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Nike's "consumer-led digital transformation" sees app sales surge

But a large ERP transformation project is behind schedule...

Revenues from Nike's direct to consumer digital business have hit $10 billion, with apps representing more than half of digital demand, as the sportswear giant’s "consumer-led digital transformation" continues to bear fruit, two years after it was forced to make a hard pivot from bricks-and-mortar amid the pandemic.

A long-planned migration of its ERP systems to SAP S/4HANA system however appears to be at least a behind schedule with the latest statements in its annual report pointing to initial launch in July 2022 in Greater China. Nike is building and testing in North America for deployment in fiscal '24,” said CFO Matt Friend.

Nike revealed its booming digital revenue in its fiscal year 2022 results, reported late Monday. According to Friend, Nike digital revenue made up 24% of its total brand turnover, and have more than doubled in size since its pre-pandemic levels amid a major push to a membership-based model powered by apps.

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“With growing digital traffic and Nike App downloads, our apps now represent almost 50% of total digital demand. In turn, increased digital engagement is translating into more repeat buyers, a higher buying frequency and increased average order value, ultimately driving higher lifetime value through membership,” said Friend on an earnings call, adding: "A more digitally connected Nike is a more valuable Nike.”

Nike digital revenue made up slightly less of its business than in Q3, when it hit 26%. But Friend said the company remained on track to have digital make up 40% of its revenue by 2025.

Overall revenues for Nike Inc. in FY22 hit $46.7 billion, up 6% on a currency-neutral basis.

Nike brand revenue reached $44.4 billion, also up 6%. Nike Direct revenue was $18.7 billion, up 15%, “led by Nike Brand digital growth of 18%” according to the firm’s results release.

Nike profits for the year reached $6 billion, up 6%. The brand also noted its overhead expenses were up 11%, at $11 billion, “due to higher strategic technology investments” as well as wage increases and other variable costs.

Nike takes ERP shift slow and steady

One of the most significant technology costs for Nike is its new ERP system, reported to be SAP S/4HANA. In late 2020 SAP was reported to have said Nike’s S/4 implementation would go live in 2021, but according to the brand’s execs Nike won’t complete its ERP rollout for another couple of years.

“This year, we will begin to see value from our biggest investment in Nike’s digital transformation, our new ERP. As we shift to an increasingly direct-to-consumer future, a new ERP will be foundational for increasing speed and agility across our supply chain. This will give us real-time visibility to inventory across our network plus dynamic transactional capabilities to optimize consumer demand and inventory productivity,” said Friend.

“We will go live with our new ERP in Greater China in July and continue building and testing in North America for deployment in fiscal '24,” he added -- ERP implementations are of course notoriously difficult, so it is no surprise Nike is proceeding cautiously.

The brand may also still be somewhat scarred by its two-decade-old reputation as the poster child for bad ERP implementations.Nike is currently hiring for SAP-related roles, including SAP principal architect, SAP finance technology principal platform engineer, and director of S/4 and CFIN dev. Depending on your taste in shoes, a job move might be worth it for the staff discount alone.

Apps drive Nike digital revenue

Along with its central tech focus, Nike is also growing its portfolio of consumer-facing apps – and investing heavily in the technology behind them. Nike president and CEO John Donahoe, who joined Nike from ServiceNow in January 2020, made clear on the earnings call how important apps are to growing Nike digital revenue.

On digital making up 24% of the firm’s revenue, he said: “This is a shift being led by the consumer as they pursue the most personalized shopping experience Nike provides. And we do not take lightly the choice made by consumers to put us in the most prized real estate that exists today, the home screen of their phone. No other brand occupies that space globally like Nike, and it remains one of our biggest competitive advantages.

“Two years ago, we introduced a bold new phase of our strategy, our Consumer Direct Acceleration. In the early months of the pandemic, we set our sights beyond simply navigating through short-term volatility. Instead, we outlined a clear vision to pursue even further competitive separation by expanding our digital advantage, reshaping the marketplace of the future and creating deeper, more direct consumer relationships. Today, NIKE's continued momentum shows that our strategy is working,” he added.

Read: US Army CIO applauds cloud migration of “3 most complex ERPs

Donahoe cited Nike’s work with Adobe – we presume with Adobe’s real-time Customer Data Platform – as unlocking more demand creation and member retention. He said Nike has started testing audience segmentation in North America, and added the brand will launch local apps in China in the coming year.

The CEO also mentioned the brand’s NFT collaboration with RTFKT, which saw its virtual “Dunk Genesis Cryptokicks” shoes sell for up to $134,000 each – although Donahoe didn’t give any numbers for how Web3 sales were impacting Nike digital revenue. But Nike does seem to be one of the very few big brands to see more than ephemeral success in NFTs.

Looking ahead, Friend said the firm expects Nike digital revenue to continue to grow, and to continue to improve its margins. But this will continue to be offset by higher logistics costs, and an increased volume of inventory being stuck in transit as the supply chain continues to suffer dysfunction.

“We believe those costs are transitory in nature, but we expect it's going to take a few years to revert. And so, we're planning for that accordingly,” said Friend in answer to a question on gross margins. “As far as the longer-term goals, as I mentioned, we continue to believe in that high 40s number, and we're going to continue -- and it's going to be fuelled by this ongoing consumer-led shift to direct and to digital.”

See also: Nike’s digital ambitions hit supply chain snags