Nike Expects Digital to Account for Half of Sales 'in the Foreseeable Future'

Nike posted an unexpected loss for its fourth quarter 2020, but e-commerce sales and digital engagement soared.

Moving forward, the apparel and footwear retailer is shifting its operating model to fuel an acceleration in its consumer direct strategy, CEO John Donahoe said in the company’s earnings call. The company expects owned and partner digital could grow to 50% of Nike’s total business in the “foreseeable future,” CFO Matt Friend also noted.

“Digital has redefined the industry over the past several years and Nike has led that change,” Donahoe said and noted Nike set a goal to reach 30% digital penetration by fiscal year 2023 and will reach that goal more than two years ahead of plan. Nike digital represented nearly 30% of total business in the fourth quarter, and reached $5.5 billion for the full year.

Nike digital sales increased 75% in the quarter, while revenues unexpectedly fell 38% from last year to $6.3 billion, well shy of the Street consensus forecast of $7.3 billion. The retailer's net loss was $790 million, in a quarter significantly impacted by physical store closures to help slow the spread of the COVID-19 pandemic.

Donahoe said the company will operate under a new simpler consumer construct as part of accelerating consumer direct efforts.

“We know that our consumers don't see themselves as only runners or yoga practitioners,” he said. “They don't think in terms of performance versus sportswear. Instead, we know how they shop across men's, women's and kids. And so we'll realign the company to reflect a simplified men's, women's and kids approach.”

“Consumer direct acceleration is more than just the next phase of our strategy,” he later continued. “It's the spark that will ignite and empower our entire company to serve consumers, our business and our teams better. As we shift our operating model to fuel this strategy, Nike's leadership position will become even stronger in the future as sports continues to resonate with consumers amid a global shift toward health and wellness.”

The company also plans to reduce discretionary spending and invest in digital capabilities to accelerate its digital transformation.

“Simply put, we will more aggressively leverage technology to make Nike better,” Donahoe said. “This single integrated technology strategy across our business will accelerate how we serve consumers. Specifically, we'll speed up the unifier investments across demand sensing, insight gathering, inventory, management and more. This simplified approach will unlock more efficiency for the business, while driving speed and responsiveness as we serve consumers globally.”

Nike plans to improve the user experience on its digital platforms through enhanced digital commerce analytics, marketing technology for better consumer targeting and segmentation, online to offline marketplace capabilities, and enhanced inventory pricing and supply management tools. It will also increase the scale and efficiency of its digital fulfillment capabilities.

Despite its move toward an even more digitally-focused approach, Nike plans to open 150-200 new small footprint, digitally-enabled, mono-brand stores in North America and EMEA.

“In a funny way, I would characterize this investment in these new doors as a continued investment in our digital future,” Donahoe said.

“[Consumers] don't necessarily just want to buy digitally and have it shipped from home; you're seeing during the pandemic and we believe it will continue. They want to buy it on their digital device and go pick it up in the store, or with soft goods like apparel, they may want to reserve it online and try it on in the store. They may want to be in a store and buy something that is not in the store because of inventory. And the associate uses a digital device to buy it and get shipped home. And so consumers increasingly want a consistent, seamless physical and digital experience.”