Nike has announced new measures to “streamline” its organization with cuts totaling $2 billion – and could result in some employees being laid off from work.
Officials did not say whether the cost-cutting efforts would include layoffs, but said they are expected to generate nearly half a billion from severance costs – more than double what they had forecast before the latest mass layoffs.
These layoffs — 700 in total — occurred in the midst of the pandemic in 2020 and were also touted as a “streamlining effort.” Now Nike finds itself in the midst of a recession as the company continues to watch its once-dominant grip on the market evaporate.
Some blame the decline on companies emerging from the crisis and gaining traction with runners and comfort lovers, and on companies like Adidas and New Balance making strides in streetwear by bringing back older models.
Nike's stagnant market share is also linked to a lack of innovation – something CEO John Donahue sought to specifically address on Thursday.
Shoppers were spotted at the Nike store during Black Friday in New York last month. The Oregon-based company just announced new measures to “streamline” its operations after reporting a second-quarter profit decline
According to its latest annual report, the sportswear giant employs 83,700 people worldwide, including more than 8,000 at its 400-acre campus in Beaverton, west of Portland (see here).
“Nike is coming back to the forefront in our key areas of innovation and growth,” said the executive, who replaced longtime CEO and co-founder Phil Knight in 2020.
“We see an excellent opportunity to drive long-term profitable growth.”
“Today we are embarking on a company-wide journey to invest in our areas of greatest potential, increase the pace of our innovation, and accelerate our agility and responsiveness.”
CEO John Donahoe said Thursday that the plan calls for $2 billion in savings over the next three years, although the chief executive also warned of a “weaker” sales outlook for the second half of the year.
When presenting the earnings report on Thursday, he also promised that the cost-saving plan would allow Nike to invest more in innovation, among other things.
While Donahoe's statement does not confirm any specific layoffs, it comes weeks after some Nike employees said on LinkedIn last month that they had been laid off as part of major executive changes at the Oregon company.
Specifically, the former employees who were allegedly affected were from the company's design and marketing departments, as well as talent and product management teams.
Contractual positions such as copywriting were also affected, employees said, although Nike did not confirm any layoffs at the time.
The plan calls for $2 billion in savings over the next three years, according to CEO John Donahoe on Thursday, although the chief executive also warned of a “weaker” sales outlook for the second half of the year.
Brass did not say Thursday whether the cost-cutting efforts would include layoffs, but indicated that the company expects to incur costs of nearly half a billion, mostly from severance costs – more than double the figure it faced before the recent mass layoffs in the predicted the year 2020
Those layoffs — 700 in total — were also touted as “streamlining efforts.” Now Nike is in the midst of a slight lull as the company continues to watch its once-dominant hold on the market wane
The company's stagnant market share has also been linked to a lack of innovation, a spirit clearly evident from legacy CEO and co-founder Phil Knight, who was inducted into the Naismith Memorial Basketball Hall of Fame here in 2012
Donahue still wouldn't talk about layoffs Thursday, but the way the statement was delivered made it clear there were no more layoffs.
The Oregonian earlier this month reported ongoing layoffs at the company, which in recent years has focused more on direct sales at the expense of local businesses and retailers.
Sales figures show the move has effectively cut the company off from a core group of consumers – a once unthinkable thought for a company co-founded in 1964 by a college track athlete at Knight and his former coach Bill Bowerman.
Donahoe said on an earnings call in September, “We're working hard to better connect with runners in their community.”
“In this case, we know what we have to do,” he continued in an interview with stock analysts. “We are focused and committed to achieving our goals.”
Meanwhile, Nike no longer publicly discloses sales for its running division – the last data was published at the end of the 2021 fiscal year.
Meanwhile, Nike is working on efforts to increase its presence in marathons and foot races as well as running stores, while also introducing a series of new leadership changes at the organization's top levels last month.
The announcement comes at a time when Nike is struggling to connect with runners with its decision to focus on direct sales – a once unthinkable thought for a company founded in 1964 by a Knight track and field student and his former coach Bill Bowerman was co-founded
Knight – a sneaker legend – officially retired from the company in 2016, around the time the company's once-dominant position in the market began to falter
Nike is working to strengthen its presence in marathons and foot races as well as running stores, and also introduced a series of new leadership changes at its Oregon location last month
This included naming longtime Nike executive John Hoke as the company's new chief innovation officer and promoting Martin Lotti to chief design officer.
Nike also announced that Nicole Hubbard Graham, previously vice president of global categories and consumer direct brand marketing, will become the company's new chief marketing officer, effective January 2.
The position will remain vacant by Dirk-Jan “DJ” van Hameren, Nike’s current CMO, who is retiring after more than 30 years.
The cost-cutting offer announced Thursday, Donahue said, will result in up to $450 million in charges in the current quarter, primarily from severance costs.
To illustrate, the company forecast it would incur $200 million to $250 million in severance costs when it cut 700 jobs in 2020 as foot traffic slowed at stores across the country.
Business is reportedly going well again, and for the second quarter, Nike reported revenue of $13.39 billion, up just 1 percent from a year ago.
This was somewhat in line with Nike's previously released second-quarter guidance, which predicted higher year-over-year sales growth.
That Nike's gross margin has declined over the past six quarters compared to the same period last year. Nike's market share is currently around 30 percent, more than ten percent lower than a few years ago when it was over 40 percent.
Second-quarter numbers released on Thursday also pointed to a strong increase in profits, suggesting cost-cutting initiatives were already underway. Still, the number fell short of sales estimates.
Nike's net income rose 19 percent to $1.6 billion, up 21 percent from a year earlier. This beats estimates that were forecast for second-quarter earnings per share of 85 cents.
Nike's gross margin improved 170 basis points in the second quarter, primarily due to lower ocean freight costs and more strategic pricing. Growth was also somewhat offset by headwinds from foreign exchange rates and high product input costs.
According to its latest annual report, the sportswear giant currently employs 83,700 people worldwide, including more than 8,000 at its 400-acre campus in Beaverton, west of Portland.