Great ResignationInflationSupply ChainsLeadership

Nike CEO Says U.S. Retail Is ‘Not in a Steady State’

March 21, 2017, 10:34 PM UTC

Nike Chief Executive Mark Parker said the U.S. retail landscape is “not in a steady state” as consumers spend more online and make fewer visits to brick-and-mortar stores. That behavioral shift has resulted in hundreds of store closures and higher promotions, putting pressure on major retailers and apparel and footwear makers like Nike that depend on them for sales.

“The important thing to point out is that these changes are being driven by the consumer,” Parker told analysts during Nike’s (NKE) quarterly earnings presentation on Tuesday. “Consumer demand remains quite strong but expectations remain high in terms of product, the innovation, and the style. They want it fast, easy and [they want] personal service.”

Nike reported a slim 3% increase in sales in North America for the fiscal third quarter, results that include revenue booked for much of the key holiday shopping season. While the overall retail industry enjoyed a strong holiday season for 2016, online sales generated much of the growth. Many physical store retailers lamented that promotions were very high for the season—comments that Nike executives echoed on Tuesday.

Parker told analysts that the consumer “has decided digital isn’t just part of the shopping experience. Digital is the foundation of it.” He added consumers expect more from brands when it comes to personalized service, a faster pace of innovation, and a better in-store retail experience. Nike is aiming to address all of those elements: the company is trying to offer more services like personalized shopping, quickening the pace of innovation to get new product on store shelves faster, and also working with stronger retail partners like Foot Locker (FL) and Dick’s Sporting Goods (DKS) to better present Nike goods. Nike, like Adidas, is also taking more ownership of its own fate by focusing more attention on their own physical stores.

Still, the United States market seems to be seeing particularly intense upheaval, despite the fact that Nike executives were bullish about the market’s growth potential and their belief that the Nike brand remains strong in consumers’ minds. Germany’s Adidas is enjoying a major resurgence while former rising star Under Armour (UAA) has become a laggard to the point where questions are being raised about that brand’s ability to be viewed as a premium fashion play, where Nike and Adidas are far stronger.

But what’s vexing the entire industry is the poor traffic trends across all retail outlets. Departments stores like Macy’s (M) and J.C. Penney (JCP) are closing hundreds of stores. There’s been a handful of bankruptcies that have stung sports-specialty stores, most notably resulting in the liquidation of Sports Authority. Nike executives admitted that there’s been pretty big disruption in shopping patterns as more consumers move to shop online.

“We know we have more work to do to supercharge performance product in North America, specifically in running,” said Nike brand President Trevor Edwards. He added that consumers sees retail as more than a series of transactions—they want a personalized experience.

Parker said that Nike is better positioned than most because the company has already been investing in personalized services, like when a Nike+ digital member books a personal shopping appointment, which results in a transaction size that is more than three times the average. The company’s direct-to-consumer sales, or sales not booked at outside retail partners, continues to outperform the overall business.

“The current backdrop represents a tremendous opportunity for Nike, because the brands that win are going to be the ones that have been out front with digital and leading with service,” Parker said. ”

Overall, Nike reported fiscal third-quarter revenue increased 5% to $8.43 billion while profit increased 24% to 68 cents per share. Those results were mixed when compared to Wall Street’s targets: revenue growth wasn’t as strong as anticipated but profits were very strong as analysts had anticipated a slim decline.

Observers had warned that Nike could face some sales challenges even as it remains one of the more resilient apparel and retail brands. That’s because retail broadly had a weaker-than-expected holiday season and there were also delayed tax refunds in North America, further pressuring sales. Nike’s strongest sales growth was in Asia and emerging markets, while increases were far slimmer across Europe and in North America. In terms of product, sales gains for footwear and apparel were balanced.