00:00Fiona Sincolta is an analyst at City Index in London. Fiona, great to have you on the show.
00:05So, what is the main reason behind the price hike? And Nike has released a statement saying that tariffs are not the reason.
00:15Well, they say that tariffs are not necessarily the reason. They say that it is part of the sort of everyday business monitoring and evaluating of prices.
00:25But I think it's hard to get away from the fact that tariffs are being implemented at a 10% rate, potentially at a 46% rate in Vietnam if those reciprocal tariffs come into effect in July.
00:43So, you know, there are obviously a lot of concerns about increased costs because it would be Nike that would be paying those increase in levies.
00:52And then they obviously have the choice then whether to pass that on to the consumer or not.
00:58And it would appear that they are looking to pass that on to the consumer because of these price houses.
01:02So, although they're not actually highlighting the tariffs as a reason, it does seem that they are very closely related and probably the main reason why.
01:11Well, Fiona, you know nearly half of Swissware is producing Vietnam and China is also its largest producer from Asia.
01:17Both countries are facing tariffs from the U.S. and you said probably they're going to pass this on to consumers.
01:22Do you think this could hurt Nike's sales at the end of the day?
01:28Yes. I mean, I think there is a potential that sales could be impacted.
01:33We know that consumers, particularly in the U.S., we've seen consumer confidence has deteriorated considerably.
01:39And so we are seeing consumers slow down.
01:43Even in data on Friday, we saw that personal spending in the U.S. had slowed considerably.
01:49So there are concerns that there will be slower sales.
01:52I think that is something that Nike is willing to accept in order to have those price hikes increased.
01:59So, I mean, that is something that we're going to see industry wide as well.
02:04And I think that's the important thing here.
02:05It's not just going to be Nike.
02:07This is something that consumers will have to accept across the board or across the industry as far as footwear, sports apparel wear is concerned in the U.S.
02:18As you pointed out, we've had Adidas.
02:19They've already mentioned that they could be looking to do something similar.
02:23Puma, I think, will be waiting in the sidelines as well.
02:27Glad that Nike have made the move first.
02:29And that almost opens the doors for other brands to do the same.
02:32Fiona, I can imagine that, especially among younger or price-sensitive consumers, they could probably potentially impact Nike's sales.
02:41And how important is the brand's loyalty?
02:43I think that is about the time that we talk about that.
02:45When prices go up, do you think that Nike can count on its cool fan base?
02:50That's what it's going to be hoping for.
02:55I mean, we have seen Nike been working very hard on brand over the past few years.
03:00But we'll be hoping that that strength of brand will help carry it through.
03:05Particularly, as you mentioned, you know, there are going to be price-sensitive consumers that will be thinking twice about whether they can afford that.
03:14We do know that Nike are looking to avoid those price increases on children's shoes, also its popular Air Force One.
03:22So there are certain areas of the brand that it will be looking to avoid those price increases on in order to keep its popularity.
03:31But there will be certain products which won't be able to avoid such price hikes.
03:36And that's where brand loyalty is going to be really important, to be able to keep hold of some of those shoppers.
03:43And Nike has returned to selling directly on Amazon.
03:46We have noticed they announced that in May after it pulled out of Amazon directly selling their products on Amazon in 2019.
03:55So what is driving this move now?
03:58Look, you know, I think this is not a coincidence that we're seeing this return to sales through Amazon.
04:07And we know that sort of sales directly through their website hadn't been as strong as they have been previously.
04:14There has been a decline there.
04:15So we are seeing a little bit of a shift in their strategy.
04:19At the same time, we're seeing some changes in the management.
04:22And this is basically also making sure that there as many people as possible are getting to access the Nike brand.
04:30And I think this change of strategy comes at quite an important time because obviously it comes at the same time that we're seeing these increases in prices.
04:37So I think Nike is doing the best that it can to get its brand accessible, get its products as accessible as possible to the broader market and also being able to keep its brand on as many sites as possible.
04:53And Fiona, how does this tie into Nike's current retail strategy?
04:57I know you have already touched upon that a little bit.
04:59So are we seeing a shift away from is a previous focus on direct to consumer strategy?
05:04Yes, I think that's exactly what we're seeing.
05:08We are seeing this shift just because of the slight disappointment that we've had.
05:13I think we're seeing geographically there's a slight shift as well.
05:16We're going more of a focus on the UK, the US and China for sales.
05:21So we're seeing all this happen as we're seeing those changes in management at the same time that we're seeing a really incredibly challenging environment in the US as well,
05:31which is such a key market for these big brands such as Nike.
05:36Thanks, Fiona, as always.
05:37That is Fiona, St. Cota, Analyst at City Index in London.
