Nike seeks to clear obsolete products as inventory costs rise

Diving Brief:

  • Nike is looking to eliminate excess inventory that has arrived late due to extended transit times, chief financial officer Matthew Friend said during a earnings call last week.
  • A rise in inventory in transit pushed North American inventory levels up 65% in the first quarter from a year earlier, when plant closures in Vietnam and Indonesia disrupted production. The retailer ordered holiday products early to avoid shipping delays, but recent improvements in transit times meant Nike found itself overwhelmed with product this quarter.
  • Friend said the company will “tighten” purchases in the second half and liquidate excess inventory more aggressively beginning in the second quarter, focusing on the flow of new products to strategic partners and Nike Direct, the sales arm. direct to consumer from the retailer.

Overview of the dive:

Like many retailers, Nike relies on promotions as a necessary tool to help eliminate its excess products.

While products for the spring, summer and fall seasons have arrived late in the last quarter, holiday orders that were placed earlier than expected are arriving early. The result is an onslaught of multiple seasons of inventory arriving at the same time.

Nike’s recent deluge of product arrivals is in stark contrast to the past two years, when the retailer struggled to maintain inventory levels due to shipping delays and factory closures.

“We are focused on what we can control as we take a measured approach to an uncertain macroeconomic outlook,” Friend said on the Sept. 29 call.

The chief financial officer said the retailer’s inventory levels likely peaked in the first quarter and the company expects inventory levels to improve throughout the year.

Other major sports retailers in the United States have pursued strategies similar to Nike’s to combat inventory fluctuations and high transit times. Adidas began ordering products early to meet demand and combat transit delays, including back to school, chief financial officer Harm Ohlmeyer said in a statement. Call for August results. Unlike Nike however, Adidas says its inventory levels in the United States are in good shape.

“We are by no means overloaded,” CEO Kasper Rorsted said on the call. “We still have very healthy inventory across the board.”

Nike is now looking to liquidate by focusing on off-season apparel in North America. At the same time, Friend said the company is focused on bringing new products to market at full price in time for the holiday season. The retailer is still seeing strong demand for its flagship brands Nike, Converse and Jordan.

“We are working to ensure that the on-time, early-season holiday product is released to our strategic partners so that we can do our best with the consumer,” Friend said.

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