Nike CEO John Donahoe Says Coronavirus To Have Serious Impact

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with Nike Inc (NYSE:NKE) CEO John Donahoe and CNBC’s Sara Eisen on CNBC’s “Closing Bell” (M-F 3PM-5PM) today, Wednesday, February 5th, ahead of Nike’s Innovation 2020 event in New York City—his first interview since taking the helm as Nike’s CEO. The following is a link to video of the full interview on CNBC.com:

 Transcript of interview with John Donahoe

MORGAN BRENNAN: We’re going to send it out to Sara now who has an exclusive interview with John Donahoe, the new CEO of Nike. Sara.

SARA EISEN: Morgan, yes. Hi. I am here at Nike’s New York Headquarters where they are unveiling all of the new Olympic uniforms and have a big innovation event and joining me is John Donahoe. He is the brand-new CEO Of Nike. So great to see you and congratulations on the job.

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JOHN DONAHOE: Thank you, Sara. Thrilled to be here with you.

SARA EISEN: So, this is your coming out party. What do you have to tell investors about yourself and the way you’re going to run this company?

JOHN DONAHOE: Well, I’ll tell you, it’s been one month in and it’s been spectacular. And two things really stand out from the first month, I was just saying to you. I spent my first week at Nike in China and Japan getting a chance to see firsthand the incredible connection Nike has with consumers.

Not just here in the U.S., but all over the world. Chinese consumers, Japanese consumers, deeply connect with Nike’s product and with the brand and what it stands for. And then the second thing that stands out, Sara, and coming from tech, you know how much I love innovation. Nike’s commitment to innovation is unlike anything I’ve seen in my career. I’ve spent full days with our design teams and innovation teams and product teams. And the breadth and depth and commitment to innovation is simply spectacular. So, I’m having the time of my life.

SARA EISEN: A lot of that is on display today. We’re getting a look at the new uniforms. What do you want investors to take away from what we’re seeing?

JOHN DONAHOE: Well, it’s really this innovation that’s going to be profiled at the Olympics demonstrates too things that I think distinguish Nike. One is investing in innovation that delivers improved performance for athletes. And the VaporFly Next% Platform does just that. You all know that’s the —

SARA EISEN: That’s the controversial one.

JOHN DONAHOE: Well, yes. And it’s that’s the shoe that Kipchoge broke the two-hour mark in the marathon. And what we’re announcing today is a full line so that athletes in Tokyo of all distances can take advantage of that performance enhancing technology.

SARA EISEN: Is the criticism around that unfair? That it adds 4% and almost gives a mechanical advantage to runners?

JOHN DONAHOE: Well, it’s not a mechanical advantage. It’s simply using the same materials that go into a shoe and putting them together in an innovative way that allows the athlete to do their very best in a safe way.

SARA EISEN: And the other thing is sustainability.

JOHN DONAHOE: Sustainability. That’s the second part. And you know, climate change is impacting sport. In fact, Tokyo is likely to be the warmest Olympics on record. And so, our athletes care about this topic. And so, Nike is investing heavily in sustainability. You’re going to see some incredible product released tonight, unveiled tonight. So, for instance, all the Olympic U.S. athletes that will be on the medal stand will be wearing a Nike jacket and Nike pants that are made of 100% recycled materials.

And so, Nike, as I think you know, is the largest recycler of polyester in the world, over a billion plastic bottles are recycled each year into NBA jerseys or the jerseys that the U.S. women’s soccer team wore last year in the World Cup. So, the investment and commitment to innovating in a sustainable way is something that matters to our athletes and to Nike.

SARA EISEN: And it matters to consumers. I mean, I wonder—the Space Hippie, I’m thinking of, it’s going to release in the Spring—how you see consumer habits changing as a result of sustainability?

JOHN DONAHOE: Well, just what you said, is the consumer increasingly cares about sustainability. And so, they’re looking to companies like Nike to lead in this dimension. Therefore, we’re stepping in with significant investment, the Space Hippie shoe that you’re describing is the most sustainable shoe that’s been created. It’s simply the first of what’s going to be a series of significant investments and building sustainable product for our consumers and for our globe.

SARA EISEN: So, you talked about how you spent your first days as CEO in China right around the time that the Coronavirus really started to hit. Yesterday, you said that it would have a material impact on results. Can you give us a little more specifics as to what you’re seeing on the ground there and how it’s going to impact business?

JOHN DONAHOE: Sure. Well, obviously, this is a serious global health issue. And our thoughts go out to everyone that’s being affected. And our first priority as a company is unequivocally to tend to the safety and health of our teammates in China, the employees of our partners and to consumers. Now, consistent with what’s going on right now, roughly half of our stores in China, both our Nike-owned stores and partner stores, are temporarily closed and those that are open are operating under reduced hours.

And so, there’s lower traffic, and that’s why we announced yesterday there will be a reduction in our China results this quarter. But what I will tell you from my time there only three weeks ago is the Chinese consumer has a deep connection with Nike and a deep connection with our innovation. And so, we remain very confident around China as an important opportunity and market in the medium to long-term. And we’re hopeful that the situation there resolves itself over the coming weeks and we’ll stay close.

SARA EISEN: So, no reason to think that the brand has suffered at all or is not as healthy as it was producing double digit growth?

JOHN DONAHOE: Not at all. Not at all. The consumer, I got to see this firsthand, the consumer’s connection with Nike and the retail distribution in China through our own Nike-owned stores, I was in our House of Innovation in Shanghai, and then we have over-4,000 model brand partner stores in China, which are some of the best and most and most powerful displays of Nike and Jordan product that I’ve seen.

SARA EISEN: What about the supply chain? You didn’t mention that, but I know Nike has 11 contracted factories, hundreds of thousands of workers and I think 20% of footwear still made there. How much is that being affected?

JOHN DONAHOE: Well, not significantly yet. But we’re keeping a close eye on it. As you said, we have a global supply chain. And so, we’re just looking to see how we can balance that supply chain with the various demand factors around the world. So, it’s something we’re monitoring. And if anything comes up significantly, we’ll certainly communicate that like we did yesterday.

SARA EISEN: U.S.-China Phase One Trade deal, how does that impact Nike’s business, where it’s such a critical market for you and, as you say, supply area?

JOHN DONAHOE: Well, Nike, simply put, is for free and fair trade. And we believe that protectionism ultimately harms retail and harms consumers. What I think most people don’t understand is, Sara, is that Nike has been operating under duties for a long, long time. And so, that is built into our business model. So, this is not a new topic. Nike has been paying significant duties for years. So, it’s simply a matter of degree. We’re focusing on what we can control, which is innovating and connecting with consumers.

SARA EISEN: Is there anything you would like to see as a company that does a lot of business there in the Phase Two trade deal?

JOHN DONAHOE: I just think everything we can do to promote global trade is good for our economy and ultimately, it’s good for our world.

SARA EISEN: Tariff free global trade. So, let’s move to North America. How do you see the competitive landscape right now?

JOHN DONAHOE: Well, one of the real hallmarks of Nike, that I have gotten to see firsthand, is Nike doesn’t focus on other companies. It really doesn’t. And I’ll tell you, you hear that –

SARA EISEN: Competitors, yes. That’s the same answer Mark Parker gave me.

JOHN DONAHOE: But, it’s deep, Sara. It’s real. I’ve seen it firsthand. So, all the focus is how can we deliver better experiences to consumers. And in a digital physical world, that’s evolving. So, I’ve had a lot of people ask me, ‘Well, John, you’re a digital guy, what do you think?’ And I simply say this: I look at it through the eyes of the consumer. And consumers don’t think about – think about when you shop. It’s not about, ‘Oh, I want to do this digitally, or ‘I want to do this physically.’

We all want to get what we want, when we want it, how we want it. And increasingly, that’s a blended physical and digital experience. And so, I’ve seen some great examples. I was at our flagship store in New York earlier this week. And it’s a highly immersive physical and digital experience. Some people are buying online and picking it up in store. Others are buying in the store and having it shipped home. And so, we’re — we think there’s enormous opportunity in the world of directly connecting with our consumers and building that powerful brand, physically and digitally in a blended way.

SARA EISEN: I mean, the e-Commerce business has exploded. I think 38% growth last quarter. What are you going to bring with your experience at Service Now and eBay and the sort of digital focus to that business, beyond what it’s already doing?

JOHN DONAHOE: Well, just what I said a minute ago. I’ve said this several times in the first couple of weeks. We can’t be using words like physical and digital. Because that’s not how the consumer thinks. In many ways, every company is a digital company these days. We have the blessing of incredibly innovative products. And the simple question is: how do we allow consumers to get what they want, when they want it, how they want it? Whether it’s digital, whether it’s physical or any blend of the two. And the assets we have and the brand recognition we have, I think give us enormous opportunity to be one of the real leaders in doing that.

SARA EISEN: What does it mean for the Macy’s of the world? Macy’s today announcing more store closures. And department stores suffering, a lot of your wholesale partners, Foot Locker, for instance, what do you tell them is the future of retail?

JOHN DONAHOE: Well, we’re working with our partners to build modern, vibrant retail experiences and environments. In addition to being in our Nike-owned store here in New York, I was in a couple of the stores of our partners. And there again, the way the product was displayed, the use of physical and digital, it had a vitality. It was drawing consumers off the street, getting them to explore and ultimately getting them to buy. So, I don’t think it’s a world where the retail is dead or digital or physical or e-Commerce or retail. I think consumers are looking for experiences that get them, as I say it — I’ll say it one more time, what they want, when they want it and how they want it.

SARA EISEN: Certainly, the innovation has been a key story behind the success lately of Nike, higher selling prices. But also, this trend of athleisure. I don’t know — how do you feel about that word when people want to know if that’s a fad or where we are in that market, what do you tell them?

JOHN DONAHOE: Well, Nike has got this focus on making sport an everyday habit. And I just love that because i Think it speaks to where consumers are in this day and age, where consumers all over the world want to be active. And the definition of a sport is expanding. It’s not just on the basketball court or the soccer pitch or the tennis court. It can be walking to work, it can be doing yoga in the morning, it can be doing a community run on a weekend. People want to be active.

And so, we’re building both high-performance product for elite and serious athletes, as well as very comfortable and action-oriented sportswear. And the consumer is responding. You see that. What’s happening day in and day out, people want to feel comfortable and they want to feel active. So, we’re focusing on bringing the same innovations we’re doing with elite athletes and make them available to people like you and me, everyday athletes.

SARA EISEN: I wanted to ask about Kobe Bryant. It must have been very sad at Nike headquarters and around Nike worldwide. A close partner for so many years. Your first few weeks. What was that like?

JOHN DONAHOE: It was a gut-wrenching day and a gut-wrenching week. As you said, Kobe was a beloved member of the Nike family, a very active member of the Nike family. I had an experience when I was sitting on the board four years ago, three, four years ago when I had a conversation with Kobe, I was fortunate enough to have a conversation with Kobe.

I had always known he was one of the world’s greatest basketball players. But to interact with him, and I know you’ve interacted with him, he had a depth and a level of clarity, and depth, and intelligence that was so striking and so inspiring. And so, I know I felt when I heard the news, not only did we lose one of the great basketball players, but we lost one of the great role model human beings in our society. So, both I will miss him and certainly everyone at Nike misses him terribly.

SARA EISEN: Have you given any thought as to whether you’re going to re-release his signature shoes?

JOHN DONAHOE: Well, we’re working on how we respond. We’re working on some stuff with the NBA.  We’re working on ways we can appropriately honor Kobe and his family and also the others that were involved in that.

SARA EISEN: So—

JOHN DONAHOE: Nothing to announce yet.

SARA EISEN: Nothing to share yet. Biggest change we’re going to see from John Donahoe? I know you’re a former basketball player. Mark Parker was a runner. Slightly different backgrounds, as I alluded to. What is the biggest change we’re going to see under your leadership?

JOHN DONAHOE: Well, Nike is a great company. And great companies get different types of leaders. Phil Knight was a remarkable founder. Right? He had a business sense combined with emotional intelligence, an incredible entrepreneur that built Nike. Mark, one of the greatest shoe designers in history, and also one of the most successful CEOs over the last decade, did a phenomenal job. And now my job is to build on the strong foundation that they’ve created and help take Nike into its next chapter in a more digital and global world. And I look forward to building on the incredible assets that are here and work with Nike teammates all over the world to do just that.

SARA EISEN: And just in terms of the challenges that you think you’re going to face, cultural issues have been certainly in the news. There’s also news of an SEC investigation. Is there anything you can tell us about that?

JOHN DONAHOE: No, nothing I’m familiar with on the latter point or spent time on thus far. And culturally, Nike has got a very strong culture. I’ve gotten to see that firsthand. Diversity and inclusion are core essentials to an innovative culture. And that’s something Nike has been working on and focusing on, making progress on. And it’s something I care deeply about. You know that from my previous experiences. And that’s something I’ll continue to make a real priority.

SARA EISEN: John Donahoe. Thank you very much.

JOHN DONAHOE: Sara, thank you.

SARA EISEN: Good to talk to you. That is the brand-new CEO of Nike, John Donahoe has got to go across town over to Hudson Yards for this big big innovation event they’re hosting around the Olympics.