COVID-19 hit Nike Inc (NYSE: NKE) like a tone of bricks. The stores all over the world were closed and the company had to rely heavily on its online capabilities. Global pandemic had a negative, short term on its stock price too, as it plummeted from $103.00 in mid-February to $62.80 in the second half of March. However, the hit on its stock did not last and it has been climbing up again since April.
COVID-19 showed the company’s capabilities during the crisis. 36% drop in revenues due to temporary closed brick and mortar stores, was painful. The company had to close nearly 90% of its stores in all key markets but China.
China and the rest of the region is extremely important to Nike. What once used to be its factory, is now a market generating higher revenues than the company’s operations in Europe.
Despite drops in sales to wholesale customers, Nike still managed to pull out of red with its Nike Direct platform. The company booked 5% increase in online sales (8% if currency changes excluded) for the first 5 months, compared to -9% in wholesale segment.
In August 2019, the company acquired Celect- predictive analytics company that will play a role strengthening its online presence and sales.
No doubt the company continues the expansion of its online operations. Not surprisingly, the internet is the place where majority of the growth is currently coming from. Revenues from Nike Direct have been seeing its revenues growing by lower double digits annually.
The company will start reaping the befits from its investment in analytics and technology in the upcoming quarters, as COVID-19 may have required substantial internal resources to deal with pandemic, which means that some important project could have been postponed or even halted.
Investors should closely watch the company’s Chinese operations. It is expanding and particularly important market for Nike. It is also increasingly difficult market due to political actions between the U.S. and China.
As more and more retail shopping are being done online, the company will continue to ride on the success of Nike Direct. Better understanding of customer behaviour and taste will result in innovative solutions that most likely were not even possible just a decade ago. The company’s ability to innovate will play key role bridging the gap between its physical stores and Nike Direct.
Nike will rebound from its dropped revenues in the upcoming quarters, as nationwide lockdowns are less likely as by now most nations understand the cost and the impact to the economy related to them. Chinese market, while somewhat risky politically, is far from fully exploited and there is still plenty of space for expansion. The U.S. and Europe, historically key markets for the company, will require more innovation than ever, as new, more agile market entrant continue to challenge Nike’s status. However, Nike does have both the resources and the know-how to keep reinventing itself. We may even see more acquisitions that could be used to further strengthen its global position.
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