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Though there’s a truce on the table between the U.S. and China on tariffs, the uncertainty of the two powerhouse nations’ trade relations in the past year, has already had its effect on the market.
During Nike’s Q4 and FY19 conference call earlier in the week, the brand relayed its outlook toward the trade war and the challenging market conditions that have arisen as a result—and the brand has a plan to weather the storm.
Nike’s financial performance in the most recent quarter, and indeed the year overall, received a mixed response from the stock market thanks to lower-than-expected earnings, in large part due to the many investments Nike made throughout the fiscal year. However, sales were strong and the brand said those same investments would continue to provide growth in the years to come.
As Nike’s leadership elaborated on that plan throughout its call with investors and journalists, it became clear the brand was confident in its plan to weather any trade woes, citing the continued value of its “Triple-Double” growth plan—leading the industry in innovation, growing its presence in several “key growth cities” and developing strong one-on-one connections with consumers across the globe.
“Our focus on the Triple-Double is especially important in an environment like we’re in right now, where geopolitical dynamics have led to trade tensions and foreign exchange volatility,” Mark Parker, Nike’s chairman, CEO and president explained. “We’re certainly mindful of the risks, and more importantly we’re in command of the conditions that are under our control. And that’s serving the consumer and managing the leverage we have, delivering great products, engaging experiences and building our brand.”
China has been a focus for the brand’s growth for several years, leading to 20 consecutive quarters of growth, including 22 percent growth on a currency-neutral basis in Q4. As other companies lessen their sourcing in the region, Nike has, instead, doubled-down on its presence there.
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“Our greater China business is the blueprint for how all those dimensions come together,” Parker continued. We added more than $1 billion of incremental growth in the geography over this past year. We are and remain a brand of China and for China.”
As far as manufacturing and production are concerned, Nike said it currently sources about 25 percent of its product from Chinese producers and will continue to do so. Thanks to the brand’s enviable global reach, Nike said it expected any exposure to footwear tariffs would be “relatively modest” and that it has seen the situation as a great opportunity to expand further into China from both a production and consumer standpoint.
“The short of it is we’ve got a relatively agile approach to sourcing multiple nodes from a production and distribution perspective,” Andy Campion, EVP and CFO of Nike said. “And so, while it is certainly dynamic out there with respect to trade, we’re relatively well positioned as we always have been for macro dynamics.”
Nike also has plans, though, to ramp up manufacturing in the United States. The brand said it will build another Nike Air manufacturing center in the United States for what it called a “significant investment” in its regional manufacturing capabilities. More details on the project are expected to be revealed in July.
Additionally, Nike said it would continue to roll out RFID technology to more of its products, now numbering in the hundreds of millions.
“RFID gives us the most complete view of our inventory that we have ever had,” Parker said. “It’s quickly becoming the most precise tool in our arsenal to meet an individual consumer’s specific need at the exact right moment. We will go live with this capability in Q1 across 20 Nike Direct stores and then continue to scale across the fleet.”
However, regardless of its solid positioning and regional investments, the brand still conceded that market volatility was unlikely to cease any time soon and that it expects that trend will continue over the next several quarters.