By Eric Smith
Nike Inc.’s impressive fourth quarter saw balanced growth across regions and divisions, but the company’s digital gains were especially notable.
The 41 percent improvement Nike posted in digital sales in the quarter ended May 31 is the result of an increased emphasis on platforms and not just products, according to CEO Mark Parker.
“Our digital offense is transforming Nike from how we connect with consumers to how we deliver products,” Parker said on Thursday afternoon’s earnings call with analysts. “This is a major shift from operating models of the past to a new, digitally powered model of the future.”
That digitally powered model helped the company grow revenue 13 percent to nearly $10 billion in Q4, while digital sales jumped 25 percent to contribute to Nike Direct revenues of $10.4 billion in fiscal 2018.
This acceleration in digital exceeded the company’s own expectation, CFO Andy Champion said on the conference call.
But the investments in innovation extend beyond the top line, Parker said. Nike’s digital focus also helps the company promote Nike ambassadors with the world and elevate the brand in the process.
“The stories of our athletes and the innovation they inspire have always been central to our brand,” Parker said. “And today, those products and stories are being amplified even further by the power of digital. We’ve talked about how critical mobile and social experiences are to our consumer and how that’s driving change. But, really, the full digital transformation of Nike that’s taking place right now is even bigger than that. It’s fundamentally shifting our entire company.”
One shift that is happening is with the NikePlus program, which is elevating the consumer experience while also growing wallet share, Parker said.
NikePlus, relaunched last November, is a free membership program that connects users to exclusive product, events, athlete stories and running and training programs, all via the Nike app.
A new wave of benefits called NikePlus Unlocks, announced in February, rewards members with access to music, guided meditation and fitness classes, all “designed to inspire and reward members on their journey to being the best athletes they can be.”
The program has helped Nike tap into customers’ interests, which opens up a world of cross-selling opportunities, Parker said.
“Once someone becomes a member and customizes their profile, we know what sports they like, how active they are and the style of products they prefer,” he said. “And that insight allows or unlocks for exclusive product, style advice from experts and rewards for their activity. It personalizes the entire experience and allows us to remove friction points for members as they move seamlessly from mobile to the in-store environment.”
Analysts lauded Nike’s digital improvements in investor notes published soon after the earnings release. Sam Poser of Susquehanna Financial Group LLLP wrote, “Nike is beginning to reap the benefits of a cleaner channel, scaling of new product platforms and sharpening digital prowess.
“Heavy investment is being directed toward digital, which is helping Nike better size demand, increase speed to market and enhance customer engagement, all of which are leading to increased full price selling.”
Poser added that Nike’s digital business can help the company improve the top line in China especially, with the potential for up 35 percent (25 percent FX neutral) growth in the quarter. He wrote, “Management indicated, and we agree, that the region represents Nike’s best long-term growth opportunity due to: 1) a burgeoning middle class, 2) the proliferation of sports and fitness, 3) opportunity for scaling Nike’s digital business and 4) the strength of the brand in China. We expect 20-percent-plus revenue growth in Greater China in FY19 as Nike continues to invest heavily in the region.”
And Jim Duffy of Stifel wrote, “The 34 percent constant currency FY4Q growth in digital is clear evidence the consumer centric strategy is gaining traction and we are encouraged by comments that demand exceeded supply in digital channels. Shift to direct benefits margin but also comes with deliberate reduction of exposure to undifferentiated legacy channels.”
Parker also touted how digital investment is allowing Nike to invent new manufacturing tools to aid product creation through computational design, as well as optimize supply chain performance by driving speed and efficiency.
And it’s helping Nike “push the edges of new immersive experiences, whether that’s in our own channels, or through partnered retail or social media platforms.” These channels include the SNKRS app and digital marketplaces in Europe and Asia.
Across the organizational chart, across all lines of business, across all regions where Nike operates, the digital focus has been superb for Nike in the past year and should continue on the same trajectory in fiscal 2019.
“Digital is allowing us to realize our vision for smart retail to remove friction and personalize experiences through the intersection of digital and physical environments,” Parker said. “It’s sharpening our ability to sense the market through data and analytics. It’s unlocking new manufacturing tools that are more precise and drive a new esthetic. And it’s opening up opportunities for new partnerships and how we develop talent in the organization.”
Photo courtesy Nike