How Nike is overcoming the coronavirus impact on its China business
The coronavirus crisis is proving to be a disaster for retailers around the world. But as Nike is proving in China, brands can mitigate the pain with the help of strong tech and swift and decisive moves.
Nike reported its latest quarterly results on Tuesday evening, saying that sales in the period ended Feb. 29 had dropped 5% in Greater China, which also includes Hong Kong and Taiwan. Mass store closings there as the coronavirus spread in late January overwhelmed a strong start to the period and ended a 22-quarter streak of sales increases of at least 10% in that region.
But as newly minted chief executive John Donahoe told Wall Street analysts, Nike is bouncing back quickly, helped by its tech firepower, both in terms of e-commerce and training apps, its supply-chain prowess, and its approach to reopening stores. As of Tuesday, 80% of its 7,000 stores in Greater China have reopened, including one in Wuhan, and digital sales are booming, the company said.
Nike shares shot up 10% on Wednesday in early trading.
All of this is informing Nike’s approach to how it is dealing with the coronavirus pandemic in North America and Europe, where the outbreak has come later, and stores are largely closed. This is critical: North America and Europe together generate 67% of company revenues compared to 15% in Greater China.
“We’re seeing the other side of the crisis in China,” said Donahoe, who took the reins in mid-January. “We now have a playbook that we can use elsewhere.” That approach has led to similarly quick returns to form in Japan and South Korea.
The crisis struck not even two weeks after Donahoe became CEO. Nike quickly closed stores in Greater China. By early February, 5,000 stores, 75% of the fleet there, were closed entirely, and the others stayed open with limited hours. About two weeks later, Nike started to gradually reopen stores.
But during the closures, Nike’s e-commerce stepped up, led by its workout apps and trainers that offer Nike Training Club workouts. There was an 80% increase in users within the quarter to get customers active at home and paying attention to Nike. Because Nike’s fitness and e-commerce apps are particularly well integrated, it fueled a 30% increase in digital sales.
Nike, which closed its stores in the U.S., Canada, and other Western markets on March 15, is hoping that will be the case in those markets too. Over the weekend, Nike waived the fees for the premium version of its Nike Training Club, which offers on-demand workouts and tips from trainers, for 90 days. (The basic version is free.) Under Armour is making a similar bet with its MyFitnessPal and MapMyRun apps. That company’s stores are also closed.
Nike also had to manage the delicate matter of reopening stores to minimize losses but not doing so too soon, lest it be seen as insensitive to customer health. That helped bolster Nike’s brand in this crucial market, Donahoe said, citing the head of Nike’s business in Greater China: “It’s become quite clear to me that when Nike says we are a brand of China for China, it’s really true.”
Nike has recovered there to the point that fourth-fiscal-quarter (March through May) sales in that market should be on par with the year-earlier period. In a research note, Jefferies praised “the continued power of this global brand, its growing digital strategy, and the benefits from robust innovation.”
As for North America, Nike has taken a similar approach to managing store closings. The company initially planned to reopen stores in the West on March 27 but now plans to reopen stores in North America and across Europe “on a location-by-location basis.” It is paying employees at stores and distribution centers for the duration of the disruption, while most other companies have committed to two weeks.
Just like it did in China, Nike has been able to quickly move merchandise destined for physical stores—its own or those of wholesale partners, many of which have closed stores—to its e-commerce sites, a move one executive called “expanding our digital pipe.”
On the marketing side, it has encouraged people to abide by the authorities’ exhortation to stay indoors to minimize the extent of the outbreak, rather than just go for a sales bump by directing people to its site. It continues efforts by Nike to be seen as a good corporate citizen.
“If you ever dreamed of playing for millions around the world, now is your chance. Play inside, play for the world,” read a Nike ad.
“We know in times like these that strong brands get even stronger,” Donahoe said. “No one is better equipped than Nike to navigate the current climate.” Some other brands might beg to differ, but Nike’s handling of a pandemic in a major market helps it make that claim.
More must-read stories from Fortune:
—Which stores are open—and closed—during the coronavirus pandemic in the U.S.?
—Some Amazon Prime shipments won’t arrive for a month due to coronavirus
—What Helena Foulkes learned about retail and leadership as CEO of HBC
—Will coronavirus finally get Americans to embrace the bidet?
—Listen to Leadership Next, a Fortune podcast examining the evolving role of CEO
—WATCH: The greatest designs of modern times
Follow Fortune on Flipboard to stay up-to-date on the latest news and analysis.