Despite a 5% increase in Nike’s fiscal 2018 second quarter turnover to $8.6 billion, investors didn’t react well to a drop in net profit from $842 million to $767 million, as a result of weaker sales in North America, increased administration costs and currency windfalls. However, if you look beyond the headline figures, it’s clear that Nike’s digital focus and investments continues to deliver results.
We at diginomica have previously reported how Nike’s digital endeavours are fuelling its growth, with a strong focus on digital membership, personalisation, streamlined shopping experiences and connected products.
Nike CEO and chairman Mark Parker recently told investors that its this “strategic shift to digital” that is satisfying customers and will underpin the company’s future success. Meanwhile, CFO Andy Campion explained how digital engagement is creating a better “price-value relationship” with its customers.
CEO Parker said:
We’re focused on unleashing a relentless flow of innovation at a scale that our industry has never seen, bringing NIKE closer to the consumer in key cities and delivering with speed and using the power of digital to go deep and broad by rewarding our most active NIKE+ members, while expanding that community to hundreds of millions.
Parker explained how across EMEA Nike is “taking friction out of the delivery and return process”, where, in Berlin, it now offers same day delivery by leveraging inventory within the city. Similar initiatives will be adopted in Paris and London later this year. Whilst in Shanghai, it has built a digital studio that will focus on creative selling opportunities and leveraging “real-time data with platforms like WeChat and Tmall”.
On personalization, Parker added:
One of the biggest drivers of that plan is, of course, our strategic shift to digital. It’s how we get to know and reward members with what they want and that includes investments in personalization that leverage machine learning to curate assortments to match individual member preferences.
For example, the Nike+ apps Reserved For You service is converting sales at a rate that’s 40 times greater than traditional outreach. That’s a tremendous return on investment. And what’s exciting is that our apps have yet to arrive in all of our key markets. We launched the sneaker app in China earlier this month and later this fiscal year we’ll go live in Japan for some of the world’s most obsessed sneaker fans.
Nike has said that digital membership is opening up new opportunities for online partnerships too, with Nike+ personalized benefits to include special offers from popular services such as Apple Music, Class Pass and Headspace. Parker said:
And on the commerce side, our digital footprint continues to scale to hundreds of millions through new partnerships. Our strategy is to partner with platforms that advance our brand, as well as our business through presentation, pricing and consumer data to support our membership efforts. Zalando and Tmall are great examples of partners who actively engage and we’re scaling those learnings to other platforms.
This spring in the U.S., we’ll run a pilot with Stitch Fix, the online personal styling service to bring personalized women’s product to their expansive audience and we’re extending our pilot with Amazon. It’s going well and we remain focused on learning and elevating the consumer experience.
Nike is also focusing on using digital to advance the role the product plays in “unlocking experiences. Parker said:
We see massive potential in a future where more NIKE products are connected, bringing consumers inspirational content and serving as the onramp for NIKE membership.
And you can envision where that future goes, where consumers seamlessly engage with us through digitally connected products that continue to inform our design, manufacturing and distribution capabilities, creating new growth opportunities.
It should be clear that NIKE is actively driving change in our business and throughout our industry. We’re partnering, experimenting and we’re fast tracking our greatest opportunities. We’re off to a good start and we see a long runway of growth ahead.
CFO Andy Campion said that Nike saw increasing and enhanced service of consumers more directly through digital - with nike.com and digital partnerships outpacing growth in “all other dimensions of the marketplace”. He added that Nike+ members and buying members both accelerated. He said:
And it’s important to remember that our new offense is not only reigniting momentum in the U.S. marketplace, innovation and digital are also fueling double-digit growth in aggregate across our international geographies.”
The second half of fiscal year ‘18 will showcase NIKE’s unrivaled ability to deliver performance and sports style innovation at scale, and we will also continue to enhance our digital commerce offerings globally, serving consumers and increasingly engaging in frictionless ways.
Campion expects that digital will also drive expanding profitability and returns on invested capital. On the impact, he said:
By scaling innovation, we are enhancing the price-value relationship in an otherwise promotional environment. By leveraging digital to better sense and serve consumer demand, we are becoming a better retailer and beginning to drive stronger full price versus off-price sell-through.