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If Even Nike Can Stumble This Badly, Watch Out

Sarah Halzack
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If Even Nike Can Stumble This Badly, Watch Out

(Bloomberg Opinion) -- There was no way Nike Inc.’s latest quarterly earnings were going to be unabashedly upbeat. Widespread store closures and consumer caution related to the coronavirus pandemic made it inevitable that sales in the crucial U.S. market would be decimated. But even with relatively low expectations, Nike managed to disappoint investors.

The athletic-apparel giant reported revenue of $6.31 billion, a 38% decrease from a year earlier that was far below analysts’ expectations of $7.38 billion. The company swung to a loss of 51 cents per share, nowhere near the 10 cents per share of earnings that analysts had estimated.

These results should worry every U.S. apparel industry executive. Nike has unique advantages that many of its rivals and retail partners don’t enjoy in this tumultuous moment. So if even mighty Nike struggled this much, weaker players are bound to have it even worse. 

As a whole, clothing stores have suffered more than just about any other corner of the retail industry as a result of the pandemic. Sales to this kind of business in the U.S. fell 87% in April and 63% in May from a year earlier. But sales of workout gear — which can double as a comfy work-from-home attire — didn’t appear to experience quite the evaporation of customer demand that, say, fancy dresses and suits did when shoppers were stuck at home. 

It’s not just that sweatpants rule our wardrobes right now. The Nike brand is among the most potent on earth, a fact that shows up in everything from its industry-leading net promoter scores to outsize levels of engagement with its Instagram content. As I’ve written previously, many clothing behemoths were walking wounded coming into this crisis, saddled with tarnished brands, heavy debt loads, or both. That’s not true for Nike, which has kept things fresh with product innovation and robust digital operation and maintains ample liquidity.

While many U.S.-only or U.S.-centric clothiers only began to seriously grapple with the coronavirus crisis in March, Nike’s large China presence meant that, by necessity, it had to start thinking earlier about how to adapt, including by shifting inventory to accommodate e-commerce demand and developing protocols to reopen stores. In theory, that should’ve given it a leg up in developing a strategy as the pandemic moved to the U.S., Europe and beyond. 

That Nike still struggled as much as it did — and felt the need to move in March to suspend share buybacks — shows just how punishing the current business environment is, especially for apparel sellers.  It’s why I expect we’ll continue to see announcements like the one made earlier Thursday by Macy’s Inc. that it was cutting 3,900 corporate jobs in a bid to lower costs after the pandemic walloped its business. 

Even though Nike will surely see some relief in the current quarter from having the vast majority of its global stores reopened, it still has some unique coronavirus-related challenges ahead. The Olympics are typically a huge marketing stage for its sneakers and apparel, so the postponement of the summer games to 2021 deprives it of a key opportunity to hype its brand. Couple that with a recession that will cause shoppers to tighten their purse strings, and you can be sure apparel retailers are in for an ugly rest of the year — Nike included. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Sarah Halzack is a Bloomberg Opinion columnist covering the consumer and retail industries. She was previously a national retail reporter for the Washington Post.

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