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Can NIKE’s Unexpected Promotional Plan Help Revive Sales?

Zacks

There's a lot of noise in the sporting goods space surrounding NIKE Inc. NKE, which is holding a whopping 40% flash sale on its website. Reports suggest that the largest sportswear company announced a 48-hour sale on Nike.com, for more than 200 products including items from its high-end Jordan brand.

Well, an event like this was extremely unexpected for the swoosh brand that has never felt the need to offer such massive discounts. Resorting to this promotional gimmick clearly seems to be an attempt by the company to overcome challenges like slowing North American sales, changing consumer preferences and intense competition in the sporting goods industry. So, let’s delve deeper into these obstacles and see if NIKE can overcome them with its various growth initiatives.

Competition & Changing Consumer Preferences Hurt Sales

Per media reports, NIKE’S promotional strategy was a result of the company losing market share to competitors like Adidas AG ADDYY, as well as brands like Vans, which is owned by V.F. Corporation VFC. These brands have been gaining from their diverse range of products at a time when consumers’ demand for sporty apparel and sneakers has been declining. On the contrary, NIKE is suffering sluggish sales due to its lackluster product assortments.

Also, when online shopping seems to have become the order of the day, NIKE’s unimpressive social media presence could be a factor that has given an edge to its competitors. Per Piper Jaffray’s recent survey on teenagers, NIKE still occupies a dominant position in the market but its level of dominance has fallen from 51% to 46% year over year. A reflection of these factors is visible in NIKE’s recent stock performance, as well as its first-quarter fiscal 2018 outcome. NIKE’s shares have lost 12.1% in the past three months, which is wider than the industry’s decline of 9.9%.





In first-quarter fiscal 2018, the company’s North American sales dropped 3%. Moreover, the company’s wholesale business in the region has been impacted due to increased focus on online sales. Further, the overall environment is expected to remain promotional in North America, which we believe is likely to hurt sales and margins in this segment.

NIKE’s Solid Initiatives Bode Well

Nevertheless, NIKE is undertaking several efforts to resonate with consumers’ shifting patterns and revive sales. While the flash sale is an extraordinary example of NIKE’s promotional strategies, the company is leaving no stone unturned on the e-commerce front too. Incidentally, the “just do it” brand recently took to selling directly to consumers on social media and e-commerce platforms, as evident from its recent contract with Amazon.com Inc. AMZN. NIKE is executing a pilot program with Amazon in the United States, where it will sell limited product assortments on the latter’s website. Under this partnership, NIKE will look to improve the NIKE brand experience on Amazon by improvising the presentation and increasing the quality of storytelling.

Also, we believe there is an inherent growth opportunity in the company’s Consumer Direct Offense plan. Driven by its triple-double strategy, this restructuring plan focuses on using digital methods for rapid innovation and product development, along with strengthening consumer relations by operating through core regions. We believe these efforts will go a long way in building the company’s long-term strength.

NIKE currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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