Nike announced their third quarter results in March earlier this year. On the surface it looked pretty stellar – revenues for the quarter were +5% to US$8.4B and for the 9 month year so far +6% to US$25.67B.

When you drill down in to the current global businesses regional presence, every area was still in growth including their home market, North America, which grew at +3%. That’s about where the fun ends…hidden towards the back of their financial results (in fact the second last page) is an important metric for their future performance – ‘Future Growth by Geography’. This is the section where Nike report their future orders scheduled for delivery from March 2017 – July 2017. In this area they are predicting a total decline for the brand (incl. Converse) to -4% with -9% in future orders in their home market, North America.

Excerpt from Nike Financial Results Q3

Excerpt from Nike Financial Results Q3

It’s important to note (and stated by Nike around this table) that future orders is not indicative of revenue growth (ie. this is units). Never the less it’s potentially an interesting indicator when put into the context of their history. This will be the first quarter in the past 6 we’ve reviewed where there has been a decline in future orders. It’s evident there’s a downward trend happening from the below.
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Added to this drop in future orders, Nike’s competition has hotted up. Adidas has been killing it. You can blame Adi’s success on Kanye, Stan Smiths, All Stars and Phoebe Philo (Celine’s cult designer who’s a fan) for reigniting our love affair with the brand. But it may also be down to the fact that in 2014, three of Nike’s most prominent designers – Marc Dolce, Mark Miner and Denis Dekovic left to work for Adidas. Dolce is now on the board of Adidas and is the Creative Director/ VP of Three Stripes. N.B Nike sued all three for allegedly selling secrets to Adidas.
Ok back to the story, so what is Nike doing about this drop?
Like every other retailer they’re localising!
‘Localisation’ is the favourite catchword of retail, and marketing – thrown around lots but rarely implemented. So what’s the global behemoth’s plan to actually do something tangible in this space?
Here’s Mark Parker’s (CEO Nike) plan (we’ve taken some liberty to break this into key areas)
  1. Intent: Moving the intention of the business from globalising (growth through market expansion) to ‘local business, on a global scale’ (growth through focusing on key markets). This is the starting point for the intention behind all tactics and strategies that follow.
  2. Focus: Instead of spreading resources around the world, they’re focusing more on key markets. In their case that’s 12 cities that make up a majority of their sales and sales growth. In these areas their mandate is to release new products faster. Cities like New York, Paris, Beijing and Milan, are expected to make up 80% of the businesses growth in the next 2.5 years. So it makes sense that they’re ruthlessly prioritising these markets.
  3. Go Deep: Nike, like most other businesses, has felt the pains of online and how that is changing the role of the physical store. In reaction, they are not closing stores but rethinking stores as places to foster and deepen relationships with customers; then link the stores through to their digital efforts. This naturally means their focus will not be on breadth of distribution channels (aka department stores) but their own stores as a means to close this loop.
  4. Speed Up: It seems that Nike is taking cues from Zara’s model and also looking to speed- up the pace at which they go from design to delivery of new product. It has openly stated it wants to cut it’s product creation cycle time in half.
  5. Streamline: Matching their strategic change with organisation change, Nike are cutting their workforce by 2% -that means approximately 1,400 people will be laid off.
This will be a move to watch and potentially learn from – whether successful or otherwise. It seems that retail has hit the era of transformation with changing technology and changing consumer.  To quote Mark Parker ‘The future of sport (and retail) will be decided by the company that obsesses the needs to the evolving consumer’. Let’s see if this global mega-brand can reinvent itself once again.

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