Over the past few years Nike company has invested a lot on digital platforms like its application and website. With the Covid-19 pandemic, all of these investments has paid off and Nike is witnessing a huge increase in its online revenues as more and more customers are using the app and website to buy Nike products.
The brand has been leaning away from retail stores and other wholesale channels for the past couple of years, instead focusing in establishing its own smaller local stores, called “Nike Live,” to act as online order pickup centers, alongside multistory flagship locations named “House of Innovation.” A new model that launched earlier in the year in Guangzhou, China, dubbed “Nike Rise” is also being tested. In Nike Rise customers can use Nike’s app inside of the center to sign up for local running clubs or football matches.
Also when most of its shops were reopened, Nike ‘s digital revenues increased by 82% in the first quarter of fiscal year, bringing sales ahead of analyst expectations.
“Nike’s decision to become a digital-first company has proven sensible as the recession continues to drive customers into a digital platform,” says Susquehanna analyst Sam Poser. “The digital traction is persistent. … [And] Nike has welcomed the structural change in customer shopping habits from conventional brick-and – mortar to digital, and we expect that it will continue to profit on this change.
Nike’s stock grew by about 9 percent on Wednesday morning, touching an all-time premarket high of $130.38.
In the run-up to the Covid-19 pandemic, Nike had set the target of making its e-commerce revenues account for 30 per cent of overall revenue by 2023. Yet it’s already gone past that. It did not break the exact number, but said that online sales accounted for more of some 30% of overall sales in the last year. Now, in the years ahead, it’s on target to crack 50 percent.
“The rapid change from consumer to digital is here to remain,” said CEO John Donahoe on Tuesday. “Digital is fueling the way we develop the future of shopping.” “Nike’s digital transformation approach is not readily repeated,” he said. “Simply put, scale counts, and Nike is leading.”
For multiple retailers, not only Nike, e-commerce is accelerating gains, and also pushing recruiting. Walmart revealed Wednesday that it plans to add 20,000 seasonal workers over the holiday season to help pack and deliver online orders at its centers. Lululemon revealed late Tuesday that it intends to restart its stock buyback scheme, which had already been suspended due to the pandemic. Like Nike, Lululemon has seen its digital market explode: its online revenues rose 157 per cent in the last year.
To be confident, businesses selling fitness wear like Nike and Lululemon are in many ways only finding themselves in the right place at the right time. Clients are eager for home gym products and sweat-wrapping clothing amid the pandemic. They’re shopping for yoga pants and sweatpants for lounging and wearing while working at home. Nike said that its women’s wear sales rose nearly 200 percent over the last year.
As more and more sales move online and out of wholesale outlets, Nike is seeking a way to make such online sales more financially viable — a challenge that many in retail are struggling with. Expenditures on packaging and managing returns tend to weigh on net revenue, resulting in reduced profits.
CFO Matt Friend said that Nike usually gains about 10 more points against its gross margins of digital sales and wholesale revenues, finding consumers on its website more loyal, helping Nike to reduce its purchase costs and raise its return on advertising spending.
“While we have to continue investing to increase digital capability, we can boost organizational productivity by predictive analytics software, data-driven member customization and inventory planning,” he said.
Nike’s net profits during the last year ended August 31 increased to $1.52 billion, approximately 95 cents a share, from $1.37 billion, or 86 cents a share, a year ago. Just a quarter ago, Nike announced a shocking loss of $790 million, when companies cancelled their product orders and shops in major markets like China and North America were partially shut down.
“Nike is a bigger, more profitable business today now than a year before,” said Paul Trussell, analyst at Deutsche Bank. “And there has been quite a small list of companies which have been able to do that.”
Nike, that has a market value of $199.4 billion, has seen more than 15% of its stock rise this year.