The business strategy of the sports apparel company Nike of selling its products directly to consumers is now befitting the company significantly.
The footwear and apparel firm recorded a jump of 28 per cent in earnings year on year at $0.86 per share for the three months ending in August. This growth was accounted for primarily by an increase of 7 per cent in revenues and increase in gross margins in the sale of its products directly to the company. The company reported a 25 per cent increase in total net income at $1.4 billion.
The fact that the strategy of the company of “Consumer Direct Offense” is generating significant gains for the company is evident from the strong first quarter of fiscal 2020 results of Nike. This strategy of the company was initiated in June of 2017. Traditionally, brick-and-mortar retailers have been primarily used by Nike for sale of its products. This new business strategy prodded the company to speed up innovation, increasing the pace of development, production and getting the products to consumers and closely engaging with customers through a host of digital channels. However because of the back-to-school shopping, the August quarter is also typically the strongest for Nike.
The good performance resulted in the company stocks rising by 5 per cent.
During the quarter, the company reported a growth in gross margins to 45.7 per cent because of the higher profitability of Nike Direct which is the direct to customer sale channel of the company. Higher profit margins also helped the company in the period because of higher average product selling prices which has been one of the strategies of the company. The “edit to amplify” strategy was announced by the company in 2017 as a part of the Consumer Direct Offense strategy aimed at paring down its product range and instead focus more on improved selling strategies and styles that help the company to make higher returns.
Nike CEO Mark Parker said on a call with analysts that there was a 42 per cent year on year growth in the quarter in the digital business of Nike which illustrated further the success of its Consumer Direct strategy. The focus of the company in recent quarters has been to increase the members for its SNKRS and Nike+ apps as well as on improving the apps to provide a better in-store experience to customers.
Parker said that the digital growth “shows the power of more personal relationships with consumers.”
The during the quarter however the company reported an increase of 9 per cent in its administrative costs which were at $3.3 billion which was primarily accounted for by the company towards investments for Nike Direct and those us3ed for its global operations. The company has been trying to catch up with its closest rival Adidas to increase the speed and automation of manufacturing which would in turn help the companies to develop and manufacture products and take them to customers faster as well as to offer greater customization.
(Adapted from CNN.com)