Supply Chain Matters draws reader attention to a published report that depicts how branded company Nike made strategic mistakes in its online distribution strategy during the time of Covid, and how the shoe and athletic goods retailer is still recovering.

 

The Wall Street Journal’s published report, Nike Reverses Course as Innovation Stalls and Rivals Gain (Paid subscription) is from our lens, an insightful read if your company or your role involves online merchandising, customer fulfilment and supply chain strategy.

This report provides insights that would indicate that even the biggest company’s can be subject to flawed online merchandizing and distribution fulfillment strategies that continue to haunt. They smack of Nike’s iconic branding message: Just Do it!

Synopsis

According to this report, as Covid raged and consumers turned more to online channels for purchasing of goods, Nike elected to cut ties with major retail partners as well as wholesalers, in an effort to secure more direct ties with the end consumer.

This effort came just after John Donahoe, a new CEO came on board to replace the former CEO and lead this iconic brand to a renewed digital based business transformation.

Donahue was just the fourth CEO in Nike’s prior history. To specifically quote the report as to what then occurred:

Since the pandemic, Nike has lost ground in its critical running category while it focused on pumping out old hits and preparing for an e-commerce revolution that never came. The moves, current and former employees say, have eroded a culture of innovation and edginess that made Nike one of the world’s best-known brands.

The noted result is stated as: “Nike’s once torrid growth has stalled. Sales for the quarter ended Feb. 29 were flat compared with a year earlier, and shares in the company have declined 24% over the past year, compared with a 19% gain in the S&P 500.”  

Supply Chain Investment and Effects

From a supply chain lens, the report points to a direct-to-consumer global supply chain process that subsequently increased liabilities that included the shifting of inventory storage and direct to consumer shipping costs from wholesalers and retailers to Nike itself.

More specifically: “After digital sales hit 30% of total early in the pandemic, they dropped back, and haven’t reached that level since- let alone the 50% target Donahoe had foreseen.”  Nike further deprioritized producing lower-priced athletic shoes because of supply chain disruptions that occurred during the pandemic.

The end result has been multiple years of inventory overhang with impacts to financial performance.  While Nike has managed to increase its sales performance, noted competitors such as New Balance and Hoka reportedly captured added market share among competitive runners along with casual runners.

 

Subsequent Supply Chain, Organizational and Technology Related Changes

Supply chain teams were tasked with producing a direct-to-consumer, global supply chain process. That included support elements from a Nike customized order application to “demand sensing,” “insight gathering,” and a new “global wide inventory management system.”

There were various setbacks and added learnings related to these efforts. They included a likely reality of a sales enablement strategy that did not adequately weigh needs related to added supply chain sourcing resilience needs along with a balancing of the cope of efforts directed at advanced technology enablement.

The report indicates that subsequent rounds of employee layoffs as a result of continuing disappointing growth have resulted in trimmed layers of management. That reportedly included curtailing the company’s insights and analytics teams, a technology innovation team addressing an augmented reality capability in day to day tasks, and an artificial intelligence team.

Last week, added headcount reduction actions were enacted.

From an applications systems aspect, this report indicates that one of Nike’s largest tech investments involved “a multibillion-dollar process to migrate multiple software programs into a single system.” That new platform was identified as SAP S/4 HANA, and according to this report, the platform is not operational and three years behind schedule.

Our SAP centric readers may recall that in prior SAP Sapphire customer conferences, Nike has been a usual on-stage presenter in speaking about its bolder business model vision and tech deployment plans leveraging SAP technology.

 

Added Thoughts

The Wall Street Journal report summarizes the current situation as: “Current and former Nike executives believe the future of the company is in its app ecosystem, like the Nike Training and Running Club or its SNKRS app, and the data it can harness from them to help design and sell products.

CEO Donahoe is quoted utilizing an athletic analogy:

It’s never been about me. It’s about your players. And are you doing everything you can to allow your players to make the adjustments to win? And when you have a win it’s about the players and when you have a loss you say it’s on me, right?“

He concluded: “that’s what I’ve always tried to embody, including during this period of time.”

We have provided reference to this particular report because it provides a living example of how a company’s branding and corporate culture can sometimes cloud the realities of the role that intermediaries can provide in customer intelligence and product demand needs.

Adopting the latest technologies related to either business or supply chain related business process and decision making has to be predicated on a interrelated line of business and cross functional business model.

One Contrast

Perhaps not by chance, the next day the WSJ featured a report profiling iconic branded contemporary clothing provider Levi Stauss and its relatively successful efforts in reaching out beyond wholesalers and branded stand-alone stores to expand sales. The clothing provider established a 2022 goal for growing direct-to-consumer goods sales by more than 55 percent by 2027. In the latest quarter, the actual number stood at 48 percent.

The approach was described as utilizing the direct to consumer channel to test product appeal before successful products are provided to wholesalers and the company’s branded retail outlets.

A further difference comes from the fast fashion model, the ability to condense the time from forming a product idea to availability for sale from 15 to 16 months to now 9 months to 12 months. The company has further honed inventory management strategies to make room for new inventory to include moving of existing inventory that is lagging in consumer demand.

There are likely other supply chain and time-to-market differences and what these case studies continue to indicate is the importance of product management, time-to-market, regional supply chain sourcing and ongoing sales driven inventory management strategies being a fabric of business and branding strategy.

This is not about the latest and greatest technology or shiny objects but rather a fundamental business strategy that balances product and sales growth strategies with corresponding supply chain related business process capabilities and decision-making needs.

 

Bob Ferrari

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