Disruptions hurt. But occasionally, a few players reorient themselves to new trends ahead of time. They become future-ready. And during troubled times, like the Covid-19 pandemic, they grow further and become top dogs. Nike is one of them.
Nike released its latest financial results on Thursday evening. Sales reached $10.36 billion, up from $10.1 billion in the same period last year, during a time the world will remember as one of retail carnage. Neiman Marcus, Brooks Brothers, J. Crew, and Lord & Taylor have all filed for bankruptcy. So what explains Nike’s resilience in a sector as old as footwear?
At IMD’s Center For Future Readiness, we take a quantitative approach. We track how ready companies are for a changing future. Here’s a glimpse of our 2021 ranking of the major fashion brands.
To calculate the composite score, we’ve only used hard market data. They are publicly available and have objective rules. What we measure are the fundamental drivers that fuel innovation. They include the financial health of a company, its growth prospects, employee diversity, brand value, its degree of internationalization, and the early results of its innovation efforts.
On innovation specifically, we look at how tech-savvy these fashion brands are. How strong is their e-commerce presence in mobile apps, live-streaming, omni-channels, and direct-to-consumer engagement? How big is their fanbase on social media? How big is their search volume on Google? Can they personalize offerings? Are they seen as environmentally sustainable?
Now you ask, how did Nike manage all that?
What have been mentioned as “innovations” are merely the front-end operations. They are the flashy results that attract customers. Behind the scenes are a lot of the make-or-break technologies. A company may want to let consumers personalize their sneakers online and have them shipped in weeks. But to do so profitably at scale, it has to “digitalize” the entire supply chain. It has to automate all tracking and coordination with external partners.
To stay aligned with fickle consumer demands, a company needs advance analytics to gather insights around the clock. It can then execute markdowns and promotions to move inventory across continents. It must also locate and ship specific products to where the individual stores need them most. All I am saying is that any thriving fashion brands are digital-first companies, through and through.
Here, you can perform a second type of analysis. You can compare how digital these companies really are. How do they evolve over time? So our team took the next step.
We downloaded every report published in the last 10 years by the standard-bearers of business news. The Wall Street Journal. CNBC. The Financial Times. We included all the corporate press releases circulated during this period. Ten years of data were all fed into an algorithm, big-data style. We wanted to look at how digitally obsessed these fashion brands were, and to what extent the business community had come to understand them. This “textual analysis” may not be the perfect measure of a company’s digital efforts, but it should let us gauge how things evolve.
What you are seeing is the cumulative score over the year. You can again a divergence.
Does any of this really matter, you may ask. What stands out is the share price correlation because of the pandemic. Those who are more future-ready have seen their share prices recover. Some have even surpassed the levels those prices were at before the start of the pandemic.
And in the case of Nike, its digital push came early. Back in 2017, it had already vowed to make the company less reliant on brick-and-mortar stores. That alone helped counter the negative effects of lockdown-related store closures. By now, more than 90% of Nike’s stores have been reopened. Still, digital sales are expected to enjoy double-digit growth going forward. That’s how being future-ready helps companies rebound faster. They become more resilient as a result.
If you take a longer perspective, the pattern is unmistakeable: Being future-ready drives stock performance.
It turns out being digital is not an option. Not for fashion brands, anyway. It’s how they remain relevant. And that fact hasn’t escaped the notice of investors.
P.S., I invite you to join us for a virtual meetup at IMD on March 26 at 11:00 a.m. (CET). My research team and I will unpack how organizations are becoming stronger despite the COVID-19 crisis. Don’t wait. Sign up here: https://www.imd.org/event/leap-thriving-after-a-crisis/
This article is first published in Forbes and co-authored with Angelo Boutalikakis, a research associate at the LEAP Readiness Project, and Jialu Shan a Research Fellow at The Global Center for Digital Business Transformation.