NIKE Sales Drop 38% But Leadership Is Not Concerned

In NIKE’s investor call for Q4 ending May 31, 2020, John J. Donahoe, president and CEO NIKE Inc. NKE and Matthew Friend, executive vice president and CFO, discussed challenges faced by the brand. Friend stated that for the quarter 90% of all global owned stores were closed roughly eight weeks leading to a year-over-year sales decline of 38%. However, direct-to-consumer business was strong, as digital sales grew 79% and were 30% of total revenue, a goal that was initially set for 2023.

The acceleration of the consumer’s acceptance of direct business is a strategy NIKE is focused on for the future. Creating value for the consumer and concentrating on long-term profit strategies is a way forward for the brand. There are five specific factors that will solidify future growth: the power of the brand itself, China returning to pre-pandemic growth, digital transformation, the Jordan brand which represents 12% of total revenue, and continuous innovation.

While the global pandemic has led to a major shift in consumer shopping behaviors and an acceleration of digital purchasing, NIKE has had its strategy tested during this challenging period and has been able to provide deeper consumer connections to the brand. For example, the NIKE app was downloaded more than 8 million times in the past quarter and sneakers have reached the $1 billion consumer demand mark.

Prior to the pandemic, according to Placer.ai, a company that measures consumer foot traffic to stores, the wider athletic-wear space seemed poised for a huge 2020. Visits to NIKE locations were up 8.0% and 20.5% year over year for January and February respectively. But the pandemic caused visits to plummet in March and then even further in April and May with declines of 60%, 99% and 83% respectively.

Placer.ai continues to track visits as stores reopen. It has reported that for the week of June 8th, visits had recovered to the point of being down by only 40% year over year, an exceptional pace of improvement without key states open. Ethan Chernofsky, vice president of marketing, Placer.ai, stated, “By the first week of June, visits to Nike locations were down just 52% year-over-year even though key states like New York, New Jersey, and California were still closed, and the pace isn’t slowing down. Looking at visits, Saturday June 6th saw a 33% increase over the previous Saturday.”

Friend confirmed that the uptick in business coming into June is very promising. NIKE is focused on consumer direct acceleration with strategies that include a market place of the future, new consumer constructs and investing in technology.

The market place strategy includes ensuring that products are available in a timely manner to meet demands, which require a strong focus on inventory management, providing more efficient direct-to-consumer operations and taking advantage of the considerable profit potential of women’s categories. Currently, NIKE has only about 10% of the women’s apparel market. NIKE will also open smaller format mono-branded stores.

The new consumer construct recognizes that consumers shop across categories and NIKE will create a support structure to make shopping journeys more holistic and efficient. By investing in technologies that support a digitally empowered consumer, NIKE will improve inventory management, consumer connectivity, speed-to-market and responsiveness to consumer demand. 

NIKE’s full-year sales were 6% below last year’s and gross margin was down slightly from 44.7% to 43.4%. Friend discussed NIKE’s quick response to inventory overages due to closed stores by canceling 31% of on-order units and editing current assortments to help right-size the inventory position for fall and holiday selling.

The company has reduced discretionary spending with expenses down 6% for the quarter but will continue to invest in digital strategies and supply chain management to foster greater efficiency in business operations.

Strong leadership, a diversified business model including wholesale, retail, and direct-to-consumer across many countries will allow NIKE to rebound strongly for the remaining part of 2020. NIKE’s clear strategy moving forward, its leadership’s high confidence in the brand and deep customer loyalty put it on solid footing to prosper as it emerges from the pandemic.