Nike's (NKE 0.66%) recent fiscal third-quarter report was a slam dunk. Although sales growth came in lower than the prior-year period, revenue was up 5% year over year despite the coronavirus turmoil.
The athletic footwear leader's digital strategy was the main growth driver, but its global strategy played a strong role as well and will continue to help the company lead its industry.
Other markets offset the losses in China during the period of store closures, and with 80% of stores already back open, Nike is seeing a huge uptick in sales there. So as the rest of the world has shut down, the surge in China can offset some of the losses in other markets.
Image source: Getty Images.
Might makes money
Nike's top line outshines every competitor in its industry with $41.3 billion of revenue in the trailing 12-month period, compared to about $25.6 billion for Adidas, $5.3 billion for Under Armour, and $5.2 billion for Skechers.
The company accomplished this through its product innovation, high status merchandise that demands greater full-price sales, digital capabilities, and strong global network. Here's the breakdown of Nike's growth in world markets over the past five quarters.
|
YOY Change |
North America |
Greater China |
Europe, Middle East, |
Asia Pacific and |
|---|---|---|---|---|
|
Q3 2019 |
7% |
19% |
6% |
3% |
|
Q4 2019 |
7% |
16% |
0% |
(4%) |
|
Q1 2020 |
4% |
22% |
6% |
6% |
|
Q2 2020 |
5% |
20% |
10% |
13% |
|
Q3 2020 |
4% |
(5%) |
11% |
8% |
Data source: Nike quarterly reports. YOY = year over year.
Clearly, China was Nike's fastest-growing market. However, with the slowdown in the fiscal third quarter as the coronavirus resulted in strict lockdowns across the country, other markets were picking up the slack. So despite a slight deceleration in total revenue growth, the company still managed to deliver a 5% increase.
Now, with China back online and much of the rest of the world facing a slowdown, Nike still has China to rely on to pick up some of the slack in the fourth quarter. That said, China only made up about 16% of the top line through the first three quarters of fiscal 2020.
All the world's a digital stage
Nike has been focusing on developing its direct-to-consumer capabilities, backed up by a strong digital network. The company has several fitness and shopping apps that support its online site as well as its physical stores, creating a seamless total experience for customers. CEO John Donahoe said on the latest earnings call, "I think pointing to this blended digital versus physical experience is a thing of the past. Consumers don't think in those terms."
Since physical stores have reopened in China, digital growth has accelerated there as well and was growing at a triple-digit pace the week before Nike released its third-quarter report.
Even during the third quarter, with the downturn in China, digital sales grew 36%, only a bit lower than the 38% growth in the second quarter. Andy Campion, who is transitioning from CFO to COO, said, "The capabilities we've already been building for the future are proving to be the strongest pillars within our business today."
Copying the playbook
While Nike is leading the way in global dominance, the opportunity is there for the taking. Donahoe spoke about the playbook the company can turn to as the rest of the world follows the trajectory China did in containing the outbreak. But the rest of retail can also follow Nike's playbook for a globally-scaled business.
Even rival Under Armour, which has been struggling with decreased North American demand, has managed to stay afloat due to better sales in other markets. As the online channel becomes more important and companies with strong digital capabilities benefit from the trend, competitors that aren't effectively capturing global sales won't be able to keep up.
In the meantime, Nike is providing a great example of how to do it right, and shareholders are benefiting as its share price quickly recovers from March lows.
