A Radical Visionary Envisions Nike’s Dominant Future

Written by:

Share

Facebook
Twitter
LinkedIn
Pinterest
Email
Print

When you see the image of a swoosh and hear or read the words “there is no finish line” or “just do it,” what brand immediately comes to mind? If your answer is “I don’t know,” then you have been living on another planet.

Nike has been just doing it, over and over again, as if there were no finish line. Doing what? Continuously innovating new products to maximize performance; advances in technology that elevate the efficiency and productivity of operations and inventory optimization and distribution to over-deliver to their insanely loyal fan base.  Nike is also a leader in applying AI to personalize customer engagement and using AR to excite, entertain and energize the shopping experience — all of which, combined, builds a solid Nike community.

If you don’t believe me, just drop into Nike’s House of Innovation 000 on Fifth Avenue in New York, 001 in Shanghai or 002 in Paris. These enormous, totally immersive Nike worlds, supported by its powerful app connection, take a localized and personalized experience for each urban community to another level.

All of this — plus more — is why The Robin Report recognizes Nike as a 2020 Retail Radical, noted for its innovation, customer-centricity and enlightened leadership.

\"\"The ”Triple Double”

Talk about “no finish line.” Nike’s new President and CEO, John Donahoe (as of January 2020) took the handoff from his predecessor Mark Parker and in his first annual letter to shareholders in July acknowledged that not only has their CDO (Consumer Direct Offense) been successful, it was not a finish line. In fact, Donahoe moved the goal forward with a new acronym CDA (Consumer Direct Accelerator). He said, “Looking forward, we see even greater opportunity. COVID-19 offered a stress-test of our Consumer Direct Offense strategy. We know the CDO is working. We’re delivering on our “Triple Double” – our high-impact differentiators of speed, innovation and direct connections with consumers.”

[callout]Nike is delivering on their “Triple Double” – high-impact differentiators of speed, innovation and direct connections with consumers.[/callout]

The leadership promise was the triple doubling-down on its cadence and impact of innovation, speed to market and direct connections with consumers. Donohue explains, “It proved our offense works. And it proved the time is right to accelerate it. We are strengthening our competitive advantages and setting the foundation for long-term growth.”

And in my opinion, another major reason for selecting Nike as one of The Robin Report 2020 Retail Radicals is that each of the elements of the Triple Double strategy is driven by an intense, laser-like focus to continually raise the bar on their indelible consumer connection. In other words, there is no finish line when it comes to accelerating ever higher levels of consumer satisfaction. Nike has an acronym for this as well: NCX (Nike Customer Experience).

Distribution, Distribution, Distribution

Nike was launched in 1964. But it wasn’t until 1990 that they opened their first Nike store in Portland. The path to scale during those years was a combination of distributing the brand through thousands of retailers and brilliant marketing.  This initial period was well before the explosion of ecommerce as well as the massive global interest in sports connected by the internet. One could argue that Nike was a major pioneer in promoting sports in general and marketing brilliance in strategic positioning of their own brand.

Now at $37.4 billion in annual revenues, selling in about 120 countries with North America accounting for almost half of the revenues, Nike is putting a spotlight on distribution with its commitment to its Consumer Direct Accelerator strategy. And that accelerator has been propelled by the explosion of ecommerce.  In fact, roughly 65 percent of Nike’s revenue is generated from its wholesale business, the majority of which is through legacy retailers who have utilitarian, brand agnostic transactional cultures (product exchanged for dollars and pricing through heavy markdowns). By definition, those retailers are unable to provide the consumer the experience that Nike’s NCX strategy promises to deliver.

So, the initiatives in their Triple Double strategy of continuing to gain competitive advantage in speed and innovation include its digital transformation throughout the value chain. The strategy also includes the supply chain and ecommerce; faster and leaner consumer-driven new product cycles, personalized through data analytics; a super app that provides an awesome connection and experience for its loyal customers; and finally, additional growth in women’s apparel and international markets.

Importantly, all of these initiatives are implemented with the overriding objective of elevating the customer experience (NCX). And more importantly, in my opinion, distribution disruption and re-creation are the next big things to ensure that the entire holistic Nike experience will not fall short of the brand’s potential. CEO Donahoe acknowledged this with Nike’s Consumer Direct Offense bumped up to a Consumer Direct Accelerator.

According to Business Insider in an October 2017 report, Nike had some 30,000 retail partners worldwide. In alignment with Nike’s Accelerator strategy, it vastly culled their partnerships down to some 40 partners in 2019. In a statement to Business Insider, Nike said, “As part of our recently announced Consumer Direct Acceleration strategy, we are doubling down on our approach with Nike Digital and our owned stores, as well as a smaller number of strategic partners who share our vision to create a consistent, connected, and modern shopping experience.” These selected partners aligned their own strategies with Nike’s and actually added value to the Nike brand. It was a win/win resulting in highly profitable growth rates. Among those retailers that didn’t make the cut are Amazon, Zappos, Belk, Dillard’s and Bob Stores.  Strong partners like Foot Locker, Nordstrom, Dick’s Sporting Goods, JD Sports, Intersport and others provide the NCX and are core to the Nike ecosystem.

Direct to Consumer

Nike sees its future as a huge synergy among digital and its own brand-owned and controlled physical stores (with the exception of the 40 or so powerful third-party retail partners). While all retail sales have suffered during the pandemic, many experienced huge increases in online sales. Nike’s Q1, 2021 online sales increased by 82 percent, and now comprise over 30 percent of their revenues. And they believe that within a few years online sales will comprise 50 percent of their overall business.

Regarding physical store strategy, at the end of fiscal 2019, Nike operated 1,096 stores globally, and 384 in the U.S. Of these in the U.S., 217 were Nike factory stores, 29 were Nike-owned and branded stores, 109 Converse and 29 Hurley stores. Going forward, Nike intends to open 200 new smaller-format, digitally-enabled stores across North America, Europe, the Middle East and Africa.

In my opinion, Nike will use five retail concepts to localize operations to a particular urban or suburban community: Nike Rise, Nike Unite, Nike Live, Nike Community and Nike House of Innovation. These are not cookie-cutter shop creations, which is a huge differentiator and will raise Nike to a consumer- connecting level that has no precedent.

The Robin Report recently described the Community concept:

In 2015 Nike opened a Community Store in Brooklyn; It’s not in Williamsburg or Dumbo, it’s in Flatbush. Flatbush is hardly an international retail mecca. In fact, the store is near the last downtown stop, at the end of the number two subway line. The Nike Community Store model has expanded to include downtown Detroit, Ivy City in D.C., mid-city New Orleans, South Chicago, Portland Oregon, East Los Angeles, and the newest location, which opened in August of 2020 in the Watts neighborhood of L.A. The game plan of breathing authenticity and local culture into the essence of a store goes deeper, WWD described the emphasis of local engagement specific to the Watts Community Store that is emblematic of the initiative. “Nike hired 85 percent of the staff from within three miles of the store, is allocating paid volunteer hours for employees to give back and is supporting local organizations through an employee-led grant program.”

Nike Direct President, Heidi O’Neill had this to say about the Nike’s House of Innovation 000: “Inside, the promise of living retail comes to life. On each floor, groundbreaking features offer spaces and experiences that are both personal and responsive. Throughout, consumers can enjoy services that are deeply customizable and effortlessly smart and seamless. The store recalls the immersion that many locals remember from their first visit to New York’s original Niketown when it opened its doors more than 20 years ago.”

As I Said, Nike is “just doing it” as if there were no finish line.

Radical Strategies Yield Radical Results

In his first letter to Nike’s shareholders, President and CEO John Donahoe stated “FY20 was a defining year for Nike. It proved our offense works. And it proved the time is right to accelerate it.” In the first half of fiscal 2020 prior to Covid-19, Nike, Inc. revenue was up 9 percent, or 11 percent on a currency-neutral basis, reflecting strong, broad-based consumer demand, higher full-price sales realization and a double-digit increase in digital sales. For the first nine months of FY20, Nike’s remarkable underlying strengths translated into very strong financial performance. Then the Covid-19 pandemic came, and retail stores closed, first in China and then the rest of the world. In the fourth quarter, revenues for Nike, Inc. fell four percent to $37.4 billion, down two percent on a currency-neutral basis due to the impact of the coronavirus on business operations. However, digital sales increased 75 percent in the fourth quarter and was approximately 30 percent of total revenue.

As detailed in Donahoe’s letter, Nike’s FY20 performance demonstrates the company’s momentum in three key areas:

  1. Digital advantage, as the company scales the app ecosystem and membership offerings rewarding more consumers
  2. Compelling product innovation, as the company launches breakthrough technologies and industry-defining products
  3. Speed initiatives, as the company leverages capabilities such as the Express Lane initiative, digital demand sensing capabilities and a more dynamic supply chain network

Moving forward into FY21, on September 22, 2020, Nike reported fiscal 2021 financial results for its first quarter ended August 31, 2020. First quarter reported revenues were $10.6 billion, down one percent on a reported basis and flat to prior year on a currency-neutral basis. Nike Direct sales were $3.7 billion, up 12 percent on a reported basis, and up 13 percent on a currency-neutral basis, with growth across all geographies. Nike Brand digital sales increased 82 percent and net income was $1.5 billion, up 11 percent as lower selling and administrative expense more than offset lower gross margin and revenue.

The results this quarter demonstrate Nike’s full competitive advantage as the company continues to strengthen its position in the midst of disruption. “Nike is recovering faster based on accelerating brand momentum and digital growth as well as our relentless focus on normalizing marketplace supply and demand.” said Matt Friend, Executive Vice President and Chief Financial Officer, Nike, Inc. “We continue to drive investment in capabilities that will fuel our consumer-led digital transformation, catalyzing long-term growth and profitability for Nike.”

Nike Earned Best Place to Work for LGBTQ Equality

Nike is successful on so many fronts, not the least of which is diversity and inclusivity. For the 18th year in a row, Nike earned Best Place to Work for LGBTQ Equality with a score of 100 in the Human Rights Campaign Foundation Annual Corporate Equality Index. Nike is one of 686 companies to score 100 in the 2020 CEI. With new and higher benchmarks, this was the most comprehensive assessment of workplace LGBTQ inclusion in the report’s 18-year history. The CEI rates companies on detailed criteria in four broad categories: Non-discrimination policies, Employment benefits, supporting an inclusive culture and corporate social responsibility including public commitment to LGBTQ equality, and responsible citizenship. The full report is available here.

Nike’s employee networks strive to bring together employees and allies of their diverse team. The Pride Network is just one example of the company’s commitment and supports a vision where employees diverse in sexual orientation, gender identity, and gender expression thrive as their authentic selves. Nike’s 2020 BeTrue and Converse Pride Collection each look multidimensionally at LGBTQIA+ representation and interpret those perspectives. The campaign, which celebrates the power of the team, features LGBTQIA+ athletes and allies across the world of sport. Nike is supporting more than 20 organizations advancing the LGBTQIA+ community, with some grants administered by the Charities Aid Foundation of America. The organizations range from local to national with a focus on advocacy in sports, creating safe spaces and elevating the history of the community. Nike honors every voice advocating for equality and those standing up to make a difference.

Nike’s Winning Game

“Nike continues to entertain and energize consumers, strengthening their competitive advantages at every turn,” according to Matt Laukaitis, EVP and Global General Manager at SAP Consumer Industries and Sponsor of the 2020 Retail Radicals program.  He adds, “Nike’s ability to differentiate on speed to market and product innovation is a powerful combination, delivering impressive results while elevating the brand for the future.  Always raising the bar on customer experience and maintaining a dedicated branded connection, Nike is a Retail Radical example for all brands to follow.”

Led by John Donahoe, Nike is a poster child Retail Radical and a company embodying the values and virtues of doing business not only during a pandemic, but as a company mindful of all its constituents as it builds its brand into the future.

Related

Articles

Scroll to Top