27 Sep Innovation Fueling Broad-Based Momentum For Nike
While Nike Digital led the way with a 34 percent gain on a currency-neutral basis in the first quarter, Nike Brand’s amplified focus on innovation is “at the heart of our continued momentum right now,” Mark Parker, CEO, said on the company’s conference call with analysts.
“Our innovation platforms are building a foundation for growth over many years,” said Parker. “As the tastes of the consumer shift faster, strong platforms allow us to continually bring fresh products to market while extending our storytelling and investments.”
Andy Campion, CFO, noted that Nike Brand’s recently launched innovation platforms–Vapormax, Air Max 270, React, and ZoomX–have already generated, in aggregate, over $2 billion in revenue at retail. He added, “Further, these platforms are driving Brand distinction and catalyzing growth across our broader product portfolio in both performance and sportswear.”
Parker spent much of his presentation addressing the three pillars of Nike Brand’s Consumer Direct Offense strategy: 2X Innovation, 2X Direct and 2X Speed.
New innovation in the Nike Air franchise has ignited double digit growth across the multi-billion-dollar family of Nike Air products. Parker said, “We’re seeing it with Nike AIR, and React consumers are drawn to their comfort and performance, and they’re asking for more style options. VaporMax and 270 are both proving there is still vast growth potential in Nike AIR as we develop more comfort innovation in new forms.”
In early 2019, the “exaggerated AIR” in the Air Max 270 will be taken a step further with the introduction of the Air Max 720.
Other models called out included the React Element 87, which Parker said is “considered one of the industry’s top new designs,” and has been extended to more performance and lifestyle shoes at several price points.
The ZoomX earned attention with Eliud Kipchoge’s record performance at the Berlin Marathon. Nike Brand also developed the Peg Turbo by infusing design elements of the VaporFly 4 percent to drive “incredible energy” for the Pegasus franchise and “solid growth” for the overall running category.
Among its other platforms, Flyknit’s digital-knitting technology supported advancements for the KD 11 and the LeBron 16. Flyleather is being expanded through iconic styles like the Air Force 1, Cortez and the Air Max 95.
Parker also said that in the coming year, Nike for the first time ever will bring digitally-powered adjustable footwear to professional sports. The technology builds on the auto-lacing platform from HyperAdapt. Parker said, “We had a group of elite athletes on campus this summer for an intense wear test, and their feedback was that they’d never felt more secure or in more control of their movements. This next generation, adaptable innovation will set the standard for optimal FIT, and we’ll offer it at more accessible price points AND in greater quantities.”
Beyond success developing platforms, Nike is benefiting from the company’s Edit to Amplify approach that emphasizes deeper assortments and more make-ups of top sellers. Footwear “power franchises” consistently outperform Nike Brand’s overall footwear sell-through.
Apparel’s 11 percent currency-neutral growth for Nike Brand was slightly ahead of footwear’s’ 10 percent and was driven by fleece tops and bottoms, jackets and pants.
“We delivered a number of Sportswear apparel collections over the last 90 days–like the City Ready and Metallic Sheen collections in Women’s the Nike Sport and Tech Packs and ACG,” said Parker. “We’ll continue on this path and extend into performance, because collections give consumers.”
In apparel, consistent sell-through was seen across the company’s global football national team collections, boosted by the World Cup. Women’s apparel was a highlight, led by sportswear and sports bras. NBA apparel was helped by LeBron James’ move to the Los Angeles Lakers and is expected to gain a boost from the upcoming launch of NBA City jerseys.
Among categories, Nike still sees significant growth opportunities in three areas: Women’s, Young Athletes and Jordan.
Nike Brand also has been an opportunity to sell more at entry-level price point levels. Said Parker of the opportunity, “We’re not yet where we want to be in Core footwear, particularly in North America. But two priorities for the business are to develop innovation specifically for the Core consumer and to better leverage pinnacle performance platforms, like Nike AIR, in this zone.”
Another growth opportunity Nike is tapping is the “intersections between sport and style” across brands. Successful examples in the quarter included on-and-off-court collaboration between Serena and Virgil Abloh for the U.S. Open, Converse’s limited-edition Chuck Taylors and One Stars with fashion and music stars, and Jordan Brand’s first football kit with Paris Saint-Germain.
Said Parker, “As I’ve said before, it’s not lifestyle vs. performance or fashion vs sport. The consumer continues to be inspired by seeing those worlds come together.”
SNKRS App and Nike Live Driving Consumer Connections
Parker said 2X Direct is still “in the early stages,” but is already supporting strong growth and margin expansion for Nike Direct channels.
Said Parker, “Our 2X Direct strategy is driving new ways to connect with our consumers. It’s building confidence in our vision for Smart Retail where we remove friction and personalize experiences through the intersection of digital and physical environments.”
A big win has been the SNKRS app, which broadcasts Nike Brand launches and has become the world’s #1 footwear shopping app. The app will roll out in Mexico, Brazil and Southeast Asia next quarter.
At retail, the launch of the Nike Live retail concept at the company’s Melrose store has been “incredibly successful.” The location features frequent updates to merchandise based on what’s trending locally, reserved curbside pickup via an app and advice from store associates via text. Learnings will be extended to Nike Brand’s two new flagships opening up in New York and Shanghai next quarter.
Among the company’s wholesale partners, Parker noted that although “retail consolidation has not finished its course in North America, our growing Nike Consumer Experiences with Footlocker, Nordstrom and other key partners are already driving higher growth rates as compared to non-differentiated doors.”
With the company’s online partners, Nike Brand is now fully operational with FlipKart in India and two weeks ago announced a new partnership with JET.com to sell select assortments of both Nike Brand and Converse in key cities in North America. Parker said, “With JET, we’re partnering to develop consumer insights and create a better branded experience on their platform.”
In China, Nike Plus members accounts can now be combined with Tmall accounts and a partnership was formed last week with We Chat.
Parker added, “Ultimately, companies will be judged on their ability to be more personal with their consumers, at scale. Nike is taking the lead on this promise leveraging more insights from all over the world and reshaping the shopping experience through Smart Retail.”
Express Lane Boosting Growth Around Events
Of the three, Parker spent the least amount of time on 2X Speed, or using automation to bring product to market at a faster and more-responsive rate to better react to trends and deliver a higher degree of personalization. Parker noted that part of the goal is to become faster while being more sustainable and cost efficient.
Successes include the invention of a flat assembly process for uppers in the company’s Advanced Product Creation Center at the company’s World Headquarters, using 30 percent fewer steps and 50 percent less labor. The process has been tested with partners, including Flex, and in the company’s Asia source base.
“Transforming traditional footwear manufacturing is a significant undertaking. We’ve learned a lot and are building new capabilities,” said Parker. “Yet we continue to face specific challenges with all our partners including Flex, where the goal has been to deliver responsive, automated, close to market, manufacturing of high-quality product at scale.”
Parker said Nike continues to reassess and refine processes while leveraging breakthroughs in areas like rapid prototyping 3-D and digital printing and new methods of make all in service of cutting the overall product creation cycle in half.
A clear win around the company’s 2X Speed pillar is Express Lane, the company’s on-demand delivery system that’s driving double-digit growth in many of Nike brand’s key cities “as we capitalize on the local energy for key icons like the Cortez and sport moments like the World Cup.”
Parker said, “With this end-to-end view of our entire value chain, we’re delivering the right product to the right consumer in the right moment. And across product line, throughout geos and with our partners around the world, we’re relentlessly driving speed at a scale that is creating impact for our business.”
Kaepernick-Fronted “Just Do It” Campaign Resonating Globally
Nike officials were asked a question in the Q&A session that referenced the controversy over Colin Kaepernick being featured as the face of the company’s “Just Do It” campaign.
Parker said, “Well, just generally, we’re motivated to inspire our consumer to connect and engage and inspire. We feel actually very good and very proud of the work that we’re doing with Just Do It, introducing Just Do It to the new generation of consumers, on the 30th anniversary of the campaign when it first debuted. We know it’s resonated actually quite strongly with consumers. Obviously, here, in North America but also around the world, it’s really transcended to North America market to touch people around the world. We have an incredible lineup of athletes in that spot. When you look at the Just Do It campaign and the list of athletes we have there, it’s actually quite impressive including Serena and Odell, Colin, Shaquem Griffin, Lacey Baker, these are actually very inspiring athletes. And again, we feel like that campaign has delivered on that that message in a way that’s really connected with people around the world.
“Like any campaign, it’s not any campaign but many campaigns; it’s driving a real uptake, I think in traffic and engagement, both socially as well as commercially. We’ve seen record engagement with the brand as part of the campaign. And our brand strength, as you well know, is key dimension that contributes to the ongoing momentum that we’re building across the Nike portfolio. And that’s really how we look at it. It is how do we connect and engage in a way that’s relevant and inspiring to the consumers that we are here to serve.”
The commercial ran in September after the close of the quarter.