Are Layoffs the First Step in Nike Inc's Big Revamp?

The sports apparel giant is undergoing a reorganization and workforce reduction to adapt to industry challenges.

Motley Fool Staff
Motley Fool Staff
Jun 22, 2017 at 5:20PM
Consumer Goods

In this segment of Motley Fool Money, Chris Hill and Matt Argersinger discuss the latest news from Nike (NYSE:NKE), which is aiming to bolster its direct-to-consumer business, among other things. Tune in to learn more.

A full transcript follows the video.

This video was recorded on June 16, 2017.

Chris Hill: Nike is revamping its operations and cutting 2% of the workforce in the process. Shares of Nike down 6% in the wake of CEO Mark Parker's announcements. I don't know, Matty, this feels like one of those situations where it's going to get a little bit worse before it gets better.

Matt Argersinger: I think so. I think, as we talked about before, the retail channel problems are still a big challenge for Nike, Under Armour, and really the whole space. They're calling this consumer-direct offense. There's really two sides to the story, consolidation on one side and product adaptability on the other. The consolidation is probably needed, and I think that's what's responsible for the 2% workforce cuts that we're talking about. For example, they're going down to four business regions. I don't know why Nike had both a Western European and a Central Eastern European segment. They're combining that into a Europe, Middle East, and Africa segment. So things like that make sense, I think. But the important thing they're doing is consolidating the website, the direct-to-consumer business, and the digital products business into one business unit they're calling Nike Direct. It seems like that should have all been together before, but now they're bringing it all together, and I think that's the major force of the company, and that's where they're going to be spending a lot of capital. That's obviously the growth engine for Nike and a lot of these businesses going forward. So, I like the move, and being more adaptive to consumers is going to be an important part of that.

Hill: And Parker has done such a good job running Nike for so long, that you look at this and think, yeah, he's not taking this lying down.

Argersinger: No, he's going to figure this out. And I think it's about making Nike more of a stylish apparel company, as opposed to a purely sports apparel company, and I think that's the right move.