Nike trims supply amidst persistently slow demand.
The company is also aiming to achieve a $2 billion cost reduction through workforce reductions and operational and procurement adjustments.
In response to sluggish consumer demand, Nike is proactively reducing its product supply to maintain robust profits, according to statements by company executives in a late-month update.
Matthew Friend, Nike's CFO and head of sourcing said, "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,”
Like numerous counterparts in the apparel industry, Nike dedicated a considerable portion of the past 18 months to streamline its inventory in response to reduced demand. The company reported a 14% year-over-year decline in inventories, amounting to $8 billion as of November 30, attributable to a reduction in units, as stated in a press release.
Nike's deliberate efforts to reduce both its own inventory and sales to retailers had a moderating effect on its revenue growth in the latest quarter, according to Matthew Friend. Concurrently, there was a year-over-year increase in order values from wholesale customers, and higher-priced products, including shoes, exhibited resilience during this period. “Overall, we have maintained lower markdown rates than many of our competitors,” Friend said.
As it enters 2024, Nike is striving to align its inventory levels with subdued consumer demand while capitalizing on available sales and profits. Friend underscored the importance of introducing new products to achieve this equilibrium, emphasizing that “priority is to drive sustainable and profitable long-term growth while building a faster, more efficient Nike.”
In a bid to boost profits, the company aims to trim costs by $2 billion over the next three years. Nike's strategy involves streamlining its product assortment, enhancing supply-chain efficiency, implementing increased automation, leveraging its scale to reduce operational costs, minimizing management layers, and strengthening procurement capabilities, as explained by Friend.
The cost-cutting measures also include job reductions, with severance constituting the majority of restructuring costs, expected to reach up to $450 million.
Additionally, Nike is strategically increasing production when it proves financially advantageous. CEO John Donahoe highlighted the expansion of inventory in retro running shoes to stimulate sales of models like 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.