Nike announces layoffs on the heels of dismal quarter results

Nike, the sportswear brand, announced a dismal fiscal fourth quarter for 2020, and on the same day, the CEO of the company, John Donahoe, sent an email to employees warning of layoffs. Sales were down 38 percent for the company with a loss of $790 million.

"We will soon be forced to make some difficult choices that will likely result in a net reduction of jobs," said the email sent late Thursday.

The sales came down due to the pandemic, which forced most of its stores to close down. It's a rare miss for the company that has only fallen short of earnings estimates twice in the last eight years.

NikeWHQ_Campus

Nike WHQ Campus

Donahoe, in his letter, clarified that the layoffs were not because of the pandemic or to cut costs, but a need for reorganization and restructuring. The sports apparel company said that any savings that come about due to the reductions "will be reinvested into our priorities."

"We are building a flatter, nimbler company and transforming Nike faster to define the marketplace of the future. We are shifting resources and creating capacity to reinvest in our highest potential areas, and we anticipate our realignment will likely result in a net loss of jobs," Nike said in a statement to CNBC.

Nike Announces Layoffs

It is not yet clear how many employees will be impacted by these job cuts. Nike employs 76,700 people around the world. The layoffs are expected to come in two waves: in July and in the fall.

Nike said retail stores, distribution centers, and Air MI manufacturing facilities would not be affected by the layoffs.
"We are committed to showing compassion and respect for our transitioning employees through thoughtful and robust severance practices, consistent with our company values, our legal obligations, the competitive marketplace and individual employee situations," Nike said.

The decision was taken after an internal reassessment by the executives where they said that the constant feedback was a simplification of tasks and a smoother functioning of work. In fact, the email that Donahoe carried the subject line—Transforming Nike Faster.

"Our Employee Engagement Survey from earlier this year reaffirmed the same thing," Donahoe said in his email. "Many of you share concerns about how hard it is to get work done: Siloed work. Too many approvals needed. Complexity and duplicative resources resulting in a lack of accountability. An overburdened matrix." Additional details will be available in the coming week.

Amid all this disappointing news for the company, one bright spark was the digital sale figure. Nike's digital sales went up by 75 percent in this period. Online sales are about 30 percent of its total business, bringing in $5.5 billion in sales in 2019.

Nike is now set on direct to consumer strategy for the long-term. The sports footwear and athletic wear company is planning to cut costs by reducing discretionary spending, reducing inventories in stores, and shifting the same to digital business. The company plans to invest in digital technology, get an inventory management system suited to the new consumer preferences, improve the speed-to-market of goods, and always keep consumer behavior and demand as its nodal point.

"Consumer direct acceleration is more than just the next phase of our strategy. It's the spark that will ignite and empower our entire company to serve consumers, our business and our teams better," Donahoe said on the investor call.

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