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.