Factories in Vietnam halting operations lead Nike to scrap production of 130 million product units.
Shorter Sentences for Easier Reading:
A Quick Scoop:
- After enduring challenges with factory closures in Vietnam, all Nike factories in the country are now operational. Nike has bounced back to 80% of its pre-closure weekly production volume, as stated by CFO Matt Friend during a conference call about Q2 results.
- Due to three months of closures and limited production, Nike was forced to call off 130 million units, Friend revealed. Despite the hardships, the company's Q2 net revenue increased by 1% to $11.4 billion, and net income grew by 7% to $1.3 billion.
- The digital and DTC sectors kept thriving, with digital sales leaping 40% in North America. Nike Digital now accounts for 25% of the brand's total revenue, representing a 3% increase from the previous year.
In-Depth Action:
With factories resuming operations in Vietnam, Nike is refocusing its efforts on its DTC strategy. The strategy, involving scaling back on wholesale partners and prioritizing digital channels and Nike-owned stores, has been gaining traction over the past few years. Specifically, Nike's North America wholesale partners have declined by 50% over the last four years, and digital and DTC revenue continue to soar.
"In spite of a difficult comparison to 30% growth last year, DTC increased by a robust +8%. Moreover, the Digital business expanded by 11%, despite facing a challenging 80% comparison to last year," Wedbush analysts noted in an email. "Furthermore, Nike reduced its wholesale sales by 6%, citing inventory optimization during the supply chain disruption, which means it prioritized DTC over wholesale when supplies were scarce."
The shift towards DTC has left some room for significant wholesale partners, such as Dick's Sporting Goods, with whom Nike recently merged rewards programs. By integrating the two programs, Nike can maintain direct relationships with customers while serving them in a more engaging and sustainable manner, per CEO John Donahoe during the conference call. In broader terms, Nike's emphasis on digital makes it one of the few brands capable of serving consumers at scale without intermediaries.
As Nike broadens its reach, it continues to increase its market share, according to J.P. Morgan analysts.
"Nike secured the number one position within global apparel and footwear this year (+0.5 points compared to 2019, with 3.3% share). Adidas maintained 2% share, which remained consistent with 2019. Furthermore, Nike expanded Global Sports Footwear share by +2.5 points compared to 2019, reaching 25.2% share, widening the gap between the number two player by 12 points (compared to 9 points in 2019)," the analysts claimed in an email. "In the U.S. Apparel and Footwear category, Nike saw the most significant growth in market share (+1.1 points from 2019, with 6.2% share, making it the leader)."
- Nike is stepping up its DTC strategy with factories in Vietnam back in operation, as revealed during a conference call about Q2 results.
- The digital and DTC sectors, including Nike Digital, have been flourishing, now accounting for 25% of the brand's total revenue.
- Even facing challenging comparisons, Nike's DTC and Digital revenue continue to soar, increasing by 8% and 11%, respectively.
- In order to maintain direct relationships with customers, Nike recently merged rewards programs with significant wholesale partner Dick's Sporting Goods.
- With its emphasis on digital and continued growth, Nike has been expanding its market share, having secured the top position in global apparel and footwear this year.
