Dive Brief:
- With Q3 revenue relatively flat at $12.4 billion, Nike is pivoting on its consumer direct strategy. CEO John Donahoe kicked off the brand’s earnings call Thursday with a promise to fix the company’s performance by leaning back into wholesale and accelerating product innovation.
- “We know Nike is not performing at our potential,” Donahoe said. “While our consumer direct acceleration strategy has driven growth and direct connections with consumers, it’s been clear that we need to make some important adjustments.”
- Nike Direct revenues in the quarter were $5.4 billion, slightly up year over year, while digital sales fell 3%. Wholesale grew 3% to $6.6 billion, according to a company press release. Net income for the year was down 5% to $1.2 billion.
Dive Insight:
Nike is acknowledging challenges with its DTC-led strategy and vowing to put the consumer and sport back into the center of its operations. On the activewear brand’s earnings call, Donahoe outlined four priorities: an increased focus on sport, a better flow of product innovation, “bolder” brand marketing and a reinvestment in wholesale partners.
“We are relentlessly focused on driving Nike’s next chapter of healthy and sustainable growth,” Donahoe said.
The strategy pivot is not entirely unexpected: Nike in December announced a $2 billion cost-savings plan, with Chief Financial Officer Matt Friend at the time saying the consumer direct strategy had added “complexity and inefficiency” to the company’s operations. The sportswear brand has also steadily returned to wholesale partners it previously pulled back from over the past year or so.
“The consumer is still clearly shopping in multibrand retail and we need to elevate our brand and our positioning to be able to serve the consumer and to have the maximum impact from the new innovations that we’re bringing to market,” Friend told analysts Thursday.
Nike started 2024 by laying off more than 1,600 employees in an effort to right-size the organization, and Friend said Thursday that the brand had begun streamlining support and operating functions, reducing management layers and shifting resources to other areas. Specifically, Nike is investing more in departments such as design, product creation, merchandising and brand as it looks to kick up innovation.
The strategy pivot should come as a good sign for some analysts that had begun to doubt the sportswear brand’s strategy.
“We think it's becoming clearer that the ‘Consumer Direct Acceleration’ strategy was a mistake,” Wedbush analysts led by Tom Nikic said in emailed comments prior to the earnings report. “Essentially, the company's original pre-COVID ‘Consumer Direct’ plan was doing just fine, but by ‘accelerating’ the strategy in 2020, they focused too much on WHERE they were selling and lost focus of WHAT they were selling. Furthermore, it allowed a host of competitors to come in and chip away at [Nike]'s dominance of the industry.”
Nikic noted a lack of innovation at the brand and a store visit to one of Nike’s wholesale partners that showed retro Jordan styles discounted by 15% to 20%. Nike executives sought to quell concerns about new product on the call, with Donahoe saying the company is “well on our way” to a multiyear innovation cycle and has even pulled forward some innovations by more than a year to get back into a competitive position.
“We don’t like the way our brand is showing up in wholesale and we own that,” Friend said. “We need to focus on elevating the experience for consumers when they come into interaction with our brand.”
