Why Europe Must End Its 30-Year Digital Winter to Ensure Its Long-Run Future

Nike Continues to Distance Brand From D2C Push

Nike may have beaten the street with its fiscal year Q3 earnings, but it’s hardly taking a victory lap. Acknowledging that this was a “difficult time” for the brand, CEO John Donahoe told Thursday’s earnings call that some adjustments are in store, and that further distance from its direct-to-consumer initiatives may be necessary.

“We need to sharpen our focus on sport, we must drive a continuous flow of new product innovation,” Donahoe said. “Our brand marketing must become bolder and more distinctive. And while Nike Direct will continue to play a critical role, we must lead in with our wholesale partners to elevate our brand and grow the total marketplace. And this is exactly what we’re doing.”

By the numbers, total revenue increased slightly for the quarter ending Feb. 29 to $12.4 billion, paced by a marginal increase in Nike Direct revenues to $5.4 billion. However, the digital front end of the company took a hit, retracting by 3%.

On a more positive note, wholesale revenues saw a modest uptick of 3% to $6.6 billion, suggesting that the company’s recent shift from its high-profile direct-to-consumer (D2C) play is starting to pay off with its retail partners. In its Q2 earnings Nike announced new measures to “streamline” its organization to save up to $2 billion in costs over the next three years through layoffs, paring product inventory and increasing automation.

At several points during the earnings call Donahoe as well as CFO Matthew Friend alluded to a closer relationship with retailing partners as a hedge against projected cutbacks in consumer spending in the sporting goods and apparel category.

Friend said that the brand’s D2C strategy was indicative of a consumer focus that Nike was trying to hit with a “mix of marketplace targets” including digital channels rather than on pulling product through from physical and online retail.

“The consumer is still clearly shopping in multibrand retail, and we need to elevate our brand and our positioning to be able to serve the consumer and to have the maximum impact from the new innovations that we’re bringing to market,” Friend said. “Those are the metrics that are guiding our forward-looking plans.”

Donahoe said his outlook for the short-term is driven by several factors, including that new focus on the retail consumer. He said the company is investing in a blend of product development, brand storytelling, and unique retail experiences. He said significant strides have been made toward establishing a multiyear innovation cycle designed to captivate consumers and disrupt the industry, with several innovations launched ahead of schedule. The strategy includes bolstering wholesale investments to enhance marketplace growth and scale innovations.

“The way I think about the next fiscal year is that we are taking our product portfolio through a period of transition,” he said. “We talked about this last quarter, in terms of our focus on scaling, newness and innovation and the green shoots that we were seeing in terms of the way the consumer is responding to the newness that we’re bringing to market. This quarter only gave us more confidence in that. It’s how we’re going to create greater impact and distinction from a brand point of view.”