Nike on track for race to $7 billion digital run rate?

Profile picture for user slauchlan By Stuart Lauchlan July 3, 2016
Summary:
Nike wants to see digital revenues running at $7 billion per annum by 2020, with CEO Mike Parker laying out three priorities for growth.

nike-air-max-thea-womens
What’s the most popular Fortune 500 brand on Instagram? If you’d asked me that last week I’d have plumped for Starbucks. But, according to TrackMaven’s Fortune 500 Instagram Report: 2016 Edition , I’d have been wrong.

In fact, with over 50 million followers, the top slot goes to Nike. According to TrackMaven, which analyzed 41,071 unique Instagram posts from 1 May 2015 to 1 May 1 2016, Nike’s brand averages 469,842 interactions per Instagram photo, twice Starbucks’ average engagement.

It’s a stat that will please Nike CEO Mark Turner, who’s increasingly looking to digital sales and marketing to grow the sportswear brand. The firn’s online site - nike.com -  has been growing at double to triple digits in all six of the  geographies, led by Greater China, with the company setting itself a target for 2020 of $7 billion digital revenues.

To put in context, for its latest full year, Nike turned in $32.4 billion, up 6% year-on-year, but with fourth quarter earnings slowing down. So for a company that boast that the best way to predict the future is to create it, the digital investment is putting down a marker during a period of disruption, with an omni-channel approach to the market top-of-mind for Parker:

In retail, our industry is in the early stages of unprecedented transformation. Mobile innovation and personal services are dominating the landscape. That's why we invest in integrating digital and physical retail seamlessly, giving our consumers better access to the products they want and while we are working even closer with our best wholesale partners who share our vision for the future of retail.

The disruption goes beyond the shops and online commerce, back into the manufacturing supply chain, he adds:

Manufacturing too is undergoing its own revolution. We are rethinking the fundamentals across our business - how we make products, how fast we deliver them and what kind of impact they leave behind. With other innovators like Flex or HP, we are deploying projects across our source base to reduce cost and delivery time, improve quality, explore customization and enhance performance. As the global leader this is what we do. Through the power of sport, the transformation of our industry and the shifts in consumer preferences and expectations, we build the foundation for tremendous long-term growth for Nike.

Three priorities

Parker has three main priorities for Nike - performance innovation, sport-style innovation and digital - but a single pivot. He argues:

The complete offense puts the consumer at the center of our business, aligned by sport in the most important markets across multiple channels. This diversity is unique to Nike and it's our competitive strength. We have the ability to leverage our portfolio and dial up or dial down the many dimensions of our business depending on the need.

Into the performance innovation bucket, Parker puts new footwear developments, such as Nike’s LunarEpic Flyknit, a revolutionary mid- height running shoe that pitches free run motion with the most natural ride ever. Ot the Thermosphere Max which regulates temperature in cold weather.

The sports-style innovation priority is met when such new products come into contact with sportsmen and sportswomen, says Parker:

Nike has a way of inspiring an athlete even before they laced up their shoes. Athletes have always told us when look faster and strong they play better. We know that creating an emotional connection through product doesn't just happen by accident. It takes a steady flow of investment, inspiration and talent. Time and again the consumer votes for Nike because we represent authenticity and thoughtful story telling.

We obsess finishing in materials and color and we understand the power for both function and form. At the same time we bring performance benefits to sportswear. What we call sport style innovation. We deliver light weight breathability and comfort to product for everyday life and it drives the significant business for Nike.

The close relationship with athletes overlaps with the digital focus, he explains, with the emphasis on “serving athletes personally at scale” in greater numbers:

That means more in-person experiences through one-to-one appointments at retail or support through run clubs and training session. And of course it also means leveraging the power of our family of apps. This quarter the new Nike+ app is in beta testing with a select audience as we prepare for the full launch later this summer.

Feedback to date has been positive, says Parker, with the simplicity of the new offering picked out for praise. It’s going to be an important release:

We are excited about the enormous potential for NIKE + to unite our digital platform and deliver personalized performance at tremendous scale, through products, coaching and experiences. The investments we make in mobile and online experiences are paying off. With our nike.com business growing 46% in fiscal 2016. we’ve continued to expand our global reach with nike.com going live in 20 new countries this year, now totaling over 40 markets around the world.

But there’s a long way to go. That revenue ambition for 2020 is still a relatively small part of the overall financial picture. Parker acknowledges:

We are still in early stages of digital service but we continue to show the building meaningful relationships with consumers' drives growth and strengthen our brand in unlimited ways.

We invest in the transformation of the marketplace through nike.com and stronger executions with our best wholesale partners, to return the energy of style and performance in the long-term business momentum. And we drive a continuous cycle of innovation. We've never seen as much opportunities as we do today and I've never been more confident in the future Nike is creating.

My take

With 2016 as a massive year for sporting events, including the Rio Olympics, Nike should be well-positioned for growth. As such a powerful brand, it’s almost the proverbial victim of its own success, which is why Wall Street gets grumpy at any sign of a slowdown. The firm’s making all the right digital noises. Earlier this year, it appointed its first Chief Digital Officer in Adam Susseman, so it should be interesting to see what impact that has on future strategic directions.