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Nike Is Becoming A Luxury Brand
Nike Nike is trading customers up to its most premium products.
Nike stormed its Q2 2015 earnings on Thursday night (December 18). Revenue was up 15% year on year to $7.4 billion, while profit rose 23% to $655 million.
That sales boost was due in part to Nike shifting its focus to high-end, "premium" apparel — which is exactly the way luxury designer brands make their money. In fact "premium" was the word Nike's CFO used on the earnings call to describe what's going on in Nike's brand and pricing strategy.
Nike’s stock did still slump in after hours trading Thursday, as investors reacted to the news that the company’s futures orders rose at their slowest pace in four quarters. However, futures orders were up against a tough comparative: This time last year they were growing healthily thanks to the World Cup.
Despite a weaker than expected forward demand, the company beat analysts' estimates on revenue and earnings per share, and Nike continues to describe itself as a "growth" company. And one of the main levers? Premiumization. Nike is on its way to becoming a luxury (or at least a very premium) brand.
Speaking on Nike's second quarter earnings call, Nike's chief financial officer Don Blair said:
"...This is a trend that we’ve seen for quite a while now, which is that with the strength of our brand and the flow of innovation we have into the marketplace, we have been essentially trading the consumer up to premium product. And that’s both on the apparel and the footwear side.
"...So what this is is that long term trend to building product that’s premium for the consumer and can carry that price premium."
These are some of the products and strategies Nike mentioned it has been working on recently to elevate itself above competitors like Adidas, Puma and Under Armour, to become that premium brand.
Structure shoes
Nike
This September Nike announced the launch of the 18th version of its Air Zoom Structure range. For the first time ever, the new Air Zoom running shoes are available for customization with NikeID online, giving consumers choice of colors, text, sock liners and so on. They currently retail on the Nike online store anywhere between $120, up to $170 for the customized versions.
Tech Fleece apparel
Nike Nike is trading customers up to its most premium products.
Nike also credited the strength of its Tech Fleece apparel range. For the holiday season, Nike recently introduced Tech Fleece Aeroloft, which combines fleece and a goose down fill for snuggly winterwear like parkas and windrunners. The Aeroloft windrunner pictured will set you back $350.
The LunarGlide
nike
Nike launched the LunarGlide 6 shoe in July, which claims to have a damping system inspired by the astronauts that walk on the moon. It has been championed by American distance runner Shalane Flanagan They carry an RRP of $339.
Flyknit
Nike
Nike says it remains "bullish" on Flyknit's performance on its innovation agenda. This month Nike honored Kobe Bryant's scoring milestone with a limited edition Kobe 9 Elite Low "Mamba Moment" shoe (pictured above), which features a purple and green multicolor lightweight Flyknit upper. They were priced at $245 but were only on sale for a limited time.
Retail
Nike
Improving the retail experience has been hugely important in moving Nike up the premiumization ladder. It has tightened collections down so its Nike stores look more like walking into a luxury retail experience. Nike said on the earnings call that by being a better retailer itself, it is also working better with its wholesale partners, taking that same knowledge of tightening the assortment and driving that into the broader retail marketplace. The picture above is of Nike's women-only store in California. The women's market is also a huge growth area for Nike and it expects its women's business to be driving $7 billion in sales by 2017.
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