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Nike is proving during the pandemic that its big bets on digital are paying off, as consumers are turning to its website and app in record numbers to buy sneakers and sportswear.
In recent years, the company has moved away from department stores and other wholesale outlets, instead investing in opening its own smaller neighborhood stores, called “Nike Live”, to serve as hubs. online order picking, along with multi-level flagship locations called “House of Innovation.” It is also testing a new concept that debuted earlier this year in Guangzhou, China called “Nike Rise,” where visitors can use their Nike app once inside the space to sign up for local soccer games and athletic clubs.
Even when most of its stores were reopened, Nike’s digital sales soared 82% during the first fiscal quarter, pushing revenue above analyst estimates.
“Nike’s decision to evolve into an organization that prioritizes digital has proven prudent as the crisis continues to push consumers toward the digital channel,” said Susquehanna analyst Sam Poser. “The digital impulse is sticky … [And] Nike has embraced the structural shift in consumer buying habits from traditional brick and mortar to digital and, in our view, will continue to capitalize on this shift. ”
Nike shares rose about 9% on Wednesday morning, hitting an all-time intraday high of $ 130.38.
Before the Covid-19 crisis, Nike had set a goal for its e-commerce sales to represent 30% of total revenue by 2023. But it has already surpassed it. It didn’t break down the exact percentage, but said that online sales were more than 30% of total sales during the latest quarter.
Now, it is on track to break 50% in the next few years.
“The accelerating consumer shift to digital is here to stay,” Chief Executive John Donahoe said Tuesday. “Digital is driving the way we create the future of retail.”
“Nike’s digital transformation strategy is not easily replicated,” he added. “Simply put, scale matters and Nike leads.”
For many retailers, not just Nike, e-commerce is driving profits, even driving hiring. Walmart announced Wednesday that it plans to hire 20,000 seasonal employees over the holidays to help pack and ship online purchases at its fulfillment centers. Lululemon announced late Tuesday that it plans to resume its share buyback program, which had previously been halted due to the pandemic. Like Nike, Lululemon has seen its digital business explode – its online sales soared 157% in the last quarter.
To be sure, sportswear companies like Lululemon and Nike are in many ways in the right place at the right time. Consumers are starving for home gym accessories and sweat-absorbent clothing during the pandemic. They are shopping for leggings and sweatpants to relax and wear while working from home. Nike said its sales of women’s clothing increased almost 200% in the last quarter.
But as more sales move online and out of wholesale channels, Nike is finding a way to make those digital sales more profitable – a feat many retailers grapple with. Return shipping and handling charges tend to influence overall sales, reducing profits.
CFO Matt Friend said Nike generally earns about 10 points more for its gross margins on digital revenue vs. wholesale revenue, finding customers on its website are more loyal, allowing Nike to lower customer acquisition costs and increase your return on advertising investment.
“While we will need to continue investments to expand digital compliance capabilities, we can improve operational efficiency through predictive modeling tools, data-driven member customization and inventory staging,” he said.
Nike’s net income for the most recent period ended Aug. 31 grew to $ 1.52 billion, or 95 cents a share, from $ 1.37 billion, or 86 cents a share, a year earlier. Just a quarter earlier, Nike reported a surprise loss of $ 790 million, as companies were canceling orders for their merchandise and stores in key markets, such as North America and China, were temporarily closed.
“Nike is a better and more profitable company today than it was a year ago,” said Deutsche Bank analyst Paul Trussell. “And there is a fairly short list of entities that have been able to achieve that.”
Nike, which has a market capitalization of $ 199.4 billion, has seen its shares rise more than 15% this year.
