Nike CEO: Digital Is The New Normal
Nike’s earnings call on Tuesday (Sept. 22), in which it set a new standard for companies capitalizing on the digital-first economy, just might have had the quote of the year.
“We know that digital is the new normal. The consumer today is digitally grounded and simply will not revert back,” said Nike CEO John Donahoe. His comment came as Nike lapped the field on overall revenue and eCommerce percentage gains. Perhaps most importantly it showed profits despite the tight margins associated with digital sales operations.
By the numbers, Nike was reporting on its first quarter of the 2021 fiscal year. First quarter reported revenues were $10.6 billion, down only 1 percent vs. 2019 numbers. The real star was Nike’s digital sales, which increased 82 percent. Women’s apparel digital sales spiked 200 percent. The company also saw its connected fitness business increase. The Nike Training Club app saw more than 50 percent of its members worldwide starting to work out in Q1. The Nike Running Club has seen four consecutive months of more than a 1 million downloads each month for its audio-guided runs. Despite the shipping costs and other operational overhead associated with eCommerce, the company’s gross margin slipped only 3 percent, basically flat vs 2019 going from $4.8 to $4.7 million.
“We are seeing a benefit from increased digital penetration on our margins,” said Nike Executive Vice President and Chief Financial Officer Matthew Friend on the earnings call. “But I would also want to highlight that the strategy and the focus on shifting the marketplace exiting on differentiated wholesale distribution and focusing on our direct business and our strategic partners drove higher full price realization as well in both of those markets in the quarter, which also fueled our gross margin. And so, those two factors in particular were large drivers of gross margin performance in the quarter.”
Friend also credited the companies use of retail technology to improve digital margins including artificial intelligence (AI), digital demand sensing, insight gathering, digital marketing, membership personalization and inventory optimization.
The results come after Nike engaged in some risky business in the previous quarter. At that time Donahoe sketched out a new vision for Nike, one that relied less on retail partners, less on physical retail and more on its proprietary digital channels. While Donahoe seemed to be taking a victory lap on that front during the call, he also threw some shade at the current global retail scene.
“In this world where consumers want a seamless digital and physical experience, they want to know who they are, they want consistent premium modern experiences, the North America retail market today is furthest away from that,” he said on the call. “And so, that’s what’s driving our OneNike marketplace, where we lead with digital, directly connect with them for all the reasons we have described, we then follow with our NIKE Direct where we have very premium experiences that are often digitally infused. And then we work with fewer strategic partners who see the world the same way we see the world, and want to provide the consistent experiences for our consumers, want to provide the same level of knowledge and understanding so consumers know who they are.”