Nike CFO: Innovation is crucial to driving pricing power

Innovation and bringing “newness” to its categories will afford the Nike brand pricing power with consumers, its chief financial officer has claimed.

“One of the biggest benefits to a strong brand, an innovative brand, a brand that’s continuing to bring freshness and newness to the consumer, is pricing power,” finance chief Matt Friend told investors on a conference call yesterday (21 March).

Inflation and the rising cost of goods have meant many brands have increased prices in the last two years. But he said the strength of the Nike brand has allowed it to increase prices to combat “headwinds”.

Nike’s pricing actions have allowed it to maintain profitability and margins.

In the three months to 29 February, its gross margin increased 150 basis points to 44.8%, with the business naming pricing as the primary driver of this.

While the rate of inflation is now easing in most economies, Friend indicated he believes Nike can maintain its ability to implement price rises where necessary.

We could sell more of these products if we wanted to, but we don’t think that’s the right thing to do from a brand point of view.

Matt Friend, Nike

“As we look forward, we believe that more newness, more freshness, products that are more connected to stories that are relevant to consumers should give us the ability on a structural basis to continue to expand our profitability,” he said.

CEO John Donahoe added that no matter the economic backdrop, innovation was crucial in driving “brand distinction”.

For a strong brand, consumer demand and full-price sales should be the biggest drivers of growth, Friend stated.

Nike has said it is focused on this goal of full-price sales even against a promotional environment, something it pledged to increase last June. Friend claimed the business was “high above [its] targets” on full-price realisation.

“We could sell more of these products if we wanted to, but we don’t think that’s the right thing to do from a brand point of view,” he said. “We know that we manage these franchises for long-term health.”

‘Not performing at full potential’

While the company has been increasing its full-price sales, it only grew revenues marginally in its most recent quarter. Sales increased by just 1% to $12.4bn (£9.8bn) in the third quarter, and profits increased by 3% to $5.6bn (£4.4bn).

CEO Donahoe said this was “in line with our expectations” but acknowledged “Nike is not performing at [its full] potential”.

He outlined “adjustments” that the business is targeting to help it reach its potential.

One of those areas of adjustment is its innovation pipeline. Donahoe indicated there had been a “change of feeling” here, which has come from the brand being back on its “front foot” in the area.

Make this the year you innovate

“It’s not just about a product or an item here and there,” he said. “It’s around building a robust pipeline of innovation.”

Another focus area outlined was making Nike’s marketing “bolder and more distinctive”.

“We are sharpening our brand storytelling to tell fewer, bigger stories with greater reach,” CFO Friend said, adding that it was focusing investment on its most distinctive products.

In its most recent quarter, Nike spent $1bn (£792m) on “demand creation”, up 10% versus the same period last year as it looks to create this “bolder” marketing strategy.