Nike Continues to Lean on Digital, Data and Tech
After reporting first quarter results yesterday that exceeded Wall Street expectations, Nike senior executives stressed the company’s commitment to continued technology investments, data mining for closer connections to customers and enhancements to its digital-first strategy.
“…We know that digital is the new normal and as we drive continued separation in the market, through a connected, seamless and modern consumer experiences, we will fuel growth and profitability,” CFO Matt Friend said.
Nike’s digital business grew 83 percent in the first quarter to represent more than 30 percent of the company’s topline as it trimmed its strategic wholesale partner base by nine retailers and shifted product allocations to fuel higher digital demand.
“I would say the North American retail market is the most fragmented and least far along of where it needs to get to of the major markets in the world,” President and CEO John Donahoe told analysts, further suggesting Nike’s decision to tighten its wholesale network and put greater focus on digital was merely an acceleration by the company that would have occurred naturally over the next 4-5 years.
North American revenues were down 1 percent, but the region’s EBIT was 18 percent higher. Consumer demand on the Nike app increased 150 percent as the market’s digital sales increased nearly 100 percent.
New technology investments to reduce costs and enhance fulfillment capabilities have ranged from increasing ship-from-store capabilities in North American brand store, partly from additional RFID investments allowing for better tracking of real-time inventory, to scaling robotics and automation in logistic centers that can reduce order cycle times by up to 50 percent. RFID technology is currently implemented in all Swoosh footwear and 75 percent of apparel.
“RFID is going to drive improved inventory holding costs and it’s going to help us reduce our transportation costs, both in direct and wholesale, and we believe that’s going to be a critical enable in order for us to create a fully connected marketplace for Nike products across our owned stores and our strategic partners,” Friend said.
In the first quarter, Nike realized nearly 60 percent growth in app membership programs.
“By leveraging data to enhance membership, personalization and consumer-oriented services across the marketplace, we can drive greater inventory efficiency and unlock accelerated growth in key opportunities like women’s and apparel,” Friend commented.
Quarter-end inventory was up 15 percent versus 31 percent higher on May 31 and Nike says it’s “on track” to be normalized over the next 60 days in what will likely be a more promotional period due to the holiday season. Nike’s second half results, meanwhile, are projected to show sequential improvement in full price sales but also continued higher markdown activity in factory stores to sustain conversion rates on lower traffic. Nike is currently pegging full fiscal year revenues to rise high-single to low-double digits as its moves forward with a three-year roadmap to bring technology to every element of its operation and end-to-end business.