Nike Inc. said it is cutting approximately 2 percent of its workforce in an extensive realignment of the business designed to streamline and speed up strategic execution.
As of its last annual report for the year ended May 31, 2016, Nike reported that it had approximately 70,700 employees worldwide, including retail and part-time employees. The 2 percent cuts would represent around 1,400 jobs.
The sweeping initiatives builds on the “Triple Double” program Nike first revealed during its third-quarter conference call on March 22. The program calls for Nike to double down on investments in innovation, supply chain and connecting with consumers.
On Thursday, Nike said it was introducing a Consumer Direct Offense, similarly focused on “accelerating innovation and product creation, moving closer to the consumer through key cities and deepening one-to-one connections.”
Trevor Edwards, president of the Nike Brand, will drive the Consumer Direct Offense.
The move includes several steps designed to better integrate category, geography, marketplace, product, merchandising, digital and direct-to-consumer teams. In the new alignment, the company will focus on driving growth in 12 key cities, across 10 key countries: New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul and Milan. These key cities and countries are expected to represent more than 80 percent of Nike’s projected growth through 2020.
The move appears to be similar to Adidas’s move last July to “disproportionately invest in marketing and retail experiences” in six key cities: Los Angeles, New York, London, Paris, Shanghai and Tokyo. Adidas’ goal is to double its business in each of these urban centers over the next five years. Adidas stated, “With 50 percent of the global population living in cities and 80 percent of global GDP generated in metropolitan areas, these urban centers play a key role in creating trends, shaping global brands and building brand desirability.”
For Nike, the focus on key cities and countries will be supported by a simplified geography structure to improve efficiencies. Its geographic structure will shrink to four regions – North America; Europe, Middle East and Africa (EMEA); Greater China; and Asia Pacific and Latin America (APLA) – from the current six: North America, Western Europe, Central & Eastern Europe, Greater China, Japan and Emerging Markets. Financial results for the Nike Brand will be reported based on the four operating segments beginning in fiscal 2018.
The leaders of the newly formed geographies are: Tom Peddie, VP/GM of North America; Bert Hoyt, VP/GM of EMEA; Angela Dong, VP/GM of Greater China; and Ann Hebert, VP/GM of APLA. The only title and seeming responsibility change falls to Hebert, who was formerly VP/GM Emerging Markets.
The geography leaders will report to Elliott Hill, president of Geographies and Integrated Marketplace.
Nike also announced a number of initiatives and management changes to supports its Triple Double strategy.
- Express Lane, a process that enables global product teams make real-time adjustments to DTC and wholesale product lines with local teams, will be activated this summer in China, serving Shanghai, Seoul and Tokyo. Already operating in North America and Western Europe, Express Lane “quickly creates, updates and fulfills products” and is expected to by a primary drive of Nike’s goal to cut product creation cycle times in half.
- Michael Spillane is assuming the new role of president of categories and product, “leading an end-to-end design-to-delivery organization, including categories, design, product and merchandising.” Spillane was most recently VP and GM of global footwear. Past posts include VP and GM of Greater China as well as CEO of Converse and CEO and president of Umbro.
- This integrated organization is expected to place greater resources in the categories with the highest potential to fuel growth: Running, Basketball, Nike Sportswear, Men’s and Women’s Training, Global Football and Young Athletes. To support Nike Women’s growth, a new “dedicated women’s team” will complement each top-tier category.
- A new Nike Direct organization, led by Heidi O’Neill, president of Nike direct, and Adam Sussman, chief digital officer, to “double direct connections with consumers and shape the future of retail.”
Spillane, Hill, O’Neill and Sussman will all report to Edwards.
The Nike Direct organization will unite Nike.com, Direct-to-Consumer retail and Nike+ digital products “to enhance and expand Nike’s membership experience on an increasingly global scale.” Nike will also extend any innovations to its strategic wholesale partners.
Leading with mobile, this team “will unite physical and digital retail to serve consumers with the best of Nike.” Two recent examples of innovative consumer connections are SNKR Stash, which unlocks access to exclusive Nike and Jordan product using mobile geo-locations, and Shock Drop, which offers surprise alerts for coveted sneakers that allow consumers to buy instantly through the app or at their nearest Nike or wholesale store. Over the next several months, Nike is also launching its Nike+ and SNKRS apps globally “to energize the sneaker experience” in new markets.
The Triple Double strategy will also see Nike accelerate the impact and cadence of new innovation platforms. As an example, over the past few months, Nike noted that it launched three new cushioning platforms: ZoomX, Air VaporMax and Nike React. Under its “editing to amplify” approach, Nike is also reducing its styles by 25 percent by providing deeper selection of key franchises.
“The future of sport will be decided by the company that obsesses the needs of the evolving consumer,” said Mark Parker, Nike Inc. chairman, president and CEO. “Through the Consumer Direct Offense, we’re getting even more aggressive in the digital marketplace, targeting key markets and delivering product faster than ever.”
The realignment comes as Nike warned when it reported third-quarter results that Nike Brand’s sales could slow in the near term in North America due to the repercussions of the digital shift at retail, consolidation well beyond the sporting goods channel and an increasingly promotional climate.
“The North America retail landscape is not in a steady-state,” said Andy Campion, EVP and CFO, on the company’s third-quarter conference call with analysts. “Digital disruption and other dynamics are resulting in more aggressive promotional activity than we expected 90 days ago. So we are going to remain tight with respect to the supply that we are putting into the North America market in the short-term, while aggressively driving the initiatives that will reshape and grow the market, and extend Nike’s leadership long-term.”
Specifically, he said Nike will be “measured in the short term in Q4” given the heightened promotional climate amid the ongoing digital disruption.
The move comes while analysts are concerned about the impact of Adidas’ resurgence in North America as well as Under Armour’s extension into more fashionable sportswear and the decision to start selling to Kohl’s, DSW and Famous Footwear.
On its third-quarter conference call revealing the Triple Double program, Parker said he didn’t “expect this transition to be simple.” But he stressed to analysts his belief that digital and personalized service will define tomorrow’s winners. Said Parker. “More personnel, more mobile, more distinctive, these are the dimensions that will drive growth. And I’m convinced now is the time to rewrite the playbook of retail.”
Photo courtesy Nike