The Shanghai Marathon, run in late November with more than 30,000 starters, has become one of the world’s elite running events, so sponsoring it and having your brand worn by the top participants is a pretty nice marketing coup. For Nike, there was mostly good news and only a wee little bit of bad news from this latest running. The little bit of bad news first: the men’s winner, Philimon Kitoo Kipchumba, smashed the course record wearing a pair of C10 Pros, which happen to be made by
ade by Anta, Nike’s fiercest competitor in the China market. This was the incredible Kenyan’s third marathon from three attempts in 2023, including another one in China, the Xiamen Marathon back in April. The good news for Nike is that it was the shoe brand worn more than any other among the top 100 finishers. Moreover, Ethiopia’s Siranesh Yirga Dagne, winner of the women’s division, along with the second- and third-place women, were all wearing Nike’s Vaporfly. The fastest Chinese female runner, Zhang Deshun, also wore Nike, as did the runner-up, Ding Changqin. Stiff competition Nike is battling it out in China with formidable foreign and local competitors, including Anta, which has been gaining ground. But Nike would have been reasonably satisfied with sales in China in its latest fiscal quarter, ending 30 November, which rose 4 per cent, year-on-year, to US$1.86 billion. Big gains in apparel more than offset slightly negative growth in footwear. Adjusting for currency shifts gives a better picture of the underlying business, however, and expressed this way, sales in China were up by 8 per cent for the brand as a whole and 3 per cent for footwear. Two global areas, Greater China plus the APAC region, and Latin America, easily outpaced the other regions in Nike’s worldwide empire. Europe and North America are struggling and it was noticeable that the word ‘headwinds’ showed up no fewer than nine times in the company’s investor call just before Christmas. There is no doubting Nike’s power as a brand in China though, which was underlined on the National Day holiday in early October, when the company enjoyed double-digit growth in stores, and on Singles’ Day (11 November) when Nike claimed to be the number one sports brand on Tmall. For the quarter as a whole, in-store performance was very strong but digital held things back, with a decline of 22 per cent, which company executives put down to a very promotional market environment. Indeed, looking forward to the next six months, the situation in China is still very much up in the air and is a contributing factor for Nike downgrading its outlook for the February quarter to slightly negative revenue growth. It also reflects the high bar set by a strong third quarter last year. CEO John Donahoe was adamant that the company wouldn’t yield to the promotional scramble: “We’re not going to race to the bottom on digital. We’re going to focus on prioritising brand health and brand strength. And right now, the digital marketplace, in particular, is at the highest of promotional activity.” So Nike is taking the long view and going all out to make sure the brand message gets out. In the month before the Shanghai Marathon, Nike hosted a tour of the country for Eliud Kipchoge, a legend in the sport and the first human to run the marathon in under two hours, in Vienna in 2019, wearing the Nike Zoom Alphafly. Kipchoge made whistle stops in Beijing and Shanghai, to raise publicity for the sport and, of course, for Nike footwear. Fitness has gone mainstream Does Nike want a lot more people to run in China? Hell yes. The country already accounts for more than 10 per cent of the brand’s global sales and a number of factors are coalescing to make this a more attractive market. Chinese athletes are having more competitive success globally and this has helped raise awareness of sport and more fitness-oriented lifestyles. Fitness has gone from an elite athlete issue to a mainstream lifestyle. Gym memberships are rising, sports venues are popping up everywhere and running clubs are becoming as popular as in the West. For Chinese recreational runners, fashion is as important as function and this is a trend that is being readily serviced by Nike and others, with eye-catching colours and designs. Globally, the outlook is wobbly Second-quarter revenues for the company globally were US$13.4 billion, up 1 per cent from the same quarter a year ago, but down 1 per cent when adjusted for currency shifts. Net income was US$1.6 billion, up 19 per cent. Investors reacted coolly though. The stock dropped 12 per cent after the earnings announcement and was down even further at the end of the first week of January. Matthew Friend, Nike executive vice-president and chief financial officer, said the revenue outlook through mid-year is looking to be softer, and the company is shifting its focus towards nudging up gross margin and, a little ominously, cost savings. That’s the bit of news that Nike employees would be nervous about. “The Company is identifying opportunities to deliver up to $2 billion in cumulative cost savings over the next three years. Areas of potential savings include simplifying our product assortment, increasing automation and use of technology, streamlining our organisation, and leveraging our scale to drive greater efficiency,” Friend said. He continued: “As part of this commitment, the Company is taking steps to streamline the organisation, which is expected to result in pre-tax restructuring charges of approximately [US$400 million to US$450 million] that will largely be recognised in the third quarter of fiscal year 2024, primarily associated with employee severance costs.” Hitting the tape hard Wisely, Nike is continuing to focus on brand and price integrity, and staying ahead on technology and design. This will come at the expense of some short-term sales volume due to factors that are highly likely to be temporary. Like Kipchoge, among the greatest marathoners the world has ever seen, Nike is willing to suffer to go the distance.