The Nike group wants to double the speed of its supply chain and innovation while doubling its direct connections with consumers, the company told investors on a call about its results for the three months until the end of February.
As reported below, the Nike group's sales rise for the third quarter of its fiscal year under-performed the Adidas group in North America, which has been enjoying a growth spurt in this market and many others in the last two years. The somewhat chaotic retail situation in the U.S. market is arguably a more substantial issue for the Nike brand, which made nearly 48 percent of its turnover in North America in the first three quarters of its fiscal year – compared with a share of less than 18 percent for North America in the 2016 turnover of the Adidas brand, which raised its regional sales by 30 percent last year.
This has put some pressure on the Nike group, which has a long-term plan to raise its sales to $50 billion by the fiscal year 2020. Nike's shares under-performed in 2016, they regained some ground this year but some analysts again appeared underwhelmed last week, sending Nike shares down on the day. Although Nike's profit was above market expectations, this was due chiefly to factors such as lower tax rates and lower marketing spend. It didn't help that Nike issued a relatively tepid forecast, just days after a bullish target upgrade for the five-year plan of the Adidas group until 2020.
Mark Parker, Nike's chief executive, outlined a multi-faceted plan to take advantage of the current disruption caused by technological advances. Not entirely unlike Under Armour earlier this year, Nike provided further details on the ways in which it has started restructuring its business approach for continued growth in the short and longer term, and Parker gave a measure of the potential impact by sharing a few targets.
The first part of the adjustments in the Triple Double strategy is based on the accelerated launch of new products, and particularly three footwear cushioning technologies. Parker described the spurt of launches as a “cushioning revolution” – presumably helping to compete more efficiently against Adidas' Boost, which has been struggling to satisfy the demand.
Parker explained that ZoomX had already been trialed by athletes at the Rio Olympics and at marathons, but all three technologies have yet to be launched to consumers. They are intended for performance but come with new footwear silhouettes, which are to be translated into street footwear as well.
The second leg of the acceleration focuses on the supply chain, where Nike wants to halve the product creation cycle to three months. The group is moving in this direction with the Express Lane program, which allows global product teams to make real-time adjustments to merchandise intended for Nike's own stores and its wholesale partners – together with local teams in North America, Europe and China.
Efforts to increase the automation of production and to allow for more and faster personalization of products come into play in this endeavor as well. As previously reported, Nike is working on a Manufacturing Revolution with partners such as Flextronics International, bringing in expertise from outside of the footwear industry.
The program entails more local sourcing, to shorten material lead times and reduce waste with advanced knitting and cutting technologies. Parker said that the positive impact on gross margins already reaches the “tens of millions” and the company is anticipating more financial benefits to come.
At the same time, Nike wants to make its product range more efficient with more sales from fewer products. Parker provided further details on a strategy dubbed Edit to Amplify, which calls for the removal of the 25 percent of products that are generating the lowest share of sales, in order to amplify the others.
The third part of the approach consists in doubling “the business that is in direct service of the consumer.” Nike wants to achieve this through more engagement with consumers, be it on digital platforms or in stores such as its latest flagship in the Soho area of Manhattan. The largest share of growth in Nike's digital commerce is coming through its apps.
The plan is to expand such initiatives with the brand's wholesale partners. Nike attributes growth in key accounts like Foot Locker, JD, Intersport and T Mall in part to more direct engagement with consumers. They should be able to take advantage of the Express Lane program as well.