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Nike Inc. executives on Thursday said the company's steep sales decline in China is the result of a broader strategy the company hopes will stabilize the business there for years to come.
The Washington County-based sporting goods giant (NYSE: NKE) posted second quarter financial results that included a 7 percent jump in revenue and an 11 percent increase in earnings per share.
But it was the results from China that stood out the most. After years of routinely producing double-digit sales growth, revenue from Nike's second-largest market fell by 11 percent in the second quarter. Futures orders out of China also fell by around 6 percent.
In prior quarters, Nike talked about an over-correction in the market, prompting a change in strategy to make the brand stand out from competitors and combat ballooning inventory levels, especially from its apparel business.
On Thursday, Nike CFO Don Blair said the company is “taking decisive action” in China, including clearing excess inventory at retail, canceling some orders and intentionally reducing futures there to better manage new products into the market.
The immediate net effect of that activity is reflected in the weaker second-quarter numbers, he said.
That's not the limit of the strategy, though. Charlie Denson, president of the Nike brand, said the company is in the process of integrating its "category offense" retail strategy into China. That strategy allows it to leverage the strength of specific sports categories in areas where those sports are most popular, rather than operating all-encompassing stores that may include categories that don't sell well in that market.
Nike is also doing better in targeting the Chinese consumer directly, Denson said. For the holiday season the brand introduced an apparel line designed specifically for the Chinese consumer. Denson said the early results are promising.
The goal with both of these retail strategies, he said, is to more easily stand out in the market without sacrificing the brand’s premium position.
“The closer we can get to this consumer differentiation, market differentiation, the better off we’ll be,”