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- Officials did not say whether the cost-cutting effort would include layoffs, but did say it expects to incur nearly half a billion from mostly severance costs
- The forecast number, $450 million in the current quarter, is more than double the number it forecast before its last layoff that affected 700 workers
- Those firings – 700 of them – occurred in the mist of the pandemic, and were also billed as a streamlining effort. The firm’s stagnant market share may be to blame
Nike has announced new measures to ‘streamline’ its organization with cuts totaling $2billion – and it might see some employees out of work.
Officials did not say whether the cost-cutting effort would include layoffs, but did say it expects to incur nearly half a billion from mostly severance costs – more than double what it forecast prior to its last mass firing.
Those firings – 700 of them – occurred in the midst of the pandemic in 2020, and were also billed as a ‘streamlining’ effort. Now, Nike’s in the midst of a slump, as it continues to see its once dominant stranglehold on the market dwindle.
Some have blamed the dip on companies coming out of the woodwork and gaining footholds among runners and those who favor comfort, and firms like Adidas and New Balance making headway in streetwear by bringing back older models.
Nike’s stagnant market share has also been connected to a lack of innovation – something CEO John Donahue said Thursday the effort would specifically work to address.
‘Nike is getting back on our front foot in our key areas of innovation and growth,’ the exec who replaced longtime CEO and cofounder Phil Knight in 2020 said.
‘We see an outstanding opportunity to drive long-term profitable growth.
‘Today we are embracing a company-wide journey to invest in our areas of greatest potential, increase the pace of our innovation, and accelerate our agility and responsiveness.’
The plan, Donahoe said, will see $2billion saved over the next three years, though the exec also warned of a ‘softer’ revenue outlook for the second half of this year.
Also unveiling Thursday’s earnings report, he vowed the cost-saving plan would enable Nike to invest more in innovation, among other priorities.
Donahoe’s statement, while not explicitly confirming any layoffs, comes weeks after some Nike employees took to LinkedIn last month to share that they have been laid off amid major C-suite changes at its Oregon base.
Specifically, the former employees who claimed to be let go came from the company’s design and marketing departments, as well as talent and product management teams.
Also affected were contracted roles like copywriting, the staffers said, though Nike did not confirm any layoffs at the time.
Donahue would not talk about layoffs, but the writing was on the wall with the way the statement was relayed.
The Oregonian already reported on layoffs at the company, which in recent years has focused more on direct sales, at the expense of local running stores and retailers.
The move, sales numbers show, has effectively cut the company off from a core group of consumers – a once-unthinkable thought for a firm cofounded by a collegiate track athlete in Knight, and his former coach, Bill Bowerman, in 1964.
Donahoe said on a September earnings call: ‘We’re working hard to better connect with runners in their community.
‘In this case, we know what we need to do,’ he continued, speaking to stock analysts. ‘We are focused on it, and we are moving with urgency to deliver.’
Nike, meanwhile, no longer publicly reports sales for its running division – last revealing the data at the end of fiscal 2021.
The show company is working on efforts to bolster its presence at marathons, foot races and in running stores, while also introducing a slew of new leaderships shifts at the top level of the organization this past month.
They included longtime Nike exec John Hoke being named the firm’s new chief innovation officer, while Martin Lotti was promoted to chief design officer.
Nike also announced that Nicole Hubbard Graham, formerly the vice president of global categories and consumer direct brand marketing, is set to become the company’s new chief marketing officer, effective January 2.
The position will be left vacant by Nike’s current CMO Dirk-Jan ‘DJ’ van Hameren, who will retire after more than 30 years.
The cost-cutting bid announced by Thursday, Donahue said, will incur as much as $450 million in charges in the current quarter, mostly from severance costs.
For reference, the firm predicted it would incur between $200 million and $250 million in severance costs when it eliminated the 700 jobs in 2020, amid waning foot traffic to stores across the country.
Business is supposedly back up, and for the second quarter, Nike reported revenues of $13.39 billion, up just 1 percent compared to the prior year.
This was somewhat in line with Nike’s previously issued guidance for Q2, which projected revenue growth to be up compared to the prior year.
For the past six quarters, Nike’s gross margin has declined compared to the prior year period. Nike’s market share, currently around 30 percent, is down more than 10 percent from a few years ago.
The second quarter numbers unveiled Thursday also indicate a strong earnings beat, indicating cost savings initiatives were already underway. Still, the number fell short of sales estimates.
Nike’s net income was up 19 percent to $1.6 billion, which was up 21 percent year-over-year. This beat estimates that projected EPS at 85 cents for Q2.
Nike’s gross margin improved in Q2 by 170 basis points, largely due to lower ocean freight costs and more strategic pricing. The growth was also somewhat offset by headwinds from foreign currency exchange rates and high product input costs.
Currently, the sportswear giant employs 83,700 worldwide, according to its latest annual report, including more than 8,000 at its 400-acre Beaverton campus just west of Portland.
