Mark Parker Nike CEO Mark Parker speaks during a news conference, in New YorkNike Innovations, New York, USA

Nike Inc. is getting choosy with its retail friends — very choosy — and investors like it.

The “undifferientated” retail crowd that’s about to get cut off from the active powerhouse, not so much.

Shares of Nike continued to rise Thursday, gaining 3.4 percent to hit $56.81, adding to the stock’s 2.8 percent bump the day before, when chairman and chief executive officer Mark Parker, along with his executive team, refined the brand’s game plan for investors.

“We never, ever take the strength of our brand and premium product for granted,” Parker told analysts. “They are indeed our most valuable assets. We want as many Nike touch points as possible to live up to those expectations, and that’s why we are investing heavily in our own channel and leading with digital. And with our strategic partners, we’ll move resources away from undifferentiated retail and toward environments where we can better control with distinct consumer experiences.”

The shift is being driven by the notion that undifferentiated retailers, which provide access to product and little more, have seen their reason for being supplanted by e-commerce. Nike, which saw net profits fall 24 percent in the first quarter on flat revenues, has been working hard to turn its massive business, recently trimming its global workforce by 2 percent.

Elliott Hill, president of geographies and integrated marketplace, underscored the importance of focus for Nike and fleshed out Parker’s point.

“Last year, Nike did business with 30,000 retailers around the world across 110,000 points of distribution,” Hill said. “To shift to highly productive retail, we will execute our 2x Direct strategy with about 40 partners. And over time, nearly two-thirds of our strategic partner business will be differentiated.”

Nike’s 2x Direct push is intended to shape the future of retail through, the brand’s own stores and Nike experiences and all new owned and partnered Nike Consumer Experiences.

Hill pointed to Nordstrom and Foot Locker as retailers it will work with closely.

“In the U.S., we’re partnering with Nordstrom to serve the style and fit-obsessed consumers, who train to look and feel good and are making athleticwear part of their everyday wardrobe,” he said. “Nordstrom by Nike is helping drive sneaker culture for women by merchandising sneakers and fashion together. The digitally led experience is generating double-digit growth for both Nike and for Nordstrom.”

Foot Locker will take part in Sneakeasy, which along with Nike will “unlock the magic of the sneaker hunt across digital and physical Foot Locker destinations.”

Andy Campion, executive vice president and chief financial officer, noted: “We are shifting people and resources to that differentiated side. We are shifting high-heat product allocations to the differentiated and marketing…to the differentiated. So we will accelerate the shift to serve the consumer.”

The move away from the “undifferentiated” will happen in an “orderly fashion” over time, Campion said. “It’s not like we’re going to go and just close every one.”

While fewer stores will get the full Nike treatment, there will also be, in keeping with the emphasis on focus, fewer Nike pieces.

Starting in January, the company is cutting the number of styles it pushes out to the marketplace by 25 percent to help boost full-price sell-through by giving shoppers more choices on products they already gravitate toward.

Nike is targeting 65 percent sell-through in season, paired with 25 percent “surgical markdowns” in season.

Cowen analyst John Kernan, who has a market perform rating on Nike, noted, “A good deal of transformation is ahead, with Nike moving away from undifferentiated retail while increasing focus on digital with strategic wholesale partners.”

But the analyst added that Nike is the only company in North America that can sustainably generate a 30 percent-plus return on invested capital and that its new products and new initiatives leave it well positioned.

However, Kernan added that the brand’s “aesthetic remains steeped in performance, in our view, while lifestyle still remains king in retail.”

load comments
blog comments powered by Disqus