Question
Note 1: Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complementary product, television, digital and print advertising and media
Note 1: Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complementary product, television, digital and print advertising and media costs, brand events and retail brand presentation.
Notice that FY 2020 Demand Creation Expense decreased 4% compared to FY 2019.
Read the accompanying notes, Fiscal 2020 Compared to Fiscal 2019. The first paragraph explains why Demand Creation Expenses decreased. One reason was foreign currency: Changes in foreign currency exchange rates decreased Demand Creation Expense by approximately 2 percentage points for fiscal 2020.
A decrease in expense is a good thing! Notice that of this 4% advertising expense decrease, half of it (2%) was caused by foreign currency exchange rate changes.
Question: Which change in foreign currency exchange rates would decrease Nikes foreign advertising expenses - the USD depreciating or the USD appreciating? Explain how and why mathematically.
TOTAL SELLING AND ADMINISTRATIVE EXPENSE -4% (Dollars in millions) FISCAL 2020 FISCAL 2019 % CHANGE FISCAL 2018 % CHANGE Demand creation expense(1) $ 3,592 $ 3,753 $ 3,577 5% Operating overhead expense 9,534 8,949 7% 7,934 13% Total selling and administrative expense $ 13,126 $ 12,702 3% $ 11,511 10% % of revenues 35.1% 32.5% 260 bps 31.6% (1) Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation. 90 bps FISCAL 2020 COMPARED TO FISCAL 2019 Demand creation expense decreased 4% for fiscal 2020 compared to fiscal 2019, due to lower retail brand presentation costs and lower sports marketing investments, as well as decreased advertising and marketing expenses as sporting events were postponed or canceled and a majority of stores were closed globally during the fourth quarter of fiscal 2020. These decreases were partially offset by higher digital brand marketing costs. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 2 percentage points for fiscal 2020. Operating overhead expense increased 7% for fiscal 2020 compared to fiscal 2019, driven by higher wage-related and administrative expenses to support our continued investments in end-to-end digital capabilities, including support for a new enterprise resource planning tool. Operating overhead expense was further impacted by higher bad debt expense recognized during the fourth quarter of fiscal 2020 due to the impacts of COVID-19. These increases were partially offset by lower travel and related spend. Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 1 percentage points for fiscal 2020. TOTAL SELLING AND ADMINISTRATIVE EXPENSE -4% (Dollars in millions) FISCAL 2020 FISCAL 2019 % CHANGE FISCAL 2018 % CHANGE Demand creation expense(1) $ 3,592 $ 3,753 $ 3,577 5% Operating overhead expense 9,534 8,949 7% 7,934 13% Total selling and administrative expense $ 13,126 $ 12,702 3% $ 11,511 10% % of revenues 35.1% 32.5% 260 bps 31.6% (1) Demand creation expense consists of advertising and promotion costs, including costs of endorsement contracts, complimentary product, television, digital and print advertising and media costs, brand events and retail brand presentation. 90 bps FISCAL 2020 COMPARED TO FISCAL 2019 Demand creation expense decreased 4% for fiscal 2020 compared to fiscal 2019, due to lower retail brand presentation costs and lower sports marketing investments, as well as decreased advertising and marketing expenses as sporting events were postponed or canceled and a majority of stores were closed globally during the fourth quarter of fiscal 2020. These decreases were partially offset by higher digital brand marketing costs. Changes in foreign currency exchange rates decreased Demand creation expense by approximately 2 percentage points for fiscal 2020. Operating overhead expense increased 7% for fiscal 2020 compared to fiscal 2019, driven by higher wage-related and administrative expenses to support our continued investments in end-to-end digital capabilities, including support for a new enterprise resource planning tool. Operating overhead expense was further impacted by higher bad debt expense recognized during the fourth quarter of fiscal 2020 due to the impacts of COVID-19. These increases were partially offset by lower travel and related spend. Changes in foreign currency exchange rates decreased Operating overhead expense by approximately 1 percentage points for fiscal 2020Step by Step Solution
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