Nike CEO John Donahoe - China crisis provides an omni-channel retail playbook for US and Europe as Coronavirus spikes

Profile picture for user slauchlan By Stuart Lauchlan March 25, 2020
Summary:
Nike is a retailer with a large amount of exposure to the Chinese market and as such its experiences of dealing with the Coronavirus outbreak offers some key learnings for the US and Europe.

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While Nike has joined most retailers in shuttering their offline stores around the world due to the Coronavirus crisis, the firm has now re-opened 80% of its 7000 outlets in Greater China after relying on purely digital sales in recent months.

There are retail survival lessons for Western economies here, according to Nike CEO John Donahoe:

We can extract learning and insight from each of our markets.

Nike identifies a four stage journey based on what’s happened in China since the outbreak of Coronavirus there:

  1. containment of the virus and closure of stores.
  2. a recovery period when stores can re-open.
  3. normalization of business.
  4. return to growth.

While that journey certainly isn’t complete, based on data coming out of the three main Asian markets of China, Japan and South Korea, there are learnings to be had. Donahoe says the tracking data across the three was pretty consistent:

Containment took five to six weeks. Stores were closed, but the e-commerce growth in all three markets remained strong during that time, augmented by Nike’s connecting with consumers around being active while at home. Now, all three markets are through what we're calling recovery. That is, retail's opening back up. Consumers are back on the streets. And we're seeing as we move into normalization, retail traffic is coming back. Consumers are in the stores. They're engaged, are often wearing face masks, but they're back on the street.

It’s been a significant turnaround, he argues:

As of 45 days ago, we had closed more than 5,000 stores in Greater China, while the remaining open doors were operating with severely reduced hours. Not surprisingly, retail volume in China plummeted. But we acted quickly and decisively, leveraging our diverse sourcing base and digital capabilities to manage the business with flexibility, and shifting our inventory to serve consumer digital demand.

Digital payback

When Donahoe was appointed as CEO of Nike last year, there was an expectation that one of the reasons was to bolster the firm’s digital transformation efforts. (Nike Digital’s latest growth rate is 51% per annum, 20% of total business.) That expectation remains the case, but in reality, the company’s earlier omni-channel strategic thinking paid off in the China crisis as digital investments paid off:

At a time when people were confined to their homes, we moved swiftly to leverage our digital app ecosystem and Nike expert trainer network to inspire and support consumers across China to stay active and connected while at home. As a result, our Nike Training Club (NTC) workouts in China saw an extraordinary rise in signup and engagement. In fact, our weekly active users for all of our Nike activity apps were up 80% by the end of Q3 versus the beginning of the quarter.

And here's what happened - the strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app. As a result, our digital business in China grew more than 30% and maintained strong momentum throughout this challenging period, a powerful statement of Nike’s agile problem-solving in times of disruption. Then approximately 30 days ago, we began to gradually reopen stores in China. People got back to work and retail traffic began improving significantly. Today, nearly 80% of our stores in China have reopened with more coming back on line every day. In fact, just last week, we reopened our first store in the Wuhan area.

Although the stores are opening, that hasn’t meant an online slowdown:

Interestingly, digital has accelerated even more since the stores have been open. [This is] I think pointing to this ‘blended digital versus physical experience’ is a thing of the past. Consumers don't think in those terms. I bring a sort of consumer technology lens, where we learned that consumers want to get what they want, when they want, how they want it. And they don't think about, ‘I'm going to make a digital purchase or a physical purchase’. A consumer may often start shopping on their mobile device. They may go into a store and have it shipped at home, they may order online and pick it up in the store. And what we're seeing in Japan, China and Korea is that seamless digital physical experience is responding to what consumers want.

Rinse and repeat?

The challenge for Nike now is to see if this pattern can be replicated in the US and Europe, both of which are some weeks behind the Asian markets. Donahoe argues that one of the real advantages of being a “scaled global company” is that the firm can share experiences and learn from other parts of the world:

In addition to Greater China, we've applied that playbook in Japan and South Korea over the past two months, and we're seeing early momentum in those markets as well. And with COVID-19 now spreading across Europe and the US, we are applying the same playbook. We have prioritized the health and safety of our teammates, and we've closed our stores. Over the weekend, we drove a strong digital marketing campaign to engage consumers across Europe and across the US to stay healthy and connected while they're at home. And our digital commerce remains open and in growth mode, supported by our teammates in our distribution centers.

But it’s an evolving situation:

None of us can predict perfectly how long the containment phase is going to take in the US and Europe. But what we can know is, while stores are closed, we’re going to be there digitally. We’re going to be there digitally with activity apps and commerce. And when the stores start re-opening, we’re going to be leveraging our unique strengths with strong, compelling product; a digital connection with consumers that is unmatched; and the seamless digital-physical experiences of both Nike Direct and our partners.

From Nike’s point of view. the building blocks are in place to ride out the storm, says Donahoe:

During a time of physical store closures around the world, we know that our digital foundation will help us emerge out of this situation in an even stronger position…we are executing our learnings from China about fueling sport and fitness all over the world. We're using our digital advantage to connect with and support our consumers as behaviors around staying healthy at home continue to evolve. Over the weekend, we made the NTC Premium free for everyone in the US for 90 days. NTC Premium offers the best on-demand workouts and expert tips from our master trainers and others, as well as inspiration and support for healthy living.

Even while our stores remain closed in Europe and the US, we continue to work on defining the future of seamless, physical and digital retail. To expand the advantage we have in digital, we continue to invest in our Nike Direct businesses, enhancing rich experiences like those and the Nike app at retail. And we're increasingly concentrating on our online to offline journey and accelerating our work to fully connect the marketplace while creating frictionless experiences for consumers throughout the world.

And it’s important to plan for life after the current crisis, counsels Donahoe, saying that he’s been in contact with partners and suppliers to prepare for that time:

Our focus with them is on the future and coming back strong together and coming back in its healthier marketplace as possible. we engage with them both around their physical stores and around online. In fact, I was on the phone this morning with the CEO of Zalando. Zalando is a very innovative e-commerce company in Europe, and we are sharing data in very innovative ways around consumers, so that we can offer the best experiences to consumers in a differentiated way in the markets across Europe. [In] the conversations around the future, I think all of them see the same blended or seamless digital and physical experience together that we're committed to creating…We have to work through these challenging periods together, which we will, but I think all of them see the opportunity to emerge stronger and to accelerate the transformation of the marketplace.

My take

As a retailer with a big exposure to and dependency on the Chinese market, Nike’s playbook for surviving the current crisis is based on some solid learnings.

The firm’s early investment in omni-channel platforming and its use of digital to create and maintain strong and close relationships between its brand and its customers worldwide has been worthwhile long term, even if inevitably it’s going to have to endure some fiscal turbulence in the near term. While digital kept up momentum while the stores were closed, overall sales in China still fell during the peak of the crisis and it’s hard to imagine the same won’t happen in the US and Europe as the outbreak peaks there.

And then, to add to Donahoe’s burdens, the 2020 Olympic Games cancellation comes along…

On a related note, as well as providing a rational, level-headed assessment of the progress through a crisis period, Donahoe also provides a welcome reminder that the retail sector is part of wider society and has responsibilities beyond making a buck. To that end, Nike’s innovation and manufacturing teams are, he says, exploring designs for personal protective equipment to support doctors, nurses and others, including prototyping face shields with the Oregon Health & Science University. Donahoe says:

This is a moment in society where the private sector has a major role to play. Companies like Nike need to do our part.

'Just do it' never seemed more appropriate! 

That’s a message that other CEOs in the sporting goods retail sector would do well to take on board (but probably never will). Yes, Sports Direct, that’s you we’re looking at…