Nike's digital ambitions hit supply chain snags, as two worlds collide
Nike is pursuing a more "direct, member-centric business model"
More than “growth” (33 mentions), “revenue” (20 mentions), “retail” or “pandemic” (both got 17 mentions), “sports” (11 mentions) or “sneakers” (just four mentions) it was "digital" that dominated Nike’s fiscal Q1 2022 earnings call – with the word digital itself mentioned no fewer than 47 times on the call.
Yet Nike's September 23, 2021 earnings call was a tale of two worlds colliding: a slick and increasingly powerful digital front-end performing buoyantly at the front-end, while behind the scenes, transit times from Asia to the US doubled from 40 to 80 days amid "container shortages, port congestion, rail congestion and labor shortages" -- and nearly half of the company's apparel factories in Vietnam were forced to closed due to Covid.
Overall performance was impressive however: Nike reported revenues of $12.2 billion for the quarter; up 16% year-on-year, with digital sales up 29%, and Nike's President and CEO John Donahoe was bullish, noting on the call: “We're in a stronger position relative to our competition than we were prior to the pandemic.
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"Why? Because the changes happening in the market work in our favor. [A] consumer shift to digital that might have taken five years, will now only take two. That plays to NIKE's advantage and our consumer direct acceleration strategy is capitalising on this marketplace transformation,” he added. “We know that when we get to the other side of this, we'll be in even stronger shape. We'll be more agile, more direct and more digital.”
This shift, Nike CFO Matthew Friend added, was being powered by Nike's acceleration to a “more direct member-centric business model” that is heavily driven by data science and personalised targeting. (Momentum behind this is significant: demand via Nike’s SNKRS app, for example, grew more than 130% for the quarter.)
Nike's digital successes impress - but supply chain snarlups sting
Nike has doubled down on highly personalised marketing tactics as digital sales surge (it expects digital to be its leading channel for growth in fiscal '22, CEO Donahoe said).
The digital performance improvements come 27 months after Nike hired its first ever Global Chief Digital Information Officer, hiring Ratnakar Lavu to oversee all global technology functions. (Lavu was previously CTIO at $15 billion by-revenue retailer Kohl’s, and earlier, CTO at Redbox.)
CEO Donahoe noted: "Our digital growth is led by outsized member buying, which has seen a penetration increase of 14 points since last year... as we increasingly use data and analytics to personalise member product offering and experiences. And we're seeing this come to life as repeat buying members grew more than 70%."
Among other digital techniques, Nike is using sending highly personalised purchase offers to members based on their engagement with past purchase attempts in its application, and other criteria, using data science to drive digital member targeting. (It's an approach most large retailers are attempting: genuinely effective personalisation using rich layered data remains too rare, however, as most consumers will recognise).
The supply chain issues however are hurting the companys' outlook for full-year 2022 significantly. (It now expects mid single-digit growth, versus prior guidance of low double-digit growth due solely to supply chain issues, even as it looks to shift more production to China and Indonesia).
As Nike CDIO Ratnakar Lavu put it last year: "When we think about stitching the consumer journey from our digital asset -- whether it's the Nike app, or nike.com, or our Nike running club, or the training club app -- we look at how to stitch that consumer journey through data and analytics... to the supply chain".
The challenge, he suggested in conversation with Box's founder Aaron Levie, in future would be integrating data and analytics more seamlessly across not just digital sales front-ends but into both physical stores and the supply chain. With the latter more challenging than ever, it's a unique challenge and many eyes in the retail world will be on how precisely Nike sets just doing it.
CFO Matthew Friend suggested Nike was working on this, noting on the September 2021 call that Nike would be "evolving our distribution network and forward deploying inventory closer to the consumer, leveraging data and advanced analytics. These actions will improve service levels, reduce carbon impact and ultimately reduce cost to fulfill an order."
