Nike Concerned with Retail Landscape

Consumers are shopping more online and are doing shopping less in brick-and-mortar stores. Nike CEO Mark Parker is concerned with this trend and puts dramatic pressures on retail companies like Nike which depend heavily on foot traffic.

Parker said, “The important thing to point out is that these changes are being driven by the consumer. Consumer demand remains quite strong, but expectations remain high regarding the product, the innovation, and the style. They want it fast, easy and they want personal service.”

Nike had a 3% small increase in sales in North America despite massive promotions during the holiday season. Nike is having intense competition with Under Armour and Adidas in North America. Nike also reported a 16% drop in sales from equipment.

It reported an overall 5% revenue increase of $8.43 billion while its profits got boosted by 24%. Wall Street was disappointed as they forecasted stronger revenue growth. Most of Nike’s strong sales growth was in the emerging markets and Asia while it was weak in Europe and North America.

Nike’s sales in footwear in China increased by 14% while its apparel sales grew by 22 %. Nike Brand President Trevor Edwards said, “Running saw continued success especially in our international markets in the third quarter. In China, the opportunity in the running is massive…Nike and China have a long history together.” In Japan, sales in footwear increased by 8% while its apparel sales increased by 21%.

Chief Financial Officer Andrew Campion said, “We have very strong momentum in international markets.” He noted that their next earnings guidance would be driven its strong performance in international markets.

Analysts noted that online sales contributed much to the growth of sales in the retail industry. Parker emphasized, “The consumer has decided digital is not just part of the shopping experience. Digital is the foundation of it.”

To remain competitive, Nike is seeking to speed up its pace of innovation to get more of its shoes and apparels in its stores faster. It is also looking to work with its retail partners on strengthening its presentation of Nike products. Nike is also looking to pay more attention and improve its brick and mortar stores.

The sparse traffic on retail outlets has led to department stores like Macy’s and J.C. Penney to close down hundreds of its stores. Sports Authority went bankrupt as a result of less offline shopping.

Parker said, “The current backdrop represents a tremendous opportunity for Nike because the brands that win are going to be the ones that have been out front with digital and leading with service.” Parker believes that Nike is well-positioned than its competitors because it has Nike+ which allows for personalized shopping services that give them thrice the transaction size than its average one. Parker said, “The more directly Nike engages with the consumer, the greater the return.”

Regarding innovation, Nike released last year the first self-lacing sneakers. It is also using technology to boost the performance of its basketball and running shoes. Later this year, it will also roll out new sneaker cushioning products.

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Sears Uncertain Whether it Will Continue to Operate in the Near Future

Sears Holdings Corp, the holding company for retail giant Sears and Kmart, has indicated their massive concern on its ability to continue as a going concern. Sears Holdings in its filing to the SEC said, “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern.”

Sears warned that it needs to borrow more cash and get cash from its assets to continue operating. A positive sign arose in the 4th quarter as Sears had a narrower loss than was predicted by analysts.

Sears posted a narrower loss than predicted in the fourth quarter on 2016. Sears was once the biggest U.S. retailer. To raise cash, it has spun off some of its brick and mortar department stores into a real estate investment trust (REIT).

Eddie Lampert, Sears’ CEO, has been tasked to create a turnaround for Sears. He has lent out more than $1 billion in assistance which includes a $500 million loan facility to the company.
Lampert is Sear’s biggest investor and is a hedge fund manager. Part of their turnaround strategies includes selling real estate and closing unprofitable stores. Sears managed to sell this month its Craftsman tool brand to Stanley Black & Decker Inc. to raise $900 million. Sears is also looking to lessen its debt burden and to reduce their annual expenses by at least $1 billion.

Howard Riefs, a Sears spokesman, said, “While our historical operating results indicate substantial doubt exists, we want to be very clear that we’re taking decisive actions to mitigate that doubt.”

As of January 28, Sears had total debts standing at $4.16 billion. Early this year, Sears planned to have 150 of its stores to be closed. Sears in its SEC filing said, “We acknowledge that we continue to face a challenging competitive environment. But it’s bleeding cash. After its 2016 loss, it had to finance its cash needs for operating expenses from “investing and financing activities.”

Sears is looking to unlock more value from its different businesses like Kenmore appliances, Home Services and Sears Auto Center and DieHard batteries and parts through partnerships. Through this strategy, Sears hopes that it will be sufficient to end doubts of its going concern capability.

The entire retail industry has been struggling with the advent of the online retailer. However, Sears management can also be faulted for its demise as it failed to innovate and adapt to changing shopper tastes and habits. It also made an unsuccessful merger with Kmart and sold more than $30 billion of its credit portfolio to Citibank in 2003.

Sears dominated in the 1990s under the leadership of CEO Arthur Martinez who got Sears into the high-profit apparel. Martinez also boosted the popularity of Sears with its campaign, “Softer Side of Sears.” It also offered the widest range of products and dominated the middle-class segment.

However, Walmart grew tremendously as it took over Sears as the country’s biggest retailer with its price leadership strategy.