Is Nike Well-Positioned Post-Pandemic?

Third-quarter results from the world’s biggest sportswear brand are underlining the power of China's market when it comes to athletic apparel, accessories, and footwear, where its sales overtook those in Europe, the Middle East, and Africa. Greater China delivered impressive growth of 51 percent for Nike in the three months ending February 28, single-handedly offsetting contractions in other regional markets: North America (-10 percent) hit by supply chain bottlenecks; EMEA (-4 percent); and the Asia Pacific & Latin America (-25 percent). China’s powerful performance enabled Nike to generate overall growth of 3 percent to reach 10.4 billion in total revenue (-1 percent on a currency-neutral basis). Greater China’s ravenous appetite for sneakers meant that footwear sales of 1.6 billion narrowly edged ahead of EMEA, and the current quarter may well see that lead increase as several European markets go back into lockdowns due to rising COVID-19 cases. Meanwhile, EBIT of 973 million grew by an astonishing 75 percent in Greater China, just nudging past North America. Nike evaluates the performance of individual operating segments by EBIT, which will encourage an even bigger investment push for the Mainland. In an investor call on March 18, John Donahoe, president and CEO of Nike Inc, said, “We are seeing particularly strong connections in Greater China where our portfolio brands, including Jordan and Converse, are helping to extend our leadership.” He then added that “my first week at Nike was on the streets of Beijing and Shanghai. Frankly, the physical retail there in monobrand stores — direct or with partners — is an example of outstanding merchandising, linked to a seamless digital experience that’s powerful, and we are furthest along that road in China. Our Chinese team is showing the way for other parts of the company.” As such, new brick-and-mortar stores in China are getting 70-90 percent of customers to either identify themselves as members or sign up to become members, helping to personalize Nike's services through data. Digital — from which Nike eventually expects to derive 50 percent of all its sales — drives the O2O (online-to-offline) services that consumers want wherever they are. Online grew by 54 percent in the quarter, led by North America, which, for the first time, generated more than 1 billion over three months while China’s digital sales rose 44 percent. Nike, which is substantially larger than its nearest rival, Adidas, is doubling down on new consumer experiences to keep its pole position. The company’s first product drop via livestreaming took place in the last quarter when it also doubled markets and viewing times (roughly 15 minutes) where it offers the service. The company’s SNKRS app, which provides insider access to launches, events, and exclusive releases for members, has seen engagement explode, with four times more users than in 2020 and buying members increasing by 80 percent. Led by this relentless focus on the O2O experience, Nike continues to rationalize retail partners, mainly in North America, that don’t make the grade. The company said, “Our members expect us to know who they are, whether they are in our stores or our partner stores. We will work with those strategic partners who see the same future we do.” Additionally, Nike’s Express Lane initiative to quickly create, update, and fulfill products in response to consumer demand was further scaled up in China. The brand’s executive vice president and CFO, Matt Friend, said, “We did this with specific products for Chinese New Year, and it is having a significant impact, not just on localizing products but also fulfillment agility in the marketplace.” Friend also noted that China’s performance rests, to a degree, on a more general post-COVID trend that could inform other regions when they emerge from the pandemic. “As the world opens up, sport is returning. Our performance business is growing significantly as well as our kids business in that market, and that gives us a lot of optimism for North America and other places.”

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Is Nike Well-Positioned Post-Pandemic?