Dive Brief:
- With its “Win Now” strategy firmly in place, Nike’s turnaround efforts are in full swing — and its sales are suffering in the meantime. Revenue in the third quarter fell 9% year over year to $11.3 billion, with Nike’s DTC business down 12% and wholesale declining 7%, according to a company press release.
- In Nike’s direct business, most of the sales declines came from digital, which fell 15% in the quarter. Stores, by contrast, were down just 2%. The retailer continues to reduce the number of promotions on its website and rebuild its relationship with wholesalers to improve both channels long term.
- CEO Elliott Hill, who took on the role almost six months ago, said the retailer is also making progress on diversifying its product assortment, which was overindexed with classics like the Air Force 1, Air Jordan and Dunk.
Dive Insight:
Nike is hoping its short-term pain will lead to long-term gains, with Hill noting many of its turnaround efforts will require “multiple seasons of excellent execution.” One of those is the rightsizing of some of its biggest franchises.
Nike has accelerated its work to reduce the supply of Air Force 1, Air Jordan 1 and Dunk styles, and CFO Matt Friend said by Q4, those franchises will be down by 10 percentage points as a percent of its footwear mix. However, Hill was quick to clarify that the retailer is not sunsetting those styles, describing them as “beloved silhouettes” with strong fandoms. Rather, the retailer is “building a supporting cast” of styles to complement those.
That surprised some analysts, with BMO Capital Markets’ Simeon Siegel writing in emailed comments that many believed its Dunk franchise would be reduced to zero.
“We see this as a critical counterpoint,” Siegel said. “Yes, Dunks, AF1s and AJ1s are overstretched, but they are important and will have a recurring place in the business.”
Even as Nike focuses on revamping its footwear offerings, Hill has his eyes on the brand’s apparel assortment as well. The executive has instructed employees to look for more opportunities to innovate in apparel, a dictate that comes shortly after the retailer announced a sculpting and performance brand in partnership with Kim Kardashian’s Skims.
Hill acknowledged missteps in Nike’s relationship with wholesale partners, calling it “a bit of a surprise” that Nike was no longer working closely with them. The brand has since then moved swiftly to establish teams focused on key partners and is actively discussing growth plans and product presentation with wholesalers, Hill said.
“Partnering with Nike must feel like a world-class experience,” Hill said. In his view, that also includes consulting wholesale partners on product feedback.
With so much to work through, the retailer is prioritizing the U.S., the U.K. and China in the first stages of its turnaround. And it may be a while before results show. Needham analyst Tom Nikic noted that the retailer’s Q4 guidance was worse than expected, with revenues planned to be down in the mid-teens, and that headwinds are likely to remain through the first half of the retailer’s next fiscal year.
“While the ‘Win Now’ plan to turn around [Nike]’s flagging business appears sound, the deep-seated issues mean it will take longer to recover than expected,” Nikic said in emailed comments. “We continue to have confidence in CEO Elliott Hill, but it will take time for the bull thesis to play out.”