Nike has proven during the pandemic that its big bets in the digital sphere are paying off, as consumers turn to its website and app in record numbers to shop for sneakers and sportswear.
Over the past few years, the company has been moving away from supermarkets and other wholesale outlets, and instead has invested in opening its smaller neighborhood stores, called “Nike Live”, to serve as reception centers for online orders, along with major multi-level sites. Call it the “Innovation House”. It is also testing a new concept that debuted earlier this year in Guangzhou, China, called “Nike Rise”, where visitors can use the Nike app once inside the space to participate in local football matches and running clubs.
Even as most of its stores reopened, Nike digital sales rose 82% during the first quarter of the fiscal year, pushing revenues ahead of analyst estimates.
“Nike’s decision to develop into a digital organization first was wise, as the crisis continues to push consumers towards the digital channel,” said Susquehanna analyst Sam Boozer. “ Digital momentum is constant … [And] Nike has embraced the structural transformation of consumer shopping habits from traditional to digital and, in our view, will continue to benefit from this shift. ”
Nike shares rose about 9% Wednesday morning, hitting an all-time high of the day at $ 130.38.
Before the Covid-19 crisis, Nike had set a goal for e-commerce sales to account for 30% of total revenue by 2023. But it has already passed that. It didn’t detail the exact percentage, but said that online sales were more than 30% of total sales during the most recent quarter.
Now, on its way to break 50% in the coming years.
“The accelerating consumer shift towards digital is here to stay,” CEO John Donahue said Tuesday. “Digital fuels how we create the future of retail.”
He added, “Nike’s digital transformation strategy cannot be easily duplicated.” “Simply put, size matters, and Nike leads.”
For many retailers, not just Nike, e-commerce is fueling gains and even increased employment. Walmart announced Wednesday that it plans to hire 20,000 seasonal employees over the holidays to help package and ship online purchases at its fulfillment centers. Lululemon announced late Tuesday that it plans to resume its stock buyback program, which was previously suspended due to the pandemic. Like Nike, Lululemon watched her digital business explode: its online sales rose 157% over the last quarter.
The sportswear companies like Lululemon and Nike are sure to find themselves in many ways in the right place at the right time. Consumers crave home gym accessories and sweat-wicking clothing during the pandemic. They shop for leggings and track pants to relax and wear while working from home. Nike said its sales of womenswear increased nearly 200% over the last quarter.
But as more sales move online and outside of the wholesale channels, Nike is finding a way to make these digital sales more profitable – a feat that many in retail are grappling with. Shipping expenses and processing returns tend to affect total sales, resulting in lower profits.
CFO Matt Friend said that Nike typically earns roughly 10 additional points toward its gross margins on digital revenue versus wholesale revenue, making customers on its website more loyal, allowing Nike to lower customer acquisition costs and increase return on advertising spend.
“While we will need to continue investments to expand digital fulfillment capacity, we can improve operational efficiencies through tools for predictive modeling, data-based member allocation and inventory preparation,” he said.
Nike’s net income grew for the most recent period ending Aug. 31 to $ 1.52 billion, or 95 cents a share, from $ 1.37 billion, or 86 cents a share, a year earlier. Just a quarter ago, Nike reported a surprise loss of $ 790 million, as companies were canceling orders for their merchandise and stores in major markets including North America and China were temporarily closed.
“Nike is a better, more profitable company today than it was a year ago,” said Paul Truessell, analyst at Deutsche Bank. “There is a short list of entities that have been able to achieve this.”
Nike, which has a market capitalization of $ 199.4 billion, has seen its shares rise more than 15% this year.