The trend: With Nike reducing its wholesale obligations, adidas, Puma, Reebok, and other brands are stepping into the void.

• Adidas announced an expanded partnership with Foot Locker with the aim of generating more than $2 billion in retail sales by 2025.
• Reebok is making more of its products available at Macy’s, and will also develop exclusive items for the retailer, parent company Authentic Brands Group said.
• Allbirds is dipping a toe in third-party distribution with partnerships with German ecommerce retailer Zalando and Public Lands, a retail offshoot of Dick’s Sporting Goods, starting in Q2, co-CEO Joey Zwillinger said on the company’s most recent earnings call.

How we got here: Nike has spent the last few years focusing on its direct-to-consumer (D2C) business as it looks to take advantage of higher margins and develop stronger relationships with consumers.

• Nike’s D2C revenues grew by 15% in its most recent fiscal quarter, while wholesale revenues fell 1%, per its earnings release.
• US D2C ecommerce sales will account for 15.1% of total ecommerce sales this year, growing 21.3% year-over-year (YoY) to $155.69 billion.
• Established brands like Nike will account for 75.5% of the US D2C ecommerce market this year, and will see sales grow more (22.6% YoY) than those of disruptor brands (17.5% YoY).

The opening: While some retailers, like Under Armour, have followed in Nike’s footsteps by expanding their D2C business, others, like Puma and Reebok, are doubling down on wholesale.

• Foot Locker’s CEO Dick Johnson said in February that the retailer expects its stock of Nike products to “decline meaningfully” going forward as the brand prioritizes D2C, which gives other sportswear companies an opportunity to fill the gap.
• Nike’s move away from Foot Locker opened up about $1 billion in sales, according to Matt Powell, The NPD Group’s senior industry advisor for sports.
• Brands have been quick to take up the slack: In addition to partnering with adidas, Foot Locker is deepening its relationship with Reebok with an expanded product assortment as well as exclusive items.
• Puma’s wholesale business grew by 23.3% YoY to €1.53 billion ($1.81 billion), generating nearly four times the sales of the brand’s D2C segment, per its Q1 earnings report.

Looking ahead: While D2C offers higher margins than wholesale, it also limits the number of channels that brands can sell on, which in turn can curb their overall reach.

• That leaves the door open for challenger brands like On Running and Allbirds, as well as more established companies, to steal market share.
• However, while Reebok and Puma are currently looking to wholesale to drive rapid growth after years spent languishing in Nike's and adidas’ shadows, they too could eventually decide to own distribution once they’ve built a large enough base of dedicated consumers.