Dive Brief:
- Nike is looking to clear excess inventory that arrived late due to extended transit times, CFO Matthew Friend said on an earnings call last week.
- A rise in in-transit inventory pushed up North American inventory levels 65% in Q1 over the prior year, when factory closures in Vietnam and Indonesia disrupted production. The retailer ordered holiday products early to avoid shipping delays, but recently improved transit times meant Nike found itself overwhelmed with product this quarter.
- Friend said the company will "tighten up" purchases in the second half of the year and liquidate excess inventory more aggressively beginning in the second quarter, focusing on new product flow to strategic partners and Nike Direct, the retailer's direct-to-consumer arm.
Dive Insight:
Like many retailers, Nike is leaning on promotions as a necessary tool to help clear its excess products.
While products for spring, summer and fall seasons arrived late this past quarter, the holiday orders that were placed ahead of schedule are arriving early. The result is an onslaught of several seasons' worth of inventory arriving at once.
Nike's recent deluge of product arrivals stands in stark contrast to the last two years, when the retailer struggled to maintain inventory levels due to shipping delays and factory shutdowns.
"We are focused on what we can control as we take a measured approach against an uncertain macro outlook," Friend said on the September 29 call.
The CFO said the retailer’s inventory levels likely peaked in Q1, and that the company expects stock levels to improve throughout the year.
Other major sports retailers in the U.S. have pursued similar strategies as Nike to combat inventory swings and elevated transit times. Adidas began ordering products early to meet demand and combat transit delays, including for the back-to-school season, CFO Harm Ohlmeyer said on an August earnings call. Unlike Nike however, Adidas says its U.S. inventory levels are in good shape.
"We're not over stocked by any means," CEO Kasper Rorsted said on the call. "We're still having very healthy inventories at all levels."
Nike is now looking to liquidate with a focus on off-season apparel in North America. At the same time, Friend said the company is focused on bringing new product into the market at full price, in time for the holiday season. The retailer is still seeing high demand for its flagship brands Nike, Converse and Jordan.
"We are focused on ensuring that the holiday product at the starting season that's arriving on time is going to be set in the marketplace in our strategic partners so that we can put our best foot forward with the consumer," Friend said.
