"Broken Bone" Nike (NKE.US) is selling out at outlets, but the company's overstock problem hasn't been completely solved.
Recently, fashion business Express and other media reports, the domestic Nike outlet stores are carrying out as low as 5.5 discount clearance activities, more and more co-branded shoes also appear on the shelf. The Union x AJ 1 released in early 2023 has an original price of 1099 yuan, and the discounted price is 899 yuan; A limited Air Jordan in the Year of the Rabbit was reduced from 1499 yuan to 999 yuan.
A similar phenomenon appeared in several Nike outlet stores. On the social platform, netizens around the country have been exposed in the outlet "pick up" Nike co-branded content. Feng Jian, a senior sneaker enthusiast, said, "Air Jordan 4 has to increase the price in the resale market before, or go to the direct store to try your luck to buy your own size." They're all on sale at the outlet right now."
Since the beginning of this year, Nike's low price promotion frequently appeared in The Times, sand ship, the first and other outlets of the public number of tweets, "2 pieces of 7.5% discount, 3 pieces of 6.5% discount, 4 pieces and more than 5.5% discount" activities have become the normal brand promotion.
Nike to inventory, exploding shoes also fell
A wave of consumers flocked to the outlet to buy "broken bone" Nike.
Qiqi often went to the outlet shopping this year, but the Nike store was extremely crowded almost every time, "the discount is too big, and the queue for trying clothes is long."
Behind the excitement, Nike set a record for outlet store sales. According to Wanguo Outlet data, in September this year, Guangzhou Wanguo Outlet opened a NIKE world's largest "Nike preferred experience store". On the opening day, the store's daily sales reached 10.05 million yuan.
In retail, deeper discounting is often associated with slow sales. Over the past few quarters, Nike's inventory growth has been faster than revenue growth.
According to the financial report, in the second quarter of the fiscal year 2023 (as of November 30, 2022), Nike's revenue increased by 17%, but the inventory amount increased significantly by 43% to $9.326 billion. In the third quarter of fiscal year 2023 (as of February 28, 2023), Nike's revenue increased by 14%, and inventory increased by 16%. In the fiscal fourth quarter, which ended May 31, the company's inventory stood at $8.454 billion, flat from a year earlier.
Mr. Liu's company operates some Nike-branded stores because of its partnership with Nike's big distributor in China. He told Time Finance that outlets, as an important clearance channel for specialty stores, are indeed promoting the movement of goods at a lower discount. And this year, their own stores, new product sales discount rate is also slightly deepened, "in 2019, the discount rate is 9 percent, now about the level of 8.5 percent."
According to the Western Securities research report, in 2022, the global sports shoes market grew by 2% year-on-year, while the Chinese sports shoes market decreased by 1.8% year-on-year. In Liu Cheng's view, the consumer environment is down, which has a great impact on the demand side of Nike and other brands. "After the adjustment of the epidemic policy, business is not so good. People are aware that the economic environment is not stable and they are holding onto their purse strings."
Feng Jian is a Nike shoes enthusiast, he told The Times of finance, used to spend about tens of thousands of yuan a month to buy Nike shoes, encountered the trend of explosive models will be a one-time stockpiling several pairs. Now, it's a pair of sneakers every other month. The same is true of the seller pool fish in the resale market, "Now no one is pursuing joint money, and no one is willing to pay for the joint price increase, and rarely stock." In their view, the reduction in demand has affected the price of Nike shoes in the resale market, and the increase in discounts has further worsened the market for Nike in the resale market.
Well-known sneaker resale platform Stock X shows that a Nike Dunk Low Retro panda color sneakers listed in 2021 retailed for $100 (about 730.71 yuan) at the time of issuance, and the resale platform price rose to $309 (about 2257.89 yuan) in December 2021. Prices have since fallen back. On September 13, the latest price of the shoes on the platform was 124 US dollars (about 906.12 yuan).
The "lightning barb" that had caused hot discussion because of the high premium could not escape the fate of the plunge in value. Stock X shows that the shoe's trading price rose as high as $3,778 (about 27,600 yuan) after its release in 2021. But over the past year, the trading price has continued to fall, and the latest trading price in September has dropped to $2,011 (about 14,700 yuan).
Feng Jian further explained to The Times of finance, young people's demand for sneakers consumption has changed substantially. "In the past, the heat of sneaker consumption is accompanied by many irrational factors, on the one hand, everyone's pursuit of the trend explosion, so that many shoes in the resale market has an exaggerated premium, but also created many irrational sneaker consumer demand." Now you don't buy shoes for heat at all, but for comfort and value for money."
Dealers are "under great pressure", and the performance of foundries is also declining
In the past few months, Nike has indeed stimulated consumer demand, but it has also affected profits.
According to the report, from the second quarter to the fourth quarter of the fiscal year 2023, Nike's gross margin in a single quarter was 42.9%, 43.3% and 43.6%, which was 300 basis points, 330 basis points and 140 basis points lower than the gross margin in a single quarter of the previous fiscal year.
For the fiscal year ended May 31, Nike's revenue rose 10% year on year to $51.217 billion, but net profit fell 16% year on year to $5.07 billion. In the fiscal fourth quarter, Nike sales rose 5% to $12.825 billion, while net income fell 28% to $1.031 billion.
Price reduction is not the only way to inventory management, in the face of excess inventory, Nike has also made a reduction in the new frequency, timely change the structure of goods, enhance DTC (face to the consumer model) business proportion adjustment actions.
Tang Xiaotang, an independent analyst of the fashion industry at No agency, told Times Finance that "at present, the entire inventory liquidation cycle is slower than expected by the industry. Dealers in the wholesale channel are clearing inventory at deeper discounts. At the same time, orders from brands are decreasing."
According to Liu Cheng's observation, starting from this year, they and other distributors around them have become more cautious about taking goods to their superiors. At the same time, because of the rapid growth of outlet performance, Nike is increasing outlet channel investment, Liu Cheng also has some concerns, "because outlet channel price is relatively low, so the store can only retain those who like the new customer groups."
Nike management said at the earnings conference, "The current Nike inventory situation is better than expected, but we also expect the next year will continue to promote the environment, which will bring challenges to our wholesale business partners." In August this year, Foot Locker, an important distribution partner of Nike in the North American market, also released a financial report that was less than expected, and lowered the company's annual revenue, gross margin and other key financial expectations.
The foreseeable pressure on the consumer side, so that Nike made a decision to tighten the procurement strategy. Coincidentally, another international sports brand Adidas has also adjusted the pace of supply and purchase in the past few quarters.
This decision has been reflected in the foundry's performance. According to the performance disclosed by Shenzhou International (02313.HK), affected by the destocking of major customers, the revenue of Shenzhou International in the first half of 2023 was 11.562 billion yuan, down 14.94% year-on-year; Net profit attributable to owners of the parent company fell 10.1 per cent year-on-year to $2.127 billion.
Among them, Shenzhou International's sales from sports products fell about 19.9% from the same period last year. According to the first textile network, Nike, as Shenzhou International's largest customer, contributed 21.9% to 3.466 billion yuan for Shenzhou International from 4.438 billion yuan in the same period last year.
It is worth mentioning that Nike recently launched the website named Nike Refurbished in the North American market, which was regarded by the industry as a signal of Nike inventory deterioration. The site mainly sells used shoes, and consumers can buy returned, exchanged and defective shoes. The shoes currently on the shelves are also many of the Air Jordan series released in the past year, with discounts as high as 50%.
The North American market is Nike's largest market, in the latest quarter, the region accounted for more than 40% of Nike's total revenue. However, previous analysis pointed out that the North American market in the second half of this year seems difficult to have a significant turnaround in the consumer market, facing income reduction and the increase in the cost of living American consumers are further reducing spending.
Meanwhile, investors are taking a second look at Nike, with shares down more than 23% so far this year, according to Seeking Alpha. In August, there were a number of media reports that Nike's stock price once hit the longest losing record since 1980.
However, Tang Xiaotang told Times Finance that "the problems faced by Nike are the problems faced by the entire footwear industry." Compared to other companies, Nike performance is still in the top echelon, it just needs time to get through this difficult cyclical trough."
(At the request of the interviewees, Feng Jian, Chi Yu and Liu Cheng are all pseudonyms.)