acceleration program and it was the key driver for their top performance during the 2021 fiscal year as per the quote from their annual report below:

Our Nike Direct business fueled our growth throughout the year as we navigated the pandemic, leveraging our digital platforms with our store footprint to connect directly with the consumer. Nike Brand digital revenues grew 60% on a currency-neutral basis, with strong double digit growth across each of our geographies.

Here is the percentage breakdown between wholesale and direct for Nike.

To be sure, Nike's business is huge - $42.3 billion for the 2021 fiscal year, doubling for the last decade - from $21.1 billion for the 2012 fiscal year. And their focus on DTC is paying off as it grew to 39% of the total sales in FY 2021.

Nike will be reporting its 2022 annual results in June, but from its latest quarterly report, it looks like DTC continues to be a major driver for their business.  

What about other industries?

Well, here's a brand a lot of us can relate to as consumers - Apple. This is of course an extreme example - Apple's net sales for the fiscal 2021 were $365.8 billion and it operates in a completely different industry. With that in mind, the split between direct and indirect for the period was 36% vs 64%.

So... what role did DTC play in driving Hoka's growth?

It did play a role, but it would be a stretch to say DTC is the main driver of Hoka's growth over the last few years. DTC as a percentage of total sales is significantly lower for Hoka than that for its peer brand UGG and for Deckers as a whole. It's also lower than that for Nike... and that for Apple.

That difference and Deckers message in its 2022 annual report that its predominantly UGG retail stores

...also include recent openings in our retail store fleet for the Hoka brand.

makes me think there will be further focus and growth for Hoka from its Direct-to-consumer channel. Let's see.

Next week I'll try to take a look into other factors that drive Hoka's growth.