Converse a thorn in Nike’s side, plans product diversification for 2019

By

Olivier Guyot

Translated by
Nicola Mira

Published
Jul 3, 2018

After Nike presented its annual results last week, financial analysts and the stock market reacted positively to the US sport giant’s sales forecast, with a growth rate ranging between 5% and 10%, and especially to the announcement of a new share buyback programme worth $15 billion (€12.9 billion).

Nevertheless, it wasn’t all plain sailing for Nike, even after closing the last financial year with a revenue just shy of $36.34 billion (€31.2 billion): Converse, the classic sneaker brand owned by Nike, had a very troubled 2017-18, posting a revenue that was again below the $2 billion mark. Converse suffered in fact an 8% revenue downturn (down 11% at constant exchange rates), down to $1.886 billion, below its 2014-15 result. In the last quarter, closed at the end of May, the decrease at constant exchange rate was as high as -14%.

“This downturn is above all due to our decision to rationalise our wholesale distribution. At the same time, direct sales grew in double digits in the last quarter, with strong, double-figures growth online throughout the year and an acceleration in the last quarter,” stated Nike’s senior management, led by Mark Parker, during a discussion with financial analysts. Could this spell the end of the deals with Converse’s retail partners?

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Yet, besides declining sales, Converse’s profitability has weakened too. EBITDA went from $477 million to $310 million, equivalent to a 35% shortfall in one year. Though Nike’s plans for turning around the business of the Chuck Taylors’ brand are still vague, the senior management stated that “as we move into fiscal year 2019, we are reigniting energy in the Converse Brand, and diversifying Converse’s product portfolio, both through Converse’s authentic positioning in sport and through new sportswear styles and collaborations. In fiscal year 2019, Converse will also launch a more direct, branded and immersive digital experience to drive closer connections between the Converse brand and its passionate consumers.”