Dive Brief:
- With consumer demand still dragging, Nike is moving to limit its product supply to keep profits strong, executives said late last month.
- “Given the promotional environment and the cautious consumer behavior that we're seeing, we are stepping up our plans to reduce marketplace supply of our key franchises,” Matthew Friend, Nike’s CFO and head of sourcing, said on a Dec. 21 earnings call.
- The finance chief also emphasized fresh product development going forward. “Our goal is to focus Nike's brand heat and energy on what is new as we accelerate our product innovation cycle,” Friend said.
Dive Insight:
Nike, along with many of its peers in apparel, spent much of the past year and a half whittling down its inventory to navigate a world of lower demand.
Inventories in the period ending Nov. 30 fell 14% year over year to $8 billion, reflecting a decrease in units, the company said in a press release.
Ramping down its own inventory as well as sales to retailers tempered Nike’s revenue growth through the most recent quarter, Friend said. At the same time, order values from wholesale customers increased year over year and higher priced products, including shoes, remained resilient. “Overall, we have maintained lower markdown rates than many of our competitors,” Friend said.
Now, as it heads into 2024, Nike is trying to keep inventory levels in line with lackluster consumer demand while grabbing what sales and profits it can.
Friend emphasized new products as key to striking that balance and said that the company’s “priority is to drive sustainable and profitable long-term growth while building a faster, more efficient Nike.”
To support profits, the company is looking to pare back costs to the tune of $2 billion over the next three years. Nike is doing so by simplifying its product assortment, improving supply-chain efficiency, increasing automation, leaning on its scale to lower the marginal cost of operations, reducing management layers and enhancing procurement capabilities, Friend said.
The company is also cutting jobs, with severance making up the bulk of restructuring costs expected to amount to as much as $450 million.
Nike is producing more product when it’s profitable to do so. CEO John Donahoe noted it is growing stocks in retro running shoes to drive sales of models such as Nike’s Vomero 5, V2K and P-6000.
“In fact, even with that sequentially increasing the supply, demand for this entire line is so strong, there remains tremendous opportunity to grow further,” Donahoe said.
