Nike ecommerce gains fail to make up for pandemic fallout
Global revenues for fourth quarter drop 38% due to physical store closures
Nike said sales lost due to widespread physical store closures during the coronavirus pandemic were not offset by gains in its ecommerce business, underscoring the sportswear maker’s reliance on bricks-and-mortar retail as it takes new steps to expand online and direct sales.
About 90 per cent of Nike-owned stores in the Americas, Europe and Asia-Pacific were closed for roughly eight weeks during the company’s most recent quarter due to virus-imposed lockdowns. Sales declines were further hampered by similar closures at Nike’s wholesale partners, the company said.
Many of those Nike-owned stores have since begun to reopen, including about 85 per cent of those in North America, the company’s largest single market by revenues.
John Donahoe, the company’s chief executive since January, said that during the pandemic, Nike digital sales rose to 30 per cent of overall revenues, reflecting a shift in consumer behaviour. He expected digital to reach 50 per cent of Nike revenues “in the foreseeable future”.
Global revenues for the fiscal fourth quarter plummeted 38 per cent to $6.3bn as Nike swung to a loss of $790m for the period, from a profit of $989m a year ago. Nike shares, which are flat year to date, fell 3.8 per cent to $97.60 in after-hours trading on Thursday.
Mr Donahoe said Nike would continue to invest in its digital sales segment, which rose 75 per cent during the three months ended May. New membership registrations among Nike apps more than doubled to 25 million during the period, half of which belonged to women.
The world’s largest sports footwear and apparel maker has put direct-to-consumer and online sales at the forefront of its retail strategy in recent years, with the appointment of Mr Donahoe — a former eBay and Service Now executive — the strongest indicator yet of that commitment.
Nike traditionally made the bulk of its sales through wholesale agreements with retailers such as Macy’s, Dick’s Sporting Goods and other bricks-and-mortar businesses. In 2015 it announced plans to double its direct sales to consumers to $16bn by this year, in part by revamping a suite of smartphone apps and launching desirable products, such as self-lacing shoes, exclusively through its own channels. As of the end of the 2020 financial year, they were $12.4bn.
Moving forward, Mr Donahoe said Nike would take several steps to improve its owned retail sales, including opening between 150 and 200 stores in North America and Europe this year. Some facilities, such as its distribution warehouse in Memphis, have already been converted from primarily wholesale to direct to consumer logistics centres.
The company also plans to streamline its men’s, women’s and children’s product segments to help it respond more nimbly to consumer demand.
In an email to employees, Mr Donahoe said Nike would initiate job cuts from next month but did not specify how many employees would be affected or which departments, according to a person familiar with the matter. A virtual, company-wide meeting to discuss the restructuring is scheduled for Tuesday.
A Nike spokesman did not immediately respond to a request for comment.
On a call with analysts on Thursday, Nike chief financial officer Matt Friend said he expected revenues to be below previous-year levels for the rest of 2020, picking up in the first half of 2021. Inventories are expected to stabilise during Nike’s fiscal second quarter, after rising 31 per cent through the year ended in May.
In China, where effects of the pandemic were first felt, Nike said all of its owned stores have since reopened and sales have returned to growth. Revenues in the region fell 3 per cent for the latest quarter, compared with declines of 46 per cent each in both North America and Europe, the Middle East and Africa.
In recent weeks, Nike has been at the forefront of discussions around systemic racism and police brutality, thanks to its advertising campaign in 2018 featuring football star-turned-activist Colin Kaepernick.
Mr Donahoe opened remarks to analysts on Thursday by saying the company is uniting behind its black athletes and community. In a letter to employees earlier this month, reviewed by the Financial Times, he wrote that many at the company “have felt a disconnect between our external brand and your internal experience”, based on recent conversations with staff.
“You have told me that we have not consistently supported, recognised and celebrated our own black teammates in a manner they deserve,” he continued. “This needs to change.”