Nike’s experience demonstrates just how challenging the current environment is for even the strongest of brands and offers a sobering reminder of how even top retail digital performers are still often highly dependent on physical retail.
Nike’s response to the Covid-19 pandemic has garnered widespread praise and the footwear and apparel powerhouse has been held up as one of the brands getting it right in these challenging times.
Its Play for the World and You Can’t Stop Us campaigns have resonated with consumers, generating billions of impressions. But Nike hasn’t just delivered positive marketing messages as consumers around the world have struggled to adapt to lockdowns and social distancing rules. It has also tried to make itself useful to consumers, offering a variety of high-value content, including free access to its normally paid Nike Training Club app, which delivers streaming workouts, training programs and expert tips.
But despite its performance on the marketing and consumer engagement fronts, Nike surprised the market by reporting a larger-than-expected $790m loss for the quarter ending May 31. The company’s sales for the quarter were $6.3bn, down from $10.1bn in the same quarter last year.
The cause of the loss and sales decline: store closures. For two months, 90% of Nike-owned stores in much of the world were shuttered and many of the brick-and-mortar retailers Nike also sells through were also closed for business, halting sales through the channels through which the company generates the bulk of its revenue.
Not surprisingly, Nike saw gains online, where sales surged 75%. Notably, the company hit the $1bn mark for annual digital revenue in both greater China and EMEA regions for the first time ever.
According to Nike CFO, Matt Friend, “A more digitally connected Nike is a more valuable Nike.” Nike CEO John Donahoe also talked up the iconic brand’s digital business. “We are uniquely positioned to grow and now is the time to build on Nike’s strengths and distinct capabilities. We are continuing to invest in our biggest opportunities, including a more connected digital marketplace, to extend our leadership and fuel long-term growth.”
But the challenges Nike faces are stark. Despite its well-received marketing campaigns, and external exposure from the hit Netflix documentary The Last Dance, the company’s marketing expenses dropped by nearly a fifth, a reflection of the difficulty of putting money to work with sports leagues idle and sporting events around the world canceled. These leagues and events have been a critical part of Nike’s marketing and activation strategies for decades.
Nike’s experience demonstrates just how challenging the current environment is for even the strongest of brands and offers a sobering reminder of how even top retail digital performers are still often highly dependent on physical retail. Nike is also an example of how many companies are exposed to tail risks that could significantly disrupt their marketing and engagement strategies, making it more difficult if not impossible for them to stay connected to consumers through the channels they’ve spent years building.
The reality is that the future is still uncertain for major brands. While lockdowns are easing and stores are reopening in many parts of the world, a second pandemic wave looms large, the economic effects of the pandemic on many consumers are still growing, and it’s very difficult for brands to predict if and how consumer behavior will change post-pandemic.
Nike, thanks to its strong balance sheet, is wise to try to make lemonade out of lemons and invest strategically for the long term. But all brands should be prepared for more bumpy roads ahead.