Nike’s business grew in China for the second consecutive quarter, a sign that the Swoosh can continue to regain market share and momentum in the crucial region.
Q3 revenues in Greater China grew 1%, with Nike direct sales in the region up 3% and digital sales down 11% as more consumers ventured to physical stores as the country reopened. Headwinds from store closures in December impacted results, though traffic rebounded when the country reopened in January. This momentum continued through the Chinese New Year and into February, Nike CFO Matt Friend said in a call with analysts on Tuesday.
“The fundamentals are there for us to continue the momentum that we’ve been talking about for several quarters,” Friend said. “And we absolutely expect that China continues to be a growth opportunity for Nike.”
The strong growth in China comes after declines in the region due to Covid-19 challenges in Q4 and Q1. It also comes as other retailers struggle to regain sales momentum in the volatile region. In 2022, Adidas saw revenue growth in all markets except for Greater China, where revenues declined 36% compared 2021. In Q4, Adidas revenues in the region were down 50% compared to the prior year. At Skechers, sales in China were down 23% in Q4.
“We feel good about our momentum in China,” Nike CEO John Donahoe said in a call with analysts, highlighting the strong “post-lockdown” growth in the region. “The key to winning in this market is, simply put, having great innovation and connecting with Chinese consumers in a locally relevant way. And so that’s what we’re doing.”
Nike is targeting product innovation, brand strength and a hyperlocal strategy to win over the region, executives outlined in the call. Within product, Nike called out targeted releases like the Year of the Rabbit pack focused on Gen Z and Gen Alpha consumers and the Invincible franchise. Brand strength there is bolstered by a strong team of Nike employees situated in China. And hyperlocal product launches and storytelling abilities via locally driven apps are helping the brand connect to consumers on a local level.
“There’s really not been a time when we can serve consumers in China in a more agile and personalized way,” Donahoe said. “And that is helping our competitive position in China. So we’re very focused on it and feel very good about our momentum.”
Analysts also see Nike’s growth in China as a strong factor in its overall future growth, along with other improvements in inventory and other regions.
UBS analyst Jay Sole highlighted Nike’s China recovery in a note and said this growth will likely continue in Q4, as Nike laps challenges in the region from the same quarter last year.
Wedbush analyst Tom Nikic in a Wednesday note to investors also highlighted the recovery in China as an important element in Nike’s growth story.
“We see several reasons for bullishness,” Nikic wrote. “Inventory levels are rapidly normalizing, brand heat is high, China is in the early stages of a recovery, and they have multiple gross margin tailwinds.”