“As I said before, and I’ll say again, these are times when strong brands can get stronger, and that’s what Nike did this past year,” said John Donahoe, Nike’s president and CEO, at the company’s 41st annual meeting. He attributed much of the gains to progress from its Consumer Direct Acceleration (CDA) strategy.
Nike first announced in June 2020 that it had begun its CDA phase as an addition to its Consumer Direct Offense alignment announced in 2017. With the strategy, Nike is ramping up investments in e-commerce and technology and simplifying its “consumer construct” of men’s, women’s and kids’ businesses. It also intends to open 200 smaller, digitally-enabled “mono-brand” stores across North America, Europe, the Middle East, and Africa.
“As part of CDA, we successfully realigned our organization and began investing in our highest growth areas,” said Donahoe. “Part of that investment is our consumer construct of men’s, women’s and kids and Jordan, which aligns us against the biggest opportunities we see ahead of us. We’re putting resources behind our end-to-end digital transformation across the value chain as we unlock more growth and efficiency for the business.”
In the Q&A session, Donahoe added that Nike is “very encouraged and excited” by the progress made under the CDA strategy. He said, “The Consumer Direct Acceleration is transforming Nike with direct impacts that we can see in our ability to serve consumers end-to-end with a premium and seamless experience.”
Heidi O’Neill, president, consumer and marketplace at Nike, added that the organizational realignment from the CDA has led Nike to become more focused on scaling its technology and maximizing its direct model shift.
The “simpler consumer construct” enables Nike to better tap into its biggest opportunities inside men’s, women’s and kids. In women’s, for example, Nike Brand’s sales grew 22 percent in the company’s fiscal year ended May 31 to $8.6 billion, outpacing the 17 percent overall gain for Nike Brand.
Women’s now make up 23.9 percent of Nike Brand sales versus 52.8 percent for men’s.
The kids’ category has benefitted from the dedication of more resources within innovation and insights. One result is that Nike’s kids-specific innovation models are outperforming adult takedowns in the marketplace.
O’Neill added, “We’re putting resources behind our end-to-end digital transformation across the value chain as we unlock more growth and efficiency for the business. Above all, our strategy positions us to lead and drive continued market separation while always connecting consumers to their passion for sport.”
Matt Friend, EVP and CFO, added that the CDA has had a “profound effect” on Nike’s operating model and financial performance.
“Our relentless focus on serving consumers is resulting in healthy profitable growth, and the shift to a more direct model has resulted in Nike’s highest EBIT margin in recent history,” said Friend. “The investments we’ve made against our end-to-end digital transformation are making us more agile, and we’re building the capabilities that are required for Nike to operate a digitally-led omnichannel direct-to-consumer business at scale.”
Friend noted that Nike’s direct-to-consumer (DTC) business approached 40 percent of sales in fiscal 2021, with Nike-owned digital representing 21 percent of total Nike Brand revenue, a milestone reached three years ahead of its prior plan in part due to accelerated online spending tied to the pandemic. Friend reiterated that by fiscal 2025, Nike expects DTC to make up 60 percent of Nike Brand’s sales, with 40 percent coming from Nike-owned digital.
Discussing Nike’s “digital advantage,” Donahoe highlighted the benefits digital provides to membership engagement across its One Nike Marketplace.
“This year, Nike hosted our first-ever globally coordinated Member Days, which reached over 60 million members across 25 countries, offering them first access to products, rewards for activity and exclusives across stores and digital. And this year, we’ve also added live streaming to the SNKRS app and continued innovating, launching SNKRS Live, our first drop via live streaming. So today, we’re the clear leaders in digital in our industry.”
O’Neill stressed that the One Nike Marketplace embraces digital and physical experiences for consumers.
“The reality is our consumers are telling us what they expect from us,” said O’Neill. “They want a premium and seamless brand experience wherever they shop; this leads with digital, online-to-offline services and, honestly, an emphatic call for physical experiences as we continue to invest in store concepts and serve consumers across the marketplace. So as we accelerate the digital-led marketplace of the future, our commitment is to serve our consumers more personally and at scale. We will do this through our channels as well as with select key partners that share our vision of offering expanded choice and access to sport and to Nike.”
She also underscored that across its One Nike Marketplace, the brand is looking to connect with consumers through Nike membership.
“You are seeing us elevate our membership proposition, our app ecosystem and our store’s experience,” said O’Neill. “This seamless experience is winning with consumers and enabling us to create a premium journey and incremental business value for that multi-channel shopper. Our ability to serve consumers shifts in the marketplace will enable us to fully capitalize on the incremental market opportunities. And our digitally-enabled physical stores will continue to play a critical role to better serve and create deep relationships with our consumers.”
She pointed to the Nike Live concept’s ability to unlock key growth areas, such as women’s, apparel and Jordan. The Nike Unite community-driven concept is helping Nike reach urban locations by “increasing convenience and local relevance.”
Nike’s stores also amplify several online-to-offline elements, such as expanded pick-up options, in-store shopping features accessible through the Nike app, in-store chat, and accelerated replenishment that Nike believes leads the industry to elevate the customer experience.
Said O’Neill, “These differentiated and innovative retail concepts will continue to separate us from the competition and will drive higher long-term growth and market share in the future as we stay laser-focused on listening to serving our consumers every day.”
Another major topic was Nike’s ongoing commitment to innovation that in recent years has been supported by speed-to-market investments. Said Donahue, “Our relentless product pipeline is increasingly fueled by sharp consumer insight as we blend the art and science of product creation.”
He noted how a focus on new styles and colors are “bringing fresh points of view” and driving expansion for platforms such as Air Force One, Air Jordan One and Air Max.
The Nike M maternity and Nike yoga collection “were both big hits” with consumers in fiscal 2021 and supported the brands’ efforts to grow sports through inclusivity. Said Donahue, “These collections set the standard for the industry as they were specifically engineered to deliver the exact fit, movement and comfort demanded by consumers.”
A break-through in inclusive design was marked by the introduction of the Nike GO FlyEase, Nike’s first hands-free shoe. The Glide FlyEase was worn by Nike athletes at the Tokyo Olympics.
Around sustainability, Nike over its last fiscal year came out with the Crater Foam midsole made from Recycled Grind fabrication and featured on the brand’s Space Hippie model. The midsole is also employed in Cosmic Unity, Nike’s first performance shoe under its Move-To-Zero initiative. Said Donahue, “The consumer response received by these products offers continued proof of the global appetite for sustainable product.”
CSR and ESG objectives were also discussed, including the 10-year $100 million commitment made by Jordan Brand and Michael Jordan last March in support of the black community. Donahue cited Naomi Osaka’s Play Academy, which was launched earlier this year with the goal of helping elevate young girls lives through play and sport.
Nike also last fiscal year released its latest Impact Report and announced new 2025 purpose targets on a host of key priorities from sustainability to representation and investing communities around the globe. Said Donahue, “This important work creates long term value for Nike while also raising the bar for our entire industry.”
Asked about current supply chain challenges that recently caused Nike to reduce its growth targets, Friend said Nike is “not immune to the global supply chain headwinds that are impacting our industry today, including factory closures and elevated transit times to move inventory around the world.
He added, “Consumer demand for Nike, Jordan and Converse is incredibly high and our first quarter financial results would have been even stronger with more available inventory supply. So as we look to manage our supply chain over the coming quarters, our teams are doing exactly what they have been doing over the past year and a half. We’re leveraging our scale and the strength of our partner relationships in order to improve the flow of product and we keep focused on serving the consumer as we execute our Consumer Direct Acceleration strategy. We’re better positioned than ever to manage the current environment and we’re confident that we will emerge even stronger as a brand and a business.”
He reiterated that Nike will likely face supply chain restrictions through the first part of calendar year 2022. Said Friend, “We’re optimistic that inventory supply availability will improve as we approach fiscal year 23. And our vision for Nike’s long term future remains unchanged.”
In reporting first-quarter results on September 27, Nike reduced its FY22 revenue growth guidance to mid-single digits, down from its prior guidance of low double-digit growth due to the supply chain issues. Nike said it lost ten weeks of production in Vietnam since mid-July. A phased reopening of Vietnam factories is expected to begin in October, with full ramp-up expected to take several months and lead to continued elevated transit times. Nike also said transit times worsened due to container shortages, port congestion, rail congestion and labor shortages.
Another concern from investors is growth in China, which saw only a 1 percent gain on a currency-neutral basis in the quarter. Nike had said the growth was in line with Nike’s plan as excess inventories resulting from the China cotton boycott were cleared.
Donahue expressed confidence that China would return to double-digit growth as he particularly called out the benefit of Nike’s localized approach.
He was also bullish on Nike’s prospect for the current fiscal year, He told shareholders, “This new financial model is clear proof of the competence we have in Nike’s future and as I look ahead to fiscal 22, I’m excited. We are clearly seeing our strategy work. The team at Nike is energized by our incredible potential, and I hope you’re energized as well. Fueled by our competitive advantages, we will continue to drive our vision to create the future of sport.”
At the meeting, shareholders approved the 12 nominees to Nike’s board, an updated compensation plan for executives, and the hiring of Price Waterhouse Coopers as the company’s accountants. A number of proposals calling for more transparency around political contributions, pay equity and diversity & inclusion reporting were not approved as well as one calling for a human rights impact assessment across Nike’s supply chain.
Photo courtesy Nike