Dive Brief:

• Nike adjusted its inventory buying plans and canceled roughly 30% (on a unit basis) of pre-pandemic factory purchase orders for the fall and holiday seasons, the company's CFO Matt Friend said on its fourth-quarter earnings call Thursday.
• The company also shifted more inventory to serve e-commerce markets and tripled its digital fulfillment capacity across its North American and European, Middle Eastern and African markets, Friend said.
• "In Q4, we already pivoted our new adaptive distribution facility in North America to fully support digital demand," Friend said. "And we plan to open a new regional service center on the West Coast before the holiday season to forward deploy digital inventory, leveraging advanced analytics and demand sensing capabilities from our acquisition of Celect."

Dive Insight:

Nike's investments in technology and digital sales moving forward are reflected in three areas of strategic acceleration: the marketplace of the future, the new consumer construct and the end-to-end technology foundation.

"Specifically, we'll speed up the unifier investments across demand sensing, insight gathering, inventory, management and more," the company's CEO John Donahoe said about the end-to-end technology foundation. The three-step approach is expected to increase efficiency and drive speed and responsiveness.

The company said previous technology investments have an important role in helping it respond to the pandemic.

"When the pandemic hit it became clear that there was going to be excess inventory for a period of time," Friend said.

Matching supply to demand is the second step in what Nike sees as a three-step approach to return to business normalcy:

1. A recovery period including the ramp-up of store reopenings. 
2. A period of normalization of supply and demand.
3. A period in which it returns to growth.

"We expect that we will continue to invest in regional service centers in order to be able to fulfill demand closer to the consumer," Friend said. "But we've also enabled buy online pick up in-store and ship-from-store from our stores which will also be a way that we fulfill demand closer to the consumer."

The company has also implemented targeted promotions and markdowns to help inventory move through its network, Friend said. 

"We have shifted more units of liquidation through our factory store fleet because that's a brand-right way for us to liquidate our inventory at a higher profitability level," he said. "But, we are also seeing some discounting that's happening across the marketplace but our discounting is less than what we're seeing across the broader marketplace."

The Celect acquisition provides talent and technology to preform the demand sensing necessary to ensure the new inventory that enters its network is the right product, in the right place at the right time, Donahoe said. A paper Celect published last year in the Informas Journal on Applied Analytics outlined how it helped Urban Outfitters to reduce lost sales and shipping cost with a new model for handling online order fulfillment.

Nike expects its inventory to be whittled down to an appropriate level by its second quarter. "In China, as I referenced, given they faced the pandemic a little bit earlier, they're going to clear and come out of the situation from an inventory perspective by the end of June," Friend said.