Nike Sees Opportunity in Mono-Branded Retail for Women, Apparel
Aiming to further accelerate its digital strategy and push the segment to 50 percent of its overall topline by FY23, Nike is pushing forward with a plan to open 150 to 200 small-footprint, digitally-enabled mono brand stores in North America and the EMEA focused on women’s and apparel.
“We have been testing the format with Nike Life [with three doors in Southern California and one in Tokyo] and have a great understanding of how to best deliver this experience,” CFO Matt Friend told analysts last week. “We will proceed ahead this [fiscal] year with more tests… and scale it through the next couple of years. And again, to be clear, we believe this is incremental to what’s in the market today.”
Global Nike brand apparel sales, including negative impacts from COVID-19 in the fourth fiscal quarter, declined 1 percent on a constant currency basis to $10.95 billion for the 12 months ended May 31. Over the same period, the brand’s women’s and kids’ segments each declined 3 percent on a constant currency basis to approximately $7.0 billion and $5.0 billion, respectively. Overall, Nike’s fourth-quarter revenues fell 36 percent on a constant currency basis. It was largely due to 50 percent lower wholesale shipments, where the company’s bad debt level hit $180 million, and Nike-owned store closures.
Fully expecting to its reach its goal of 30 percent digital penetration between owned and partnered retailers during its current fiscal year (FY21), some 24 months ahead of schedule, Nike intends to ratchet up its investments in digital while also shifting to a simpler consumer approach segmented by men’s, women’s and kids, and no longer by sport or performance versus sportswear.
As for digital, the segment represented nearly 30 percent of Nike’s fourth-quarter topline and $5.5 billion for 12 months ended May 31. In North America, Nike digital sales grew 80 percent during the final period with sales from apps growing triple digits to now represent 30 percent of the region’s digital revenues. Friend told analysts that, “on average, a sale of an incremental unit via digital generates double the revenue versus a sale to wholesale, with a higher gross margin, translating into two times the operating income dollars.”
Nike will open a new regional service center on the U.S. West Coast before the holiday season to “forward deployed digital inventory” after adapting its North American distribution facility in Q4 to better support digital demand. The Swoosh’s global operations and logistics team was able to increase volume capacity by three times in both North America and the EMEA, with only a slight increase in cost per unit. Going forward, the company will likely make additional investments in regional service centers in order to better fulfill consumer demand.
The first half of Nike’s FY21 ending Nov. 30 will be marked by a promotional marketplace, the company predicted, while also forecasting sequential quarterly improvement in its results compared to the fourth quarter. Brand inventory levels will be “right-sized and clean” by or in the second quarter. Still, first half revenues are forecast to be down year-over-year with the second half predicted to be up ‘significantly” year-over-year. In FY20, wholesale equivalent Nike brand sales worldwide dipped 4 percent on a constant currency basis to slightly more than $30.6 billion. Among key categories on a constant currency basis, running was off 12 percent; basketball down 4 percent and global football/soccer declined 14 percent. Jordan Brand sales rose 16 percent for the fiscal year to more than $3.6 billion and Sportswear sales were up 1 percent to nearly $12.3 billion.
“We do believe that there is going to be consolidation and dislocation in wholesale distribution in North America and in EMEA,” commented Friend. “That’s why we’re taking a measured approach to growth in both those geographies.”