In the 1980s, Bob Woodell, one of Nike’s founding executives, described rising inventory as “a cancer that was going to eat us alive.”
Although Nike executives no longer speak as candidly as the founders, the basic concept hasn’t changed: Inventory can be deadly for sportswear companies.
It is also one of the big questions for Nike for 2023. Business Insider has spoken with Wall Street analysts about what to expect from the company this year. First thing on analysts’ minds: Nike needs to shed inventory and get sales to grow more in China. Analysts are also wondering how much competition Nike will face from Adidas under its new CEO Bjørn Gulden.
“Inventory levels are going to be key”
In December, Nike reported a 43% increase in inventory, three months after it reported a 44% increase and said it would cut prices to clear out warehouses. Nike now has more than $9.3 billion worth of footwear and apparel on its balance sheet.
In a conference call with analysts in December, Nike executives downplayed the severity of the inventory buildup, pointing to strong demand for Nike products and the residual impact of supply chain issues that have hit most customers. retailers in recent years.
“Inventory levels are going to be key (in 2023),” Brian Yarbrough, a senior research analyst at Edward Jones, told Business Insider. “Any time you’re in a heavily promoted situation like now, then the question becomes: Can you go back to normal pricing?”
“Everything revolves around China”
China is also a primary concern for Nike. The country’s size, rapid growth and digitally savvy consumers make it a critical, high-margin market for sportswear brands trying to increase sales.
But Nike’s sales in China in the fiscal year that ended May 31 fell 9% to $7.5 billion. The country accounted for 17% of Nike’s sales, but 28% of its pre-tax income.
“Everything revolves around China,” Poonam Goyal, a senior analyst for e-commerce and athletics at Bloomberg Intelligence, told Business Insider. “China is a growth engine for a lot of these athletic brands, not just Nike. Where will the next stage of growth come from? From China. If we don’t start to see a recovery there soon, that’s going to set back their growth strategy.” .
Before the December earnings report, Simeon Siegel, managing director of equity research at BMO Capital Markets, told Insider that Nike seemed to be turning around in China.
And he was right.
In the quarter ended November 30, Nike posted a 6% sales increase in China, excluding foreign exchange expenses. In the conference call with analysts, CEO John Donahoe said the company is succeeding in making “localized products” for the market.
“We believe that China remains a growth market with great untapped potential,” he said. “Our team has done a phenomenal job in the last 10 weeks, but also in the last few years.”
A renewed rivalry?
Analysts also believe that the new CEO of Adidas, Bjørn Gulden, who previously worked as CEO of Puma, could reinvigorate the rivalry with Nike.
Nike and Adidas have been rivals for decades, but in recent years Nike has put a significant amount of distance between itself and its closest rival. In its last fiscal year, Nike had a turnover of 46.7 billion dollars. Adidas had a turnover of 21.2 billion dollars in 2021.
But Gulden could put another gear in this long feud. At Puma, he jumpstarted the brand by increasing its relevance with celebrities like J. Cole, Jay-Z, Kylie Jenner, Nipsey Hussle, Rihanna and Selena Gomez. He’s also put the shoe on the feet of high-level athletes, such as Brazilian soccer star Neymar and NBA player Kyle Kuzma.
Now he could give Adidas a similar boost.
“How will that tension shape the competitive landscape? At Puma I didn’t have the funding to go big,” says Goyal. “But at Adidas he has a much bigger pocket. It’s going to be an interesting year.”
