Nike sneakers are being heavily discounted because the company is faced with too much inventory
Inflation-weary shoppers will soon find some huge deals on Nike sneakers. Despite a strong first fiscal quarter, the world’s biggest sportswear company said it’s stuck with large quantities of inventory. Now, with so much out-of-season apparel in warehouses, the retailer is forced to mark down prices going into the crucial holiday period. The move comes as the outlet managed to successfully navigate a limited supply in 2021.
Nike sneakers and clothing levels soared to 65% in North America last quarter and 44% overall from a year ago. Speaking about the stock levels, CEO John Donahoe told analysts there are a few seasons of product landing in the market at the same time, thereby creating a glut. He also explained when Vietnam and Indonesia factories were forced into pandemic-related closures, goods for this year’s spring, summer, and fall seasons arrived late.
Then, holiday season orders of sneakers and other apparel arrived earlier than planned. To move seasonally irrelevant stock, Nike sneakers will be discounted to make room for the newest and best inventory. But these promotions will weigh on its profitability for the coming quarters, CNN Business reports. Following the announcement late last week, the retailer’s stock tumbled by 11% during trading.
In a statement to the New York Post, analysts said Nike’s negative update on sneaker and clothing stock means that margin pressure across the retail sector was probably worse than feared. “Nike’s sniffle raises the group’s risk of catching a cold,” Baird analyst Jonathan Komp said. Given the company’s plans to aggressively liquidate goods over the next two quarters, the overall industry may become much more promotional as a result.
The plan is to have Nike sneakers sent to its retail partners, like Foot Locker, Dick’s Sporting Goods, and Nike Direct. The excess will be shipped to the company’s own factory stores. “We’ll use digital a little bit to liquidate some of the excess apparel,” Friend explained. “And we’ll use other partners in wholesale to liquidate it. Inventory glut has been a problem across retail several companies, but the level of Nike’s excess was not expected.
Along with Nike discounting sneakers and clothing, Target and Walmart said they expect the upcoming shopping season to be filled with slashed prices. These drastic measures come as retailers severely misjudged demand shoppers cut back on non-essential spending. “The surprise of the quarter was the magnitude of promotional activity needed to move through excess apparel,” Bank of America analyst, Lorraine Hutchinson told clients.
However, Nike did have some positive news to share as demand for sneakers, even in the face of high inflation, remained very strong. Overall, the company’s sales increased by 4% last quarter from the same period a year ago. “We see strong consumer demand in North America currently,” Donahoe told CNN Business. “There’s no sign of any softness.”
Meanwhile, the Nike sneaker promotions and outlook is a bad omen for guidance at Under Armour, Adidas, Puma, and others in the athletic space. Shares of Under Armour slipped 7.3%, while their German counterparts, Adidas and Puma fell by 5% and 8.3%, respectively. Dick’s Sporting Goods and Foot Locker also dropped by 7.2% and 3.2%, with Lululemon Athletica falling nearly 6%.