In brief
Nike's record share price followed strong fiscal 2020 first-quarter results, supported by women's apparel, e-commerce and China. Its Triple – Double strategy and shopping apps helped strengthen consumer engagement, while currency-neutral e-commerce revenue rose 42% and revenue in China grew 27%.
On September 25, Nike released its results for the first quarter of fiscal 2020, with strong performance giving investor confidence a major boost.
Global revenue rose 7% year on year to US$10.66 billion; net income increased 25% to US$1.367 billion; and earnings per share reached US$0.86, all exceeding Wall Street expectations. The good news lifted Nike's shares 5.53% in after-hours trading to a record high, bringing their gain since the start of the year to 18%.
Nike's Secret Weapons for Growing Its Women's Business: Tennis and Football
The results showed double-digit growth in the women's apparel business in the previous quarter. Nike specifically credited this summer's 2019 Women’s World Cup as a major contributor.
Apparel revenue from the Women's World Cup was four times that of the previous tournament, while the winning US team's jersey became Nike's best-selling football jersey ever, helping lift overall sales in its women's apparel business by at least 10%. This reflected Nike's confidence in women's football and its willingness to invest: it sponsored 14 of the 24 teams.
Tennis, however, has an even greater impact when it comes to promoting women's apparel. At the US Open, which had just concluded in early September, viewers could hardly have missed Nike's pervasive presence.
In Forbes' 2019 ranking of tennis players by earnings, Serena Williams placed fifth with US$29.2 million, including US$25 million in endorsements, a substantial share of which came from Nike. World number one Naomi Osaka followed closely with US$24.3 million. This year, Nike also signed her away from its archrival Adidas.
Nike currently has seven of the world's top 10 women's tennis players under contract, making it something of a go-to supplier of tennis apparel. Nike competes aggressively to sign top female tennis players because it has found tennis to be an effective platform for promoting its women's product lines.
While most sports have predominantly male audiences, tennis fans are almost evenly split between men and women. Last year's women's singles final between Serena Williams and Naomi Osaka attracted 50% more viewers than the US Open men's final. Interest in tennis has also grown overall, with ratings for this year's US Open opening night rising 43%.
Another advantage of tennis is that players serve as walking advertisements from head to toe. Serena Williams' outfits, for example, have repeatedly attracted media coverage.
The women's business currently accounts for nearly one-quarter of total revenue and still has considerable growth potential. Beyond competition, fitness and leisure, Nike is also working to embrace a wider range of body types. In early June, Nike opened a new store dedicated to women's products in London, NIKETOWN, and introduced plus-size mannequins for the first time. The move sparked considerable discussion, while searches for “plus size” on retail website Love the Sales rose 387%.
Alongside its successful focus on women's apparel, Nike's three-pronged strategy introduced over the past two years appears to be delivering results.
Nike's Three-Pronged Strategy to Revive Its Business
In 2017, pressure from e-commerce and competitors taking market share pushed Nike's growth to a seven-year low. It responded with its “Triple – Double” strategy, which, put simply, aimed to move faster to meet consumer needs through its Consumer Direct Offense.
1. Double Innovation (2X Innovation): In addition to developing new cushioning technologies such as ZoomX, Air VaporMax and Nike React, Nike recently launched “smart sneakers” that let users adjust their laces through Siri voice commands.
2. Double Speed (2X Speed): Drawing on the fast-fashion model, Nike shortened its product refresh cycle from months to weeks while reducing the number of shoe styles by 25%. This stimulated demand and concentrated resources on key styles, although it subsequently led to speculative sneaker trading.
3. Double Direct Engagement (2X Direct): Nike expanded the reach of its Nike+ membership programme, organised offline events and improved the consumer experience.
Another major highlight of the results was e-commerce growth of 42% year on year on a currency-neutral basis, which strongly supported overall sales growth.
The Key to Nike's Comeback: Making the Most of E-commerce
The key lies in Nike's integration of new retail approaches with an intensive use of scarcity marketing.
Previously, shoppers hoping to buy limited-edition sneakers could improve their chances by arriving early to queue at designated stores. Now, they can only get a chance to buy through the dedicated official app “SNKRS”, effectively moving offline traffic online. Consumers must first win a draw for the right to purchase. Even if they never win, sneaker fans still flock to enter when the next limited edition launches, reasoning that they have nothing to lose by trying.
Chinese internet users have consequently nicknamed SNKRS the “sneaker-grabbing app”, and various bots claiming to improve the chances of winning a draw have emerged. By seemingly lowering the barrier to buying limited-edition sneakers, Nike also boosts brand exposure and sales. This cycle encourages users to check SNKRS regularly for new releases, seamlessly turning it into a reliable product promotion channel that targets audiences precisely at almost zero cost. The sneaker speculation craze has helped SNKRS account for 20% of Nike's total e-commerce business.
Meanwhile, the Nike app, its official shopping gateway, is currently available in 21 countries and has become the largest and fastest-growing platform among Nike's e-commerce channels. Over the past three years, active user numbers across all its apps have more than doubled.
Last year, Nike invested more than US$1 billion in new features and the consumer experience. Nike+, its loyalty programme combining retail and fitness, now has 170 million users. CEO Mark Parker expects e-commerce's share of total revenue to rise from the current 15% to at least 30% by 2023.
Improving offline experiences is also important. Nike's House of Innovation concept flagship stores in New York and Shanghai feature sneaker labs offering customisation services and immersive experiences, including courts where consumers can run and jump to test shoes.
To improve personalised recommendations, Nike also acquired data company Celect in August, enabling it to predict consumer preferences more accurately. With Nike's inventory up 12% this quarter, this could also help ease inventory pressure.
However, competition in athleisure apparel has become intense. With rivals such as Lululemon mounting strong challenges, Nike cannot afford to relax.
China's Booming Market
Revenue in China grew 27% year on year on a currency-neutral basis, making it Nike's fastest-growing region worldwide. Parker is determined to capture this opportunity, stressing that “Nike is a brand for China”. With the Nike app expected to launch in China next quarter, the company anticipates relying more heavily on e-commerce to drive performance.
Morningstar analyst David Swartz also highlighted the 2020 Tokyo Olympics as another major arena for Nike, saying, “This will give them tremendous influence in Asia.”
Original article URL: http://bit.ly/32MNpFz