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E-commerce plunges Nike into unexpected loss

A store of retailer Nike
Photo: August_0802 / Shutterstock.com

The coronavirus crisis hit Nike hard, with the sportswear brand suffering an unexpected net loss and a 38?% drop in sales in the last quarter. The reason for the net loss is the expensiveness of e-commerce, apparently.

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Shipping costs put margin under pressure

Even Nike, often considered one of the most resilient retail brands, was not spared by the health crisis. In the last quarter, sales fell by 38?% year-on-year to 6.31?billion dollars (5.5?billion euros), while analysts predicted a "mere" 15?% drop in turnover. More strikingly, the sports brand even recorded a completely unexpected net loss: Nike announced a loss of 790?million dollars (700?million euros), compared to a net gain of 989?million dollars a year earlier.

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Most stores had to close due to the various lockdowns around the world, resulting in a build-up of inventory. Moreover, Nike's strong online growth also came at a high cost: although online sales increased by as much as 75?% (now representing about 30?% of total sales), shipping and return costs put pressure on margins, which fell from 45.5?% to 37.3?%.

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Objective: 150?pick-up points

The American sportswear manufacturer still wants to continue focusing on e-commerce: the company had previously set a target of 30?% digital penetration by?2023, but this has already been achieved: now Nike set the ambition to reach 50?% "in the foreseeable future". "We are continuing to invest in our biggest opportunities, including a more connected digital marketplace", CEO John Donahoe told CNBC.?

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Donahoe wants to put e-commerce at the centre of the brand's activities, with small stores serving primarily as collection points. The CEO wants to open about 150?such locations around the world. Nike does not currently offer a financial outlook for the current year, but its CEO expects to end the year with more or less stable results.

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