Sportswear giant Nike Inc says it has a “playbook” to tackle the impact of the Covid-19 pandemic, including leveraging its diverse sourcing base and digital capabilities to manage the business with flexibility, and shifting inventory to serve consumer digital demand.
Other methods deployed when the virus initially broke out in Greater China, Japan and South Korea included deploying its digital and activity apps to encourage consumers to keep active while isolating – which led to increased engagement with its Nike commerce app.
“The strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app. As a result, our digital business in China grew more than 30% and maintained strong momentum throughout this challenging period,” CEO John Donahoe told analysts on the firm’s third-quarter earnings call yesterday (24 March).
The Beaverton, Oregon-based business says about 80% of its stores in China are now open.
“Our digital business in China has accelerated even further over the past month, and we are now seeing double-digit increases in retail traffic week-over-week, with some stores having already returned to prior year levels,” Donahoe added.
“Due to the resilience and creativity of our team in China, we now have a playbook that we can use elsewhere” – John Donahoe
“We’re seeing the other side of the crisis in China. And…we now have a playbook that we can use elsewhere. With Covid-19 now spreading across Europe and the US, we are applying the same playbook.”
Donahoe also said Nike’s innovation and manufacturing teams are exploring designs for personal protective equipment to support doctors, nurses and others “on the frontline of this outbreak.”
Nike’s efforts follow similar steps taken elsewhere to address widespread PPE shortages due to the pandemic and constrained supply.
Swedish fashion retailer H&M Group is mobilising its supply chain to produce PPE to be delivered to hospitals and health care workers, while in the US, a coalition of apparel and textile firms has joined forces to build a supply chain to fast-track the manufacturing of medical face masks.
Donahoe’s comments came as Nike booked a 23% drop in third-quarter profit to US$847m after a $400m charge related to the shift of its Nike Brand South America business to distributors and impacts to Greater China from Covid-19 offset strong revenue growth across Nike Direct.
Revenues in the three months to 29 February increased 5% to $10.1bn, up 7% on a currency-neutral basis, driven by 13% currency-neutral growth in Nike Direct with digital growth of 36% and strong growth across EMEA, APLA and North America, offset by the impact of Covid-19 in Greater China.
On a currency-neutral basis, Greater China revenues in the period were down 4% following 22 consecutive quarters of double-digit growth, with strong double-digit revenue growth in the first two months of the quarter offset by the impact of the coronavirus beginning in late January. At the peak in February, roughly 75% of Nike-owned and partner doors in Greater China were closed, with others operating on reduced hours. Digital sales in Greater China increased more than 30% in the quarter.
By brand, Nike revenues were up 6% to $9.6bn in the period, primarily due to double-digit growth in Nike Direct and growth in wholesale, with key categories including sportswear and the Jordan Brand, and continued growth across footwear and apparel.
Revenues for Converse were $506m, up 11% on a currency-neutral basis, mainly driven by double-digit growth in Europe and in digital, globally.
Nike also noted that gross margin fell 80 basis points to 44.3%, primarily as a result of impacts from Covid-19, including a lower mix of sales in Greater China which is its highest margin geography, as well as increased rebates to wholesale partners and higher costs related to factory cancellations to manage future inventory. Gross margin also declined due to changes in foreign exchange rates and incremental tariffs in North America.
“In an extraordinarily dynamic time, Nike’s strong results are testament to our deep consumer connections, compelling product innovation and agile teams around the world. We know it’s in times like these that strong brands get even stronger,” Donahoe said. “As we start to see recovery in China, no-one is better equipped than Nike to navigate the current climate.”