Nike's fix for boosting sales at home — women

Nike is making a bigger, bolder investment in women. And it's using sports as one way to get to them.

The athletic apparel giant last week hosted the 2019 WNBA draft from a basketball court inside its New York headquarters, about two years into its deal to be the exclusive on-court uniform and clothing retailer for the league.

That same day, it hosted a panel where it brought into its office renowned female basketball players including Sheryl Swoopes, the first player to be signed in the WNBA when it was created in 1996; Sue Bird, an American Israeli player and Olympic gold medalist; and Kia Nurse, a 23-year-old who's already been drafted into the WNBA. They all sat alongside the head of Nike's women's division, Rosemary St. Clair, to talk about the importance of getting more women into sports.

"A lot of girls drop out [of sports]," St. Clair told the audience. "They're up against a lot of barriers. ... I'm concerned about the parents wanting [their children] to do something more girly."

She went on to discuss some of the investments Nike is making now to try to dispute the idea that sports isn't as much for women as for men. That includes an outreach program the retailer is introducing where it sends athletes as mentors to junior high and middle schools to talk to young girls about how to take their participation in sports to the next level. It's all about, "How do we help the next [generation] come up and learn the power of sport?" she said.

Nike's work with the WNBA is just one example of a growing list of moves the retailer is making to show it can cater to women more than it has in the past. And as Nike is looking for new pockets of growth in North America, women's could be one of them. But it won't be a guaranteed success overnight.

"It's very hard for a company like Nike ... that's very male, macho ... to make the turn" to focus more on women, said Erich Joachimsthaler, CEO and founder of branding agency Vivaldi. "In all due respect, they've done a lot to try to do it, though. I have to give them a lot of credit."

To amass more female customers, and keep them loyal, Nike should stay on the course of being an "inspirational" brand, Joachimsthaler said. "Targeting women is very different. You can't just rely on the major sports. ... They have to be more approachable."

Nike is taking steps to do just that. 

It has rolled out dozens of new styles of sports bras in extended sizes, added a new line of yoga pants and outfitted 14 of the two dozen national teams playing in the 2019 FIFA Women's World Cup this summer. Perhaps most notably, it launched the "Dream Crazier" ad campaign in February starring Serena Williams to acknowledge female athletes like gymnast Simone Biles who arguably don't receive as much acclaim as men for their achievements.

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"There is momentum right now around women in sport," St. Clair said. "We want to be inspiring, and we also want to invest [in the opportunity]. ... We have made some edits and shifts within Nike to get after that opportunity."

In the video with Williams, which quickly went viral when it was debuted during the Oscars, the tennis champion says: "If we show emotion, we're called dramatic. If we want to play against men, we're nuts. And if we dream of equal opportunity, delusional. When we stand for something, we're unhinged. When we're too good, there's something wrong with us. And if we get angry, we're hysterical, irrational, or just being crazy. ... So if they want to call you crazy, fine, show them what crazy can do."

"That really has been a call to action internally ... and among consumers," St. Clair said about the response to the ad, which became the No. 1 most-engaged film Nike has ever made.

Today, Nike's women's lines still represent less than 25 percent of Nike's total sales. But the overall U.S. women's market for shoes and clothing is much larger than men's, giving Nike plenty of room to run. It sees the opportunity to grab a greater share of the women's athletic apparel and sneaker market, as women are flocking to comfier clothes and accessories to wear not just to workouts, but also outside of the gym.

"When you're the size of Nike, every opportunity is important," Nomura Instinet analyst Simeon Siegel said. "You can't grow a $30 billion business without looking for expansion elsewhere. ... As big companies look for growth, they get to a point where their core areas of dominance aren't enough."

The retail giant, bringing in $36.4 billion in sales in 2018, holds 18.3 percent of the overall U.S. sportswear market, which includes apparel and footwear, according to data compiled by Euromonitor. German rival Adidas is second with 6 percent, Under Armour with 4.1 percent, Skechers with 2.6 percent and leggings-maker Lululemon with 1.9 percent as of the end of 2018, according to the firm.

And within sportswear, a so-called athleisure movement has been what's driving the apparel industry, analysts say. Activewear grew to represent nearly a quarter of total apparel industry sales in the U.S. at the end of 2018, NPD Group said, and is forecast to grow through this year. NPD Group also said active bottoms and leggings alone make up a $1 billion industry.

"We see women embracing the sneaker culture more and more every day," Nike CEO Mark Parker told analysts during a recent earnings conference call. "A huge priority is editing and shifting the resources we have internally to serve women more completely. ... [This is a] huge opportunity for us going forward as we shift focus."

What Parker means by "sneaker culture" is that more women, not just men, are collecting signature shoes when they go on sale, building collection of rare sneakers they can tout to their friends or other "sneakerheads." There's also an element of fashion at play, with more women donning sneakers, like a neon-colored Nike Air Max, with floral dresses and jumpsuits. Sneakers are having a fashion moment.

This "editing and shifting" Parker talks about will mean Nike is treading a lot more closely along Lululemon's turf, which is already well-established with female shoppers as a destination for its yoga pants and sports bras. Under Armour has, meanwhile, said it plans to invest more in women's apparel and accessories, seeing some of the same growth opportunities as Nike. And then there's a whole host of smaller, athletic apparel brands like Outdoor Voices, Sweaty Betty and Bandier that have incredible street cred in the industry among women frequenting Equinox fitness classes and SoulCycle.

Adidas also recently announced a new partnership and creative collaboration with singer Beyonce, while two-time Grand Slam tennis champion Naomi Osaka signed with Nike earlier this month.

"These are influencers to that next generation," St. Clair said about Osaka and Williams. "We'll continue to lead sneaker culture. And we'll continue to invest and partner with those athletes."

During its fiscal third quarter, Nike said the women's category was over-indexing men's in terms of growth, though it didn't provide specific revenue numbers. It said sales for its "Jordan" brand for women were up a double-digit percentage. Parker added there has been a "strong response to the Nike yoga collection and the tight business."

Just within the sports bra category, there's a huge opportunity for companies — like Nike — to capitalize on a white space in the market, analysts say. That's why Nike is making bigger bets there now, adding more high-impact bras that fit women of all different shapes and sizes. "We see market share up for grabs given the increasing fragmentation of the intimates space," especially with Victoria's Secret struggling, Jefferies analyst Randy Konik said.

Nike won't be handed a share of the women's market. It'll have to fight for it, paying close attention to what companies like Adidas and Under Armour are doing. And it certainly needs to make sure it stays out of the spotlight for scandal and gender discrimination, which it dealt with for much of 2018.

A string of executives, including brand president Trevor Edwards, left Nike last year following reports of inappropriate behavior and poor workplace conduct. Parker has since said the company is taking its corporate culture more seriously. Analysts say this was more of a stumbling block for Nike and should serve as a lesson for the company rather than having any grander impact on sales.

"I don't think this becomes part of this mindset when [customers] make a decision in stores," Vivaldi branding expert Joachimsthaler said.

A bigger bet on women could ultimately give Nike the boost it needs in the U.S., where sales growth is expected to slow during the current quarter. Nike until last summer was up against three consecutive quarters of sales declines in its home turf, following a series of wholesaler bankruptcies that forced the company to pivot to selling more directly to customers.

Last June, Nike said sales were finally starting to grow again in North America, citing momentum in its direct-to-consumer business. But more recently, sales there haven't met expectations. In the latest quarter, its North American sales were up 7 percent, while some analysts had been calling for growth there of as much as 10 percent.

"If you look at the core men's business ... they are getting those ducks in a row," Susquehanna International Group analyst Sam Poser said. "At the same time, they are starting to realize some of the women's [footwear and apparel] that they've tested ... is working. Now Nike is saying: 'We have this idea with women's. We are going to step on it because we haven't been as successful here.'"

"I think this [move into women's] is a natural evolution for Nike," he added. "I think they've had bigger fish to fry over the last couple of years."

Nike shares have rallied a little more than 25 percent over the past 12 months, outpacing the S&P 500 Retail ETF's (XRT's) growth of less than 1 percent.