This Is How Nike Thrived During China’s Epidemic
MARCH 27, 2020
When Nike reported its Q3 earnings on Tuesday, it said China revenue was down by only 4 percent despite reducing hours or closing doors entirely at 75 percent of the company’s locations in Greater China.
Cowen, in response to this resiliency, is bullish on Nike’s future health as it turns its recovery efforts to North America and Europe where consumers are weathering unprecedented lockdowns, raising the company’s price target to $85 in fiscal 2021.
“Management expressed confidence in its ability to manage through COVID-19 based on its experience in Greater China, Japan and South Korea, all of which are transitioning to a market normalization phase,” Cowen wrote in an earnings update for Nike on Tuesday. “Nike is implementing similar playbooks across North America and Europe, which are currently in the containment phase.”
The investment bank and financial services company said Nike’s outlook of flat revenue in China during the fourth quarter was “incredible, in our view,” given the circumstances. The strategy for Nike relies on a four-part recovery framework, Cowen said—containment, recovery, normalization and return to growth.
Containment, the phase North America and Europe are currently locked in amid rising COVID-19 infections, is the most difficult duration to predict.
That’s why Nike CEO John Donahoe said the next several weeks will be a “challenging period” in the U.S. and Europe.
“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,” Donahoe said in the company’s Tuesday conference call.
Nike’s secret for avoiding a complete collapse in revenue in the greater China region has a lot to do with its updated digital ecosystem, Donahoe said. The company immediately began pushing its Nike Training Club workout app in China as the quarantine dragged on.
By the end of the third quarter, Nike Training Club saw an 80 percent increase in weekly active users.
“The strong engagement of Chinese consumers with our activity apps translated into strong engagement with our Nike commerce app,” Donahoe said. “As a result, our digital business in China grew more than 30 percent and maintained strong momentum throughout this challenging period, a powerful statement of Nike’s agile problem-solving in times of disruption.”
Already, Nike is seeing retail traffic increase by double digits week over week, according to Donahoe, and some stores in the region have already returned to levels of business seen in fiscal 2019.
Nike’s next move is to work with its innovation and manufacturing teams to explore designs for personal protective equipment (PPE) to support first responders, doctors and nurses on the front lines of the pandemic.