Following just a 1% increase in sales at its latest earnings report, Nike has said that it sees the potential to save up to $2 billion in costs over the next three years by "simplifying our product assortment, increasing automation and use of technology, streamlining our organisation, and leveraging our scale to drive greater efficiency."
John McClymont, Principal - Operations and Logistics Solutions at Operational Innovations, is not so convinced that simply making operations leaner will entirely weather the storm for the world’s biggest sports apparel brand.
What he said:
"[The fact] they're aiming for a massive $2 billion cost reduction [despite already having profits of $1.9 billion,] hints at a deeper issue, possibly a strategy to pour more into branding efforts to stay relevant and competitive.
"But what has really changed? A shifting consumer base - Gen Z and fast social.
"These young consumers are rewriting the rules of brand engagement. Big names can work, but they're also looking for authenticity, and connection.
"Add to this the rise of smaller brands. Nike's recent moves pulling back from wholesalers, opened the door for these players in the lower to mid-price ranges. [In doing so,] They proved to customers that quality and style don't have to come with a classic Nike price tag.
"To me, this all points to a larger issue.
"Nike's cost-cutting might end up being a band-aid. A quick fix the deeper challenge of staying relevant and valued in a rapidly evolving consumer landscape.
"When companies start thinking they can cut their way to prosperity, red flags go up. Trimming costs will help in the short term, but sooner or later you find yourself right back to where you started.
"Why? Because at some point, you have to stop cutting, or you will impact the quality of your product or service (and if you are in that position, it's an extremely difficult storm to get out of)."
It’s also worth noting this insight from Matt Hymers, CEO and Founder of Connected
Fanatics, who has suggested that the threat for Nike and other product-led brands goes even deeper…
"[The real issue is that] product led brands can’t possibly keep up. They’ve optimised themselves into oblivion. The only differentiator is design. Counterfeit detection has been doubling year on year for a decade. Technology has abolished the barriers of entry they once owned. Sustainability, morally and legislatively, is a threat to the entire business model. Seamless, human, connected technology-based experiences are the only viable differentiator. Verifiable vertical networks are taking over.
"In this decade we’ll see a billion dollar software company that is a clothing brand. They’ll be the most profitable an sustainable ever and wipe the floor with the current giant incumbents.
"Wether you agree or not, this assertion certainly provides some food for thought…"
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