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The Secret to Nike's Blowout Quarter

By Jeremy Bowman – Sep 24, 2020 at 12:00PM

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A burgeoning loyalty program is greasing the Swoosh's performance.

It's a hard time to be a consumer-facing company.

Stores were closed for several weeks during the lockdown, and even today traffic is down broadly as shoppers avoid crowded spaces during the coronavirus pandemic. Meanwhile, a spike in unemployment means millions of Americans have less money to spend, and millions of others are insecure about their jobs. Those that do have some discretionary income have focused it on areas like real estate, a new car, or home improvement to adapt to life during a time of social distancing.

Nike (NKE 1.61%), however, bucked all those headwinds in its latest earnings report, crushing estimates on flat revenue growth and an 11% increase in profits. Much attention has been paid to the 82% jump in digital sales the sportswear giant showed off as spending habits shifted from stores to online, but there's one long-term driver that's shored up the company's business behind the scenes.

5 Nike Zoom sneakers facing downward

Image source: Nike.

Membership has its rewards

Over the last few years, Nike has transitioned from a conventional consumer brand, selling most of its merchandise wholesale to major retailers and operating a few of its own stores, to becoming a brand that's built around memberships and digital technology.

Nike has improved customer engagement with tactics like lotteries on the SNKRS app, workout programs on the Nike Training Club and Nike Running Club, and NikePlus member-focused stores like the Nike Live store in Los Angeles and a new one in Guangzhou. 

With consumers around the world forced to adjust their daily routines because of the pandemic, including the way they work, shop, and exercise, those relationship-building efforts have paid off. On the earnings call, management noted that a record percentage of its members worked out with the Nike Training Club app in the quarter, with more than half of its members globally starting to work out with the app. Nike's also seen four consecutive months of at least 1 million downloads of its audio-guided runs, another sign that the pandemic has sparked a running boom as most gyms have remained closed. Meanwhile, demand has tripled on the Nike app, and monthly active users have more than doubled. 

Here, CEO John Donahoe explained the power of that penetration, saying, "This is significant for us as it speaks to the increasing consumer adoption of our apps. And while we've had tremendous success in digital and quickly pivoted to the accelerated consumer shift, I truly believe that Nike is just scratching the surface of what's possible."

These digital relationships, in other words, can form the foundation for so much more growth for the company. Donahoe also noted that a customer that connects with the company on two or more platforms has a lifetime value that's four times greater than those who don't, and called memberships a "true differentiator" for the company.

Technology provides the infrastructure

In addition to its push into membership, Nike has also doubled down on technology in recent years, starting with its restructuring under the consumer direct offense. The company acquired Celect, a demand forecasting tech company, to help it better predict demand patterns so that it can allocate merchandise accordingly to shorten shipping times, and it also tapped a CEO from the tech world, John Donahoe, who recently served as the CEO of ServiceNow, after Mark Parker stepped down.

The combination of technology and membership initiatives has proven to be a powerful growth driver for Nike, as it creates seamless connections with high-valued customers who are incentivized to be loyal to the brand. Tech is also behind new product innovations like the Next% platform, which helped runner Eliud Kipchoge run the first ever sub 2-hour marathon, and it's helping Nike stores provide unique experiences. In Guangzhou, it introduced a "data-powered store concept that curates a one-to-one personalized shopping journey," that's significantly outperforming other stores with Nike members.

Finally, Donahoe noted, "Nike's digital transformation strategy is not easily replicated," showing he sees it as a competitive advantage. Nike was already the largest sportswear company in the world with an unparalleled roster of sponsors and a legacy of sought-after products. Add to that a burgeoning membership program and a strong digital technology platform, and it's not surprising that the stock is at an all-time high even in the midst of a global pandemic.

Jeremy Bowman owns shares of Nike. The Motley Fool owns shares of and recommends Nike and ServiceNow, Inc. The Motley Fool has a disclosure policy.

Stocks Mentioned

Nike Stock Quote
$111.11 (1.61%) $1.76
ServiceNow Stock Quote
$425.60 (2.23%) $9.30

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