Published on: October 3, 2023
Some thoughts on Nike’s soaring stock price after its first quarter earnings report yesterday.
In case you missed it, Nike narrowly missed expectations on revenue, but beat on earnings and margins. For the second consecutive quarter, Nike posted double-digit growth in China, even as sales decreased by 2% in North America.
My first takeaway: the Chinese consumer is resilient. Despite all the noise about China’s economy, China has been driving growth for global brands like Nike in 2023. The athletic-wear sector is having a strong year in particular—gripped by the health and wellness trend, consumers are investing more money into products and services that promote healthy living, such as Nike running shoes and Lululemon apparel.
During the earnings call, Nike CEO John Donahoe, who has visited China twice in the past four months, commented: “Sport is back in China. You can just feel it. And that gives us great confidence about the future and the Chinese consumer in our segment regardless of the macroeconomic outlook there. And you saw we had double-digit – strong double-digit growth in Q1 and Q2, and we’re helping to really drive momentum in sport there.”
However, this is more than just a story about the Chinese consumer and the Chinese exercise boom. Nike is growing its market share in China, not just benefiting from the rebound in consumer spending. And not only is Nike taking market share in China, it’s also becoming more profitable. So what’s the story here?
The formula is simple: full-price sales and lower inventory.
Retailers have been plagued by inventory gluts in the last 18 months. With concerns about consumer sentiment in North America, brands have been turning to discounts to shed inventory.
But not Nike. In China, Nike achieved sequential growth in full price sales in the market.
That’s been possible due to data-driven inventory distribution, locally relevant marketing, new product launches, and strong execution of an omnichannel retail playbook.
One highlight from last quarter was Nike’s 3-day sport festival, Sportchella, which targeted the women segment and emphasized mindfulness and the mental health benefits of sports. Another was NBA star and Nike rep Giannis Antetokounmpo’s tour in China to generate buzz around basketball.
In comparison, Adidas, whose market share has suffered in China, has been emphasizing discounts and pushing out legacy products. Bad for profitability and bad for the brand.
WPIC Marketing + Technologies has helped brands, including Nike, to analyze the competitive landscape in the Chinese market.
Merchandising, pricing, brand messaging, and marketing—you need to get these variables right to be profitable in China. That requires a data-backed understanding of your competitors and defining effective points of differentiation.
Give us a call if you want similar support for your brand.
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