by Umar Farooq
Nike has come up with a shocking news for its employees. It has said it will cut its global workforce by 2 percent in a broad restructuring, a move seen as a reflection of the company’s somewhat weakened competitive position and a sagging retail sector. Nike had 70,000 employees at the end of last year, so the announcement would work out to about 1,400 jobs altogether. Its unclear how many of those positions will be eliminated in Oregon. The company employs 12,000 at its headquarters and neighboring business parks in Washington County. Nike said it will launch a “Consumer Direct Offense,” to get fewer, but more compelling, products to customers more quickly. “The future of sport will be decided by the company that obsesses the needs of the evolving consumer,” chief executive Mark Parker said in a written statement. Nike’s stock fell 3.3 percent Thursday morning to $52.84. Shares have traded between $49.01 and $60.33 in the past year.The largest company headquartered in Oregon, Nike had $32.4 billion in sales last year – up 5.9 percent from $30.6 billion the prior year. It reported $3.8 billion in profits. It’s in the process of a major expansion of its headquarters campus. And yet Nike has been losing ground to Adidas and Under Armour, which have been growing faster and taking market share. oregonlive
“Nike shaped itself into one of the globe’s most recognizable brands. Now it has a new idea: Go local. Facing pressure from investors and competitors like Adidas, Nike said that it was shaking up its organization to focus more on consumers in just a dozen cities around the world and on releasing new products faster in those places. Like many other brands, Nike is trying to keep up with rapidly evolving consumer preferences, both in terms of how consumers buy signature shoes and athletic gear and what it offers shoppers. Orders in the company’s biggest market, North America, were down 9 percent in Nike’s third quarter, according to a research note from Goldman Sachs. To keep its products relevant and make its service more personal, Nike aims to develop what it called a “local business, on a global scale” and “deeply” serve customers in 12 cities, including New York, Paris, Beijing and Milan. Those places are expected to deliver 80 percent of the company’s growth over the next two and a half years”. nytimes
“There are signs that Nike is losing its hold on industry leadership, beyond Adidas beating it for the most popular sneaker. Revenue growth slipped to just 5% in its most recent quarter, and it has hovered in the mid-single digits over the last two years, well below historical averages around 10%. Meanwhile, Adidas reported that revenue jumped 31% in North America in its most recent quarter, and overall revenue increased 16%. Other reports show that Nike’s Jordan shoes are losing their popularity on the key secondary market as retro Adidas styles like the Stan Smith now represent nearly half of resales. But the biggest factor influencing Nike’s realignment may be its bold revenue goal for fiscal 2020. At its shareholder’s meeting in 2015, the sneaker brand outlined a goal of $50 billion in revenue by 2020, along with mid-teens earnings-per-share growth, and expanding returns on invested capital.
In the nearly two years since then, Nike’s growth has fallen short, and unless it accelerates, the company will not hit its target. When it reports fiscal 2017 results next week, analysts expect revenue of $34.3 billion, short of a prior goal to hit $36 billion in 2017, and representing just 5.9% revenue growth for the year. In order to get to $50 billion by 2020, revenue will need to grow by more than 13%, a difficult task. A stronger dollar has weighed on revenue growth recently, but that is of little reassurance for investors.
In short, It’s much too early to assess the impact of Nike’s realignment, but the layoffs should boost profits, and many of the decisions seem inspired by Adidas’ successes, which should help it better compete with its upstart rival. With revenue growth flattening, something had to be done” fool
by Umar Farooq