Nike: A Smart Investment Choice?

Nike, the world's largest athletic apparel company, has been a solid investment in the past. A $1000 investment in Nike in 2007 would have been worth $3319 in 2018, more than three times the initial investment. However, the future is uncertain. Nike has been dealing with internal scandals and a change in leadership, and there are concerns about the company's image and the potential repercussions of the U.S.-China trade war. On the other hand, Nike has a strong brand and is investing in direct-to-consumer sales and digital systems, which could pay off.

Nike's direct-to-consumer strategy

Nike's direct-to-consumer (DTC) strategy has been a key part of its success, and the company has been focusing on growing its DTC sales for over a decade. In 2011, DTC sales made up 16% of Nike brand revenues, and by the end of its 2020 fiscal year, this had grown to 35%.

The benefits of DTC sales are that they are more profitable, and Nike, as a strong brand, is able to command a large business through its own channels. Additionally, DTC sales give Nike more control over how its brand is presented and allow it to forge a stronger connection with consumers through multiple touchpoints, such as apps, podcasts, direct marketing, and the metaverse.

Nike's DTC strategy starts with digital and its owned stores. The company has been experimenting with digitally connected store concepts, such as Nike Live and House of Innovation, and is planning 200 small-format stores in the same model as Nike Live. These stores are focused on housing localized assortments to suit the geographies they are in and act as potential shipping or pickup points for online orders.

Nike has also made its app integral to the in-store experience, with consumers able to scan QR codes to pull up products on their phones and start dressing rooms through the app. The SNKRS app alone is now a $1 billion business and made up 18% of Nike's total online sales in fiscal year 2020.

Nike's DTC strategy also involves pulling out of partnerships that aren't unique or useful to the brand. Wholesale partners need to add something to Nike, such as a different customer base, a geography Nike isn't as saturated in, or representation that is advantageous from a branding perspective.

Overall, Nike's DTC strategy has been a success, with the company's revenues growing to $35.6 billion in 2020, outperforming competitors such as Adidas and Under Armour.

Nike's strong results

Direct-to-Consumer Strategy

Nike has been focusing on its direct-to-consumer strategy, which involves taking product distribution directly to consumers. This strategy is designed to counter the impact of retail consolidation on the overall market. The company's Consumer Direct Offense initiative aims to leverage digital systems, membership, and personalisation to establish direct connections with customers. This shift has resulted in digital sales accounting for a significant portion of Nike's total revenue, with the company expecting this figure to surpass 50% in the long term.

Robust Earnings and Revenue Growth

Nike's revenue has grown significantly over the past five years, increasing from $28 billion to $39 billion. This growth has been accompanied by an expansion of its market share in the athletic footwear market, rising from 17% in 2011 to 27% currently. The brand value is estimated at $36.8 billion. This financial performance has been driven by a robust economy, with low unemployment rates and steady global economic growth, creating favourable conditions for consumer spending in the discretionary sector.

Strong Recent Results

Nike has consistently delivered strong financial results, with earnings exceeding analyst estimates in six out of the past seven quarters. The company's revenue results have been even more impressive, beating Wall Street expectations in each of those quarters. This performance has contributed to a 10% increase in the Dow Jones stock so far in 2019.

Supply Chain Improvements and Innovations

Nike has been working on improving and diversifying its supply chain to enhance its ability to bring new products to market faster. The company has invested in innovations such as digitised design, automated production, and 3D printing. These advancements have helped Nike gain a competitive edge and shield itself against competitors like Amazon. In 2019, Nike capitalised on Adidas' supply chain issues, taking advantage of their ability to produce and sell more products.

Strong Brand and Sponsorships

Nike's strong brand recognition and sponsorships of high-profile sports teams and athletes, such as Tiger Woods, Michael Jordan, and Serena Williams, have contributed to its success. The brand recognition, combined with a robust economy, has driven consumer spending on Nike's products. Additionally, the company's sponsorships and collaborations provide a platform for continued growth and brand exposure.

Nike's focus on digital

Digital sales now account for 26% of Nike's total revenue, with the company expecting this figure to exceed 50% in the long term. This shift to digital is exemplified by the launch of the Nike Fit app, which scans a customer's foot to determine the correct shoe size.

Nike has also launched several mobile apps, including the SNKRS mobile app, the NTC (Nike Training Club), and the NRC (Nike Run Club). The Training Club app alone boosted sales in China by 30% during the COVID-19 pandemic.

In partnership with intelligent automation provider Laiye, Nike launched a chatbot that helps e-commerce customers find products and offers personalised recommendations. The company has also made significant investments in data science technology, acquiring data integration startup platform Datalogue, as well as two predictive analytics tools, Zodiac and Celect.

Nike has also embraced the metaverse, introducing Nikeland, its Roblox-hosted metaverse, in November 2021. The company also acquired digital sneaker company RTFKT to help expand into the NFT space.

Nike's digital transformation efforts have been successful, with the company thriving despite the turbulence of the last few years. The company's digital channels and applications have driven revenue growth, with net income of $1.39 billion in 2021.

Nike's digital marketing strategy has also played a crucial role in its success. The company sells the emotional benefits of its products, appealing to customers' aspirations. Nike's marketing campaigns focus on creating meaningful stories to build a loyal fan base and foster an emotional connection with its audience.

Nike's digital strategy also includes a strong focus on storytelling and authenticity. The company strives to understand and engage with the subcultures of each sport, communicating with customers on their terms.

Nike's digital transformation ambitions continue to evolve, with the company hiring Dantley Davis as vice president of digital design and announcing plans to build a new technology centre in Atlanta.

Nike's supply chain improvements

• Constructing new regional service centres in the Netherlands, China, and the United States. These centres will be driven by Nike's in-house digital platform, which will enable the company to communicate with its worldwide supply chain more rapidly and effectively.
• Automation and technology implementation: In the past, Nike's supply chain was largely manual and heavily reliant on manpower. Now, the supply chain is almost fully automated, allowing them to drastically cut costs and increase efficiency.
• Streamlining the process of keeping, packaging, shipping, and refurbishing products: Nike is working with UPS to make it easier for customers to return Nike products purchased online. Additionally, they are working with Best Buy to make it easier for customers to recycle their old Nike products.
• Empowering the people who power Nike: Nike is working with its suppliers to implement a new business model that puts workers at the centre. Under this model, suppliers will be required to provide workers with a livable wage, health benefits, and access to education and training. Nike will also work with suppliers to ensure that workers have a voice in the decision-making process and that their rights are respected.
• Outsourcing: Nike contracts 100% of its manufacturing for footwear and apparel to independent suppliers, which helps to save costs.
• Diversification: By diversifying its supplier base, Nike has successfully minimised risk.
• Corporate social responsibility: Nike is committed to managing its impact on the world it operates in. This includes sustainability and social responsibility initiatives.
• Focus on the vital few: Linked investments with business strategy and profit.
• Simplify end-to-end: Eliminate waste and complexity from the process before enabling.
• Avoid customization: Standardize solutions to enhance workflows.
• Copy-paste company-wide: Duplicate successful strategies across brands, regions, and business units.
• Lead the change: Make an investment in project and transition management.
• Accelerate the pace: Adapt quickly to unique business requirements.
• Deliver business results: Finish what has been started through the achievement of business benefits.

Nike's robust innovation pipeline

Nike's innovation pipeline includes the scaling of its React line of sneakers, which are both durable and lightweight. The company is also introducing its Joyride running shoes, which offer an advanced cushioning platform made up of tiny foam beads. Additionally, Nike is launching an AeroAdapt clothing line, designed to keep athletes at an optimal temperature during workouts.

Nike's Consumer Direct Offense strategy further underscores its commitment to innovation. This strategy aims to position Nike as the leader in innovation, speed to market, and direct connections with customers through digital systems, membership, and personalisation. As a result, digital sales now account for 30% of Nike's total revenue, and the company expects this figure to surpass 50% in the long term.

Nike's innovation pipeline also extends to its app offerings. For example, the company launched Nike Fit, a feature in its app and in stores that scans a customer's foot to determine the correct shoe size.

While remote work may have posed challenges to in-person collaboration and bold innovation, Nike has since realigned its focus. The company is now dedicated to rebuilding its disruptive innovation pipeline, as evidenced by the recent improvements to its supply chain and manufacturing technologies.

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