How Nike’s COVID-19 Playbook is Helping it to Succeed
Despite very challenging circumstances Nike has emerged as a leader in navigating the COVID-19 crisis. On March 24, 2020 Nike announced its third quarter earnings. Worldwide Nike’s sales were up 5% reaching $10.1 billion. In China where Nike has 7,000 stores sales were down 4% in the quarter ending 22 consecutive quarters of double-digit growth in China.
Nike’s Q3 results do not tell the full story of the impact of COVID-19 in China since Nike’s store closures in the region started towards the end of the quarter. But Nike is pleased with its performance under the circumstances. Speaking about this Andy Campion Nike’s CFO said “we were able to deliver that strong bottom line performance even including the impact of COVID-19 on greater China.”
How has Nike been able to succeed under challenging circumstances? It comes down to pivoting quickly to digital in a way that has highly engaged customers leading to online sales. Nike has also developed a COVID-19 playbook that it is using to create an: “expedited return to profitable, capital-efficient growth.” This playbook has directed its efforts in China and now Nike is using it in the rest of the world.
A quick pivot to digital
Prior to the pandemic Nike had a very strong digital ecosystem. One of the key components of this ecosystem are activity apps like Nike Fit Club and Nike Running Club. These apps allow users to access training programs such as strength workouts that can be done from the comfort of a user’s home. Once the coronavirus started to spread in China Nike quickly shifted its focus to helping customers stay fit and connected while stuck at home.
This approach resonated strongly with Chinese consumers. By the end of Nike’s third quarter weekly active users of Nike’s activity apps in China were up by 80% versus the beginning of the quarter in what the company has called an “extraordinary” increase in usage. Not only was engagement up but so were sales. In the third quarter digital sales in China were up by more than 30%. Speaking about this John Donahoe Nike’s CEO said “the strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app.”
Nike is now using a similar strategy in the U.S. In the U.S. over the March 20th weekend Nike offered consumers the ability to use its Nike Fit Club premium app for free for 90 days. Normally it costs $14.99 per month to subscribe to the service.
Nike also converted a number of product launches to digital only launches. These included the launch of the Air Jordan Retro High OG and the Air Jordan 5 Retro shoes which were supposed to launch in-store in February in China. With strong results from these digital only launches Nike plans to do more of these launches as necessary. “During a time of adversity around the globe, we’ve had to adjust like so many others” said Heidi O’Neill, President of Nike’s Consumer and Marketplace Division. “One of the biggest shifts we’ve made is dialing up the strength of our digital ecosystem to help consumers maintain their physical and mental well-being while at home.”
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A playbook for returning to growth
In its third quarter earnings call Nike also outlined its playbook for managing the COVID-19 crisis and it consists of four phases.
Phase one is containment. During this phase most stores are closed to reduce the spread of the coronavirus. In China by the end of the first week of February more than 5,000 Nike stores were closed in the greater China area. Stores that remained opened significantly reduced store hours. At the end of February Nike started to reopen stores and by the end of March 80% of Nike’s stores in China had reopened including a store in Wuhan which was the epicentre of the pandemic. In China the containment phase was five to six weeks long.
During this phase retailers must rely on their digital business. Nike quickly shifted merchandise designated for its brick and mortar stores to its online channel. It also focused on promoting its activity apps like Nike Fit Club. “I can't precisely predict how long the containment phase of the outbreak will last, but our experience in China, Japan and South Korea, gives us confidence that we will see the other side of this crisis in the near future.” said Donahoe.
Nike was also able to “to manage the delicate matter of reopening stores to minimize losses but not doing so too soon, lest it be seen as insensitive to customer health. That helped bolster Nike’s brand in this crucial market” said Donahoe.
Phase two is the recovery phase where stores start to reopen, customers are out shopping but brick and mortar sales are tepid. The supply side also starts to return to normal. South Korea and Japan are in this phase with strong increases in digital sales and week over week foot traffic in stores.
Phase three is the normalization phase. Nike said on its earnings call that it has moved past the recovery phase in China and is in the process of moving into the normalization phase.
In this phase foot traffic and brick and mortar sales return to pre-pandemic levels. An estimated 80% of Nike’s 7,000 stores in China are open now. Nike believes that its revenue in the fourth quarter of 2020 in China will be flat compared to last year. Nike is seeing double digit week over week increases in store traffic in China with some stores back to prior year levels. Nike is also seeing inventory levels decline from peak levels and strong growth in its digital business even as stores continue to open. This combined growth of its digital and physical channels has further cemented Nike’s belief that both channels are essential to the retailer’s success.
Phase four is a return to normal levels of growth. Nike believes sales growth in China will be back on track in its 2021 fiscal year.
While Nike is making a faster than expected recovery in China all retailers have not been as fortunate. By the end of March mall traffic in Shanghai, for example was at 30% of pre-virus levels. But Nike’s approach is a good blueprint for the future with the actual timelines varying by retailer and country.