By Eric Smith
<span style="color: #999999;">On Nike Inc.’s first-quarter earnings call with analysts, Mark Parker doubled down on the company’s commitment to innovation that he had outlined for investors just a week ago.
At the Investor Day, held last Thursday at Nike’s headquarters in Beaverton, OR, the company’s chairman, president and CEO said he is “more excited about design, and design’s impact on Nike’s future, today at this moment than I’ve ever been in my almost 40 years with the company.”
Then on the Q1 call, Parker, a self-described “product geek,” continued that excitement and that theme by discussing how innovation should be credited for the company’s outstanding earnings report and also how it will drive the company’s success moving forward, especially as it relates to customer acquisition and retention.
“Nike’s strong product innovation, combined with our industry-leading digital experiences, continue to deepen our consumer relationships around the world,” Parker said.
Nike’s business model is centered on product innovation, of course, but it also includes business innovation in terms of striving for the industry’s most capable supply chain and eye-popping gross margin, Parker stressed. The right pull on each of those levers should lead to high-single-digit revenue gains for fiscal 2020 and beyond.
Clearly, the company is both willing and able to invest in the resources that ensure Nike remains a leader in the footwear and apparel it produces while also ensuring the right mechanisms are in place to further build customer loyalty and drive shareholder value.
“The innovation that we’re putting out there, I think we’re just getting better at how we’re leveraging that across the entire offense,” Parker said. “And I feel like this has always been a competitive advantage for Nike as the source of brand energy but also tremendous growth for us. I’ve never seen or been at Nike during a period where there’s such robust and strong innovation that’s relevant to consumers across the portfolio.”
Let’s unpack how that innovation is unfolding in Nike’s product and business approach.
Product Innovation
CFO Andy Campion said that “Nike is bringing innovative new product to market at an unrivaled pace and scale,” and the company’s pipeline is proof.
“In any environment, Nike’s foundation for success has always been great product,” Parker added. “We continue to see that today with another huge quarter for Nike innovation. We’re delivering more choice and fresh options on some of our hottest products and expansion of both new and existing platforms and a deeper commitment to serving a wider range of athletes.”
Nike always has a huge stage for showcasing its innovation, and a recent example was the 2019 FIFA Women’s World Cup. The final was an all-Nike affair (the U.S. vs. the Netherlands, with the Americans winning their fourth title, 2-0). That high-profile match allowed the brand to further capture global mindshare, and Nike’s apparel revenue from the World Cup was four times bigger than it was during the 2015 tournament.
Moving over to the hardwood, Nike continues to impress. The company’s Jordan Brand landed the biggest prize of the summer when it signed the NBA’s top draft pick, Zion Williamson, to a contract. Nike hit the ground running to capitalize on the New Orleans Pelicans star.
“We’re already developing new innovation with one of the NBA’s most anticipated rookies,” Parker said. “Looking over the next few seasons, our pipeline is set to fuel growth in our biggest businesses while also carving out new space for future opportunities.”
Not to forget the hoops veterans, Parker said to look for new signature models from LeBron James and Kyrie Irving this season.
The company also has focused its innovation efforts on new performance materials for women’s apparel and running, all in time for the 2020 Summer Olympics in Tokyo.
“Making more athletes comfortable and confident can be an incredible catalyst to bringing more people into sport and that’s a theme we’ll continue to champion as we lead into the Tokyo Olympics,” Parker said.
Business Innovation
Nike continues to differentiate on the business side too, complementing its innovative product with impressive margins, an efficient distribution network and solid channel strategy. As it has done in recent quarters, the company is beating the drum on digital as a competitive advantage, Parker said.
He said, “digital is transforming and amplifying everything we do at NIKE.” In the first quarter, the company’s digital revenue grew 42 percent on a currency-neutral basis driven by enhanced digital services and international expansion. The Nike app and the company’s sneakers app are now both live in more than 20 countries with more coming throughout the fiscal year, Parker added.
“The digital capabilities that we’re creating and investing in are really going to make us a better innovation company—understanding the consumer, serving the consumer, leveraging the innovation that we invest in,” Parker said. “It’s all making us better. I see so much more opportunity from advancing our digital capabilities going forward.”
Also, Nike in the previous quarter acquired Celect, a retail predictive analytics and demand sensing firm based in Boston, MA. This latest addition should fuel Nike’s consumer direct offense strategy and help the company better, and more innovatively, serve consumers personally at a global scale.
“This will greatly accelerate our ability to turn raw data into actionable demand insights, and this allows us to make more accurate inventory decisions closer to market,” Parker said.
What’s the End Result?
Analysts were especially bullish on Nike’s continued emphasis on innovation, which they see as critical for taking market share and journeying down the path to $50 billion in annual revenue by 2023.
Sam Poser of Susquehanna Financial Group LLLP wrote in a note to investors, “The company continues to take share by one, delivering more compelling innovation at a faster pace than competitors; and two, continuing to enhance customer engagement via digital platforms.”
Jim Duffy of Stifel lauded how the company’s “new innovation platforms reportedly drove more than 100 percent of incremental growth (versus “nearly” 100 percent of incremental growth for FY19),” including such innovative launches as the Joyride plus the React and Air Max platforms.
And Jonathan Komp of Baird noted that Nike “continues to build on its leading position across athletic footwear (accounts for ~65 percent revenue), apparel (30 percent), and equipment (4 percent) markets globally by leveraging a combination of consumer-focused innovation and unparalleled marketing prowess. Over a longer-term horizon, we believe NKE remains very well positioned to drive growth via continued gains in mature markets (with manufacturing enhancements fueling new product innovation and increasing pricing power), to further penetrate high-growth categories (women’s, kids) and emerging markets, and to rapidly increase its direct-to-consumer channels.”
As for Nike’s continued focus on innovating—both on the product and business side—Parker said this as a way to tease what’s ahead for the apparel and footwear giant: “There’s much more to come from Nike innovation in fiscal year ’20.”
Photo Nike headquarters, courtesy Nike
