Financial report
Name: Bente Kielstra
ID number: 1730299
E-mail address: bm.kielstra@gmail.com
Teacher: Mister Brown
Class: L2B
Date: 30-11-2018
Part 1.
Brief Company description/ (no more than 3 paragraphs) – This must be written in your own words.
Nike is occupied with the structure, advancement, advertising and offering of athletic footwear, clothing, gear, extras and administrations (Reu). The Company's working fragments incorporate North America, Western Europe, Central and Eastern Europe, Greater China, Japan and Emerging Markets. The Company's portfolio brands incorporate the NIKE Brand, Jordan Brand, Hurley and Converse. The Company pitches its items to retail accounts, through its retail locations and Internet Websites, and through a blend of autonomous wholesalers and licensees over the world. The Company's items are made by self employed contracters.
The organization Nike was established in 1964 by Phil Knight and Bill Bowerman. Around then Nike was all the while wearing the name Blue Ribbon Sports (RBS). Nike's CEO is Mark G. Parker is emloyed by Nike since 1979. He has been president and Chief Executive Officer of Nike since January 2006 and in June 2016 Parker moved toward becoming administrator of Nike. Nike's World Headquarters is in Oregon, North America and their grounds incorporates inquire about labs, plan studios and item creation offices. Nike's main goal is "to convey motivation and advancement to each competitor on the planet." This statement of purpose speaks to the organization's key objectives of contacting the worldwide relaxation and sports footwear, attire and hardware advertise. Nike's vision is "to remain the most real, associated, and particular brand." The organization centers around building up its image.
Including the United States Market and the global markets, Nike has 1142 retail locations around the globe. Nike has as of May, 2017 74,400 representatives overall including retail and low maintenance workers. Nike has diverse item classes including footwear, attire and hardware. A lot of the worldwide dress and clothing market is 2,8% as of May, 2017. Their income rose 6 percent to $34,350 billion, with a gross benefit if 15,312 billion.
Is the company financially healthy? – focus on the companys Balance Sheet, Income Statement , Cash Flow Statement (Base your reasoning, discussion and argumentation from the results of your ratio calculations and comparison to the previous year and to the industry ):
Nike’s Balance Sheet:
Nike’s current ratio in 2017 was 2,93 and in 2016 2,80. Taking in consideration that the industry average was 1,64, Nike can pay their current debts with their current assets quicker than the industry is able to. Nike also improved its current ratio from the year 2016.
Nike’s Quick ratio rose from 1,90 in 2016 to 2,01 in 2017. This means that Nike even if Nike’s inventory is not taken into account, still has enough resources to pay off their current liabilities and Nike’s Quick ratio is far above the industry’s average, meaning that Nike has more resources than its competitors to pay of their short-term liabilities.
Nike’s debt to equity ratio is much lower than the industry average is. Debt to Equity ratio means: how big is my debt compared to my equity. If Nikes's ratio is too high, and therefore has a lot of debt in relation to equity, Nike may has the risk that they will no longer be able to pay the creditors. If your d / e ratio is too low, you may not make optimal use of the deductibility of interest costs. In this case Nike's debt / equity ratio is therefore lower and therefore better than the average.
Nike’s Income Statement:
Nike’s Recievable turnover is much higher than the industry average. This can indicate that Nike is cautious when it comes to extending credit. This filters out the customers that take a long time to pay our their debt which is why a high recievable turnover is a good thing.
Nike’s profit margin shows the amount of net income Nike earns for every dollar they sell. Nike’s profit margin increased from 11,61% in 2016 to 12,34% in 2017 which shows the company is doing well. Nike has a higher profit margin than the competition, this means that Nike will have more money left selling to its competitors.
Return on equity has increased from 29,94% in 2016 to 34,17 % in 2017. Return on equity actually indicates the profitability per 1 dollar equity. The increase therefore indicates an increase in profitability in relation to equity and is also higher than the average industry. That is therefore positive for both Nike and people interested in Nike shares.
Inventory turnover shows how they change their products into cash. Nike’s inventory turnover is 3,8 and is much higher than the average of 2,45. This shows that the products of Nike have a high demand which is very positive for the company itself.
Return on assets of Nike shows that Nike Generates more profit 0,18 from their assets than the industry average 0,08. In percentage this means that for every dollar invested in Nike, both debt and equity, the return is 18% and therefore higher than the industry. Therefore this is positive for Nike because you can clearly see where your money goes as an investor. A large company has a lot of costs, many of which are unclear costs. Compare it a bit with people who do not want to give money to a charity because they are not sure that the money is being used properly. A higher return on assets is therefore a good explanation where the money goes.
With the interest coverage ratio, you can see how big the profit of Nike is, before they pay taxes and this number you divide by the interest. If, for example, the profit is 100 and they have to pay 10-dollar interest, this means that they can pay 10x the interest and the probability that they cannot pay the debts is not that big. The higher this number the better. In Nike's case, the interest coverage is lower in 2017 (83.81) than in 2016 (244.32), but the industry average (14,82) is much lower, therefore it is still positive for Nike.
Cash Flow Statement :
Payable turnover ratio shows how quickly a company pays its debts. The higher the number, the more often they pay to suppliers so that suppliers have to wait less for their money. Nike’s rate went up from 8,17 in 2016 to 9,40 in 2017 so a higher sales turnover can therefore indicate that Nike is better off.
Cash flow to net income says something about a company's ability to convert net income into cash. If it is too low, it may indicate that a company does not have enough cash to pay off short-term debt. So it is better for Nike when this increases and is above the average of the market. Nike's average over 2016 has increased from 0.82 to 0.86 in 2017.
The free cash flow shows what Nike as a company has left at the end of the year that Nike does not have to pay anymore. The free cash flow can be calculated by: Net cash flow from operating activities – Dividend (distributed to shareholders) – Net Capital Expenditure. Capital Expenditure means what Nike has invested in fixed assets such as buildings and machines. Nike's cash flow shows an increase from 2016 to 2016 from 941 to 1415. Nike has more cash left at the end of the year 2016 comparing to the year.
Price / earnings shows how much the market price of a share is compared to earnings per share. In other words, how much does an average investor want to pay in shares for a share of Nike in relation to the profit that a share of Nike earns. The market price per share says something about the market value of equity. Nike's P / E ratio decreased from 25.60 in 2016 to 21.36 in 2017. The industry average of 17,05 however is still much lower than Nike's P / E ratio.
Part 2.
Identify at least 4 independent and separate examples of what your company has done well or poorly to control costs with regards to cost accounting?
1) A positive Example of what Nike has done well to control costs:
Nike is collaborating with “the Natural Step” to make considerable clothing. Nike introduced the Considered Air Jordan XX3, as well as a complete line of apparel for athletes in Beijing that was made from 100 percent recycled polyester. If Nike recycles their products/materials, it will reduce their costs because they need fewer resources. Also, the use of renewable energy at Nike can reduce their cost.
2) A positive example of what Nike has done well to control costs:
Nike wanted to reduce production costs by reducing their lead times in production (McKevitt, et al., 2017). For Nike this means that they halved the production rate. Nike is doing this through utilizing technologies that will decrease the time that is spent on their prototypes and Nike is investing in the creations that can build a sneaker more efficiently and quicker than Nike previously could. The reason Nike also reduced their lead times in production to keep up with the consumers expectations. The consumer wants to buy a product for an affordable price but also wants it fast and therefore Nike needed to adjust.
3) A negative example of what Nike has done well to control costs:
Nike used children in Nike’s production process to limit their level of wages Nike has to pay its employees (Boggan, 2001). Nike pretended they were using responsible factories in Sialkot, Pakistan but instead local villages were sub-contracted and children were used to work in the production process. This was not the only time Nike “blew it”. Nike also has been blamed for employing children in Cambodia. Not only the child labor in the production process is a problem. Detractors claim that only a small percentage of the price of the shoes that are made, go to the workers that actually make them.
4) A negative example of what Nike has done well to control costs:
Nike wants to eliminate 1400 jobs by cutting their global workforce with 2% (Manning, et al., 2017). Causes of this elimination are market share loses and stock that decreased 3,3%. Nike will reduce their cost because they will not have to pay wages to the 1400 people that lost their job at Nike anymore.
What are the company’s current and long terms liabilities and what effect does it have on the company’s performance?
Nike’s current liabilities are: Current portion of long-term debt ($6 million), notes payable ($325 million), accounts payable ($2,048 million), Accrued liabilities ($3,011), income taxed payable ($84 million) all of these make a total of $5474 million current liabilities. Nike’s current assets have a total of $16061. When looked at the current ratio of Nike, the amount of times current assets can pay the current liabilities can be determined. The current ratio= 16061/5474= 2,93. This means that Nike has more current assets to spend than current liabilities to pay. This is good for Nike’s performance because it will increase trust in the company because they can pay their debts.
Nike’s long term liabilities are $5378 million and this money is still spendable for the company.
The debt to equity ratio is the total liabilities/total equity= (5474 + 5378)/12407= 0,88. This means that for every single dollar of equity the Nike company owns they have $0,88 of debt. These two forms of liabilities have in Nike’s case a positive
Identify a key capital investment made by your company within the last 2 years? What was it? How was the acquisition financed? How will this acquisition improve the company’s revenue performance?
A key capital investment Nike has made within the last 2 years and is still investing in, is the DTC business. DTC business stands for the “direct-to-consumer” business and Nike has been investing in this business already over 2 years (Bain, 2018). Direct-to-consumer Marketing refers to promoting a product or service straight from the seller to the consumer, without intermediary advertising such as television commercials, radio ads, or public displays (Wolski). Nike can finance this DTC business by using combined financing with their profit and with their equity on debt.
Nike's investments in direct-to-consumer (DTC) and e-commerce channels are also paying off. This acquisition increases Nike’s performance because direct revenues rose 12% annually last quarter, as its digital commerce revenues climbed 25%. Apparel sales also outpaced footwear sales, with 15% growth versus 8% growth. This suggests that Nike is wisely cashing in on the rising demand for athleisure apparel (Sun, 2018).
Has the company met its financial and or other performance targets for the last financial year? And if not what were its reasons for not doing so?
The financial goal of 2017 for Nike was to achieve a revenue of $36 billion. This goal was set in 2013 for the upcoming five years. Looking at the result of operations in the Financial annual report 2017 it states that Nike’s revenue is $34,350 billion. This is less than the revenue Nike thought they would have in fiscal 2017, however the revenue did increase in comparison to $32,376 in 2016. Causes for not making the revenue they expected could be a different budget than they expected to use or the return of the investments was not as high as Nike thought they would be.
However, Nike has, over the past ten years, achieved many of its financial goals. During this time, revenues and diluted earnings per common share for Nike, Inc., inclusive of both continuing and discontinued operations, have grown 8% and 13%, respectively, on an annual compounded basis. Nike expanded gross margin by approximately 70 basis points and their return on invested capital has increased from 21,9% to 34,7%.
Other performance targets:
Nike’s earnings before interest and income taxes (“EBIT”) increased 7% for fiscal 2017, driven by revenue growth and selling and administrative expense leverage, partially offset by gross margin contraction. The increase in revenues was driven by growth across all NIKE brand geographies and Converse, footwear and apparel, and several key categories. This broad- based growth was primarily fueled by:
• Innovative performance and sportswear products, incorporating proprietary technology platforms such as NIKE Air, Free, Zoom, Lunar, Flywire, Dri-Fit and Flyknit;
• Deep brand connections with consumers through our category offense, reinforced by investments in endorsements by high-profile athletes, sports teams and leagues, high-impact marketing around global sporting events and digital marketing; and
• Strong category retail presentation through digital commerce and NIKE- owned and retail partner stores.
Identify if the company outsources any of its services or manufacturing, Where is it done? Identify the reason or reasons why this has been done?
Nearly all footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad. All of Nikes footwear is manufactured outside of the United States by independent contract manufacturers who often operate multiple factories. For fiscal 2017, contract factories in Vietnam, China and Indonesia manufactured approximately 46%, 27% and 21% of total NIKE Brand footwear, respectively. Nike also has manufacturing agreements with independent contract manufacturers in Argentina, India, Brazil, Mexico and Italy to manufacture footwear for sale primarily within those countries. For fiscal 2017, five footwear contract manufacturers each accounted for greater than 10% of footwear production and in the aggregate accounted for approximately 69% of NIKE Brand footwear production. ‘
Nike is supplied by approximately 363 apparel factories located in 37 countries. The largest single apparel factory accounted for approximately 13% of total fiscal 2017 NIKE Brand apparel production. Virtually all of Nike’s apparel is manufactured outside of the United States by independent contract manufacturers which often operate multiple factories. For fiscal 2017, contract factories in China, Vietnam and Thailand produced approximately 26%, 16% and 10% of total NIKE Brand apparel, respectively. For fiscal 2017, one apparel contract manufacturer accounted for more than 10% of apparel production, and the top five contract manufacturers in the aggregate accounted for approximately 43% of NIKE Brand apparel production.
Identify what pricing policy objective, type of pricing and pricing strategy your company uses? Give your reasons why?
Pricing policy objective: Profit-oriented pricing.
Companies set the prices of their products in order to achieve specific objectives. The most important objective for Nike is making profit, therefore Nike’s pricing policy objective is profit-oriented pricing.
Type of pricing: The Black-Scholes option pricing model.
Nike uses the black-Scholes option pricing model Requires the input of highly subjective assumptions including volatility. Expected volatility is estimated based on implied volatility in market traded options on Nike’s common stock with a term greater than one year, along with other factors. Nike’s decision to use implied volatility is based on the availability of actively traded options on Nike’s common stock and their assessment that implied volatility is more representative of future stock price trends than historical volatility. If factors change and Nike uses different assumptions for estimating stock-based compensation expense in future periods, stock-based compensation expense may differ materially in the future from that recorded in the current period. (The Company recognizes this fair value, net of estimated forfeitures, as Operating overhead expense in the Consolidated Statements of Income over the vesting period using the straight-line method)
Pricing strategy: Value-based pricing strategy and premium pricing strategy.
The value-based pricing strategy determines the highest price consumers are willing to pay for Nike’s products. The premium pricing strategy is used to set high pricing because consumers value the brand ‘Nike” as a brand with higher value and better quality than Nike’s competitors. Nike also uses Celebrity advertising to encourage buyers to buy their products so they can be just like that celebrity. Celebrities Nike used for such advertisements are Bella Hadid, Serena Williams, Wayne Rooney, Rafael Nadal and David Beckham.
Give your Conclusions, Analysis and Recommendations of your company from a Cost Accounting Perspective:
Nike’s performance is very positive. The ratios of Nike compared to the industry ratios are on all parts better than the average of the industry Nike is in. This shows that the company is stable and financially healthy. Nike is also a strong company because they are able to pay off their short term debts. Nike could work on their recievable turnover because eventhough it is still much higher than the average, it is a decrease compared to the year 2016.
My recommendations for Nike would be to keep investing in the future and innovating to keep up with their competitors. Looking back at the previous year and analyse what could be better, will help Nike to become an even greater company than Nike already is. Nike needs to keep up its brand image and reputation in order to keep up their profits and successes. An other way to keep up Nike’s profits is providing new products and anticipate to the consumers preferences.
Bibliography
// Reuters. – https://www.reuters.com/finance/stocks/company-profile/NKE.
Is NIKE, Inc. a Buy? / auth. Sun Leo. – [s.l.] : Themotleyfool, 2018.
Nike is trying to become the next great direct-to-consumer brand / auth. Bain Marc. – [s.l.] : Quartz, 2018.
Nike seeks to reduce lead times in production / auth. McKevitt Jennifer and Patrick Kate. – 2017.
Nike will eliminate 1,400 jobs, restructure / auth. Manning Jeff and Rogoway Mike. – [s.l.] : The Oregonian/Oregon Live, 2017.
'We Blew It': Nike Admits to Mistakes Over Child Labor / auth. Boggan Steve. – [s.l.] : the independent/UK, 2001.
What Is Direct to Consumer Marketing? / auth. Wolski Chris. – [s.l.] : Hearst .
Appendix
Nike (2017). Financial report: https://s1.q4cdn.com/806093406/files/doc_financials/2016/ar/docs/nike-2016-form-10K.pdf
To find industry average:
https://www.reuters.com/finance/stocks/financial-highlights/NKE
https://www.zacks.com/stock/research/NKE/industry-comparison
Nike’s key capital investment:
https://qz.com/1236255/nike-is-expanding-its-direct-to-consumer-digital-business-and-acquired-zodiac-an-analytics-firm/
https://smallbusiness.chron.com/direct-consumer-marketing-788.html
https://www.fool.com/investing/2018/07/11/is-nike-inc-a-buy.aspx
Nike’s pricing strategy:
Nike’s Marketing Mix (4Ps/Product, Place, Promotion, Price) – An Analysis
1st article: https://news.nike.com/news/products-that-redefine-performance-and-sustainability
NIKE, Inc. debuts Considered Design
NEW YORK (October 28, 2008) – NIKE, Inc. (NYSE:NKE) today debuted Nike Considered Design, its latest products which combine sustainability principles with the newest innovations for sport. While Nike has delivered consumers Considered products for several years, for the first time, Nike Considered Design will be featured in all of Nike’s six key categories: basketball, running, football (soccer), women’s training, men’s training and sportswear, as well as in tennis and ACG (All Condition Gear).
For example, Nike’s best selling running shoe, the Pegasus, celebrating its 25th anniversary, is the first pinnacle running shoe to be Nike Considered Design.
“As we look at how we design and develop products and run our global business, it’s not enough to be solving the challenges of today,” said President and CEO Mark Parker. “We are designing for the sustainable economy of tomorrow, and for us that means using fewer resources, more sustainable materials and renewable energy to produce new products.”
The goal of Nike Considered Design is to create performance innovation products that minimize environmental impact by reducing waste throughout the design and development process, use environmentally preferred materials, and eliminate toxics. Nike designers are now expected to make smart, sustainable design choices at the start of their creative process which has led to Nike’s most extensive Considered Design range of product to date.
Since Nike introduced its footwear recycling program, Reuse-A-Shoe in 1993, sustainability has been a key area of development for the company. Over this past year alone, Nike introduced the Considered Air Jordan XX3, as well as a complete line of apparel for athletes in Beijing that was made from 100 percent recycled polyester.
Nike has set public targets for its Considered goals: We aim to have 100 percent of Nike footwear meet baseline Considered standards by 2011, all apparel by 2015, and all equipment by 2020. Achievement of these goals would mean waste in Nike’s supply chain will be reduced by 17 percent and the use of environmentally-preferred materials will be increased by 20 percent.
“It all begins with design and engineering, and Nike designers will lead the Considered Design process to create more sustainable products with no compromise to consumers,” said Lorrie Vogel, Nike Considered GM. “We’re proud of our accomplishments, and they represent a significant step toward making all Nike brand footwear, apparel and equipment Considered.”
Nike’s long-term vision for Considered is to design products that are fully closed loop: produced using the fewest possible materials, designed for easy disassembly while allowing them to be recycled into new product or safely returned to nature at the end of their life.
Nike understands this work can’t be done alone and places importance on the value of collaboration. Nike turned to The Natural Step, an international not-for-profit organization dedicated to education and research in sustainable development, to help create its future vision.
“The Natural Step and Nike have been working together to create a more sustainable future for 10 years. Nike’s progress has been tremendous. We are proud to be partners in their journey,” said The Natural Step founder, Dr. Karl-Henrik Robèrt.
“I have been inspired by Nike’s commitment and leadership,” added Richard Blume, Senior Advisor with The Natural Step. “By using sustainability principles to guide decisions and create their Considered vision, Nike has ensured that its innovation efforts are informed by a rigorous, scientific understanding of sustainability. We believe that this distinguishes Nike and positions the company well to navigate the future.”
About Nike NIKE, Inc. based near Beaverton, Oregon, is the world's leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories for a wide variety of sports and fitness activities. Wholly-owned Nike subsidiaries include Cole Haan, which designs, markets and distributes luxury shoes, handbags, accessories and coats; Converse Inc., which designs, markets and distributes athletic footwear, apparel and accessories; Hurley International LLC, which designs, markets and distributes action sports and youth lifestyle footwear, apparel and accessories; and Umbro Ltd., a leading United Kingdom-based global football (soccer) brand. For more information, visit www.nikeinc.com
2nd article: https://www.supplychaindive.com/news/nike-seeks-to-reduce-lead-times-in-production/445329/
Nike seeks to reduce lead times in production
Dive Insight:
Nike's plan reflects a larger trend among American companies to cut lead times and reduce production costs. Tesla is an extreme example: in March, CEO Elon Musk told investors that the company will not build prototypes of the Model 3 but go straight to permanent production in order to roll out the new sedan on time later this year.
General Motors announced last week that the company plans to relocate 600 jobs from Mexico to the U.S. to ensure greater concentration of American-made parts in Chevrolet Suburbans and Cadillac Escalades. Should a border tax be implemented, the relocation of parts production from Mexico to Texas minimizes the risk to GM. The relocation will also streamline the production process.
In Nike's case, shrinking lead times means halving the company's previous production rate. Nike has already begun utilizing technologies that decrease time spent on prototypes, as well as investing in creation automation that builds a sneaker both more quickly and efficiently. Nike's Express Lane initiative is already moving the newest models in North America and Western Europe, and will soon debut in China, to better serve busy markets like Shanghai, Seoul, and Tokyo.
These companies recognize that consumer expectations have changed: in the world of e-commerce, consumers expect to find what they want at a relatively affordable price and get it fast. This is the Amazon effect, and in order for other companies to keep up, they need to drive down production costs and accelerate the production process so consumers can get their goods quickly for a price they're willing to pay.
3rd Article: https://www.commondreams.org/headlines01/1020-01.htm
The multi-billion dollar sportswear company Nike admitted yesterday that it "blew it" by employing children in Third World countries but added that ending the practice might be difficult.
Nike attempted to present itself to its shareholders in its first "corporate responsibility report" as a touchy-feely entity established by "skinny runners" and employing young executives who worried about the environment and the level of wages it paid.
The mere fact that Nike has produced such a report was welcomed in some quarters, but its main detractors, including labor groups such as Oxfam's NikeWatch and the Clean Clothes Campaign, said they were not convinced.
Philip Knight, the company chairman, clearly stung by reports of children as young as 10 making shoes, clothing and footballs in Pakistan and Cambodia, attempted to convince Nike's critics that it had only ever employed children accidentally. "Of all the issues facing Nike in workplace standards, child labor is the most vexing," he said in the report. "Our age standards are the highest in the world: 18 for footwear manufacturing, 16 for apparel and equipment, or local standards whenever they are higher. But in some countries (Bangladesh and Pakistan, for example) those standards are next to impossible to verify, when records of birth do not exist or can be easily forged.
"Even when records keeping is more advanced, and hiring is carefully done, one mistake can brand a company like Nike as a purveyor of child labor"
The report said Nike imposed strict conditions on the age of employees taken on by contract factories abroad, but admitted there had been instances when those conditions were ignored or bypassed.
"By far our worst experience and biggest mistake was in Pakistan, where we blew it," the report said. In 1995 Nike said it thought it had tied up with responsible factories in Sialkot, in Pakistan, that would manufacture well-made footballs and provide good conditions for workers. Instead, the work was sub-contracted round local villages, and children were drawn into the production process. Now, it insisted, any factory found to be employing a child must take that worker out of the factory, pay him or her a wage, provide education and re-hire them only when they were old enough.
Mistakes, however, continue to happen. In recent years, Nike has been criticized for its employment of child labor in Cambodia, but the company defended itself by saying fake evidence of age could be bought in Cambodia for as little as $5.
When it was exposed by the BBC as having employed children there, the company claimed it then re-examined the records of all 3,800 employees.
The company's critics remain concerned at the level of wages it pays. Nike claims it pays decent wages, but its detractors claim that only a tiny fraction of the £70 cost of a pair of its shoes goes to the workers who make them. They want to see wages increased – which they say would have only a negligible effect on retail prices.
Tim Connor of Nike Watch said: "On finishing work in a Nike contract factory, the great majority of Nike workers will go back to rural areas marked by extreme poverty. Their future economic security is very much tied up with what they earn now, in that if they are able to save enough they will be able to start small informal businesses back home.
"If they are unable to save, the work in the Nike factory will make no long-term contribution to their economic wellbeing, and they will simply return to rural poverty.
"If Nike wants to be taken seriously as a company interested in corporate responsibility then it needs to engage honestly with its critics in the human rights community. Unfortunately, the company's new corporate responsibility report fails to do this."
4th article https://www.oregonlive.com/business/index.ssf/2017/06/nike_will_eliminate_1400_jobs.html
Nike will eliminate 1,400 jobs, restructure
Updated Jun 15, 2017; Posted Jun 15, 2017
By The Oregonian/OregonLive
By Jeff Manning & Mike Rogoway | The Oregonian/OregonLive
Nike said Thursday morning it will cut its global workforce by 2 percent in a broad restructuring, a move seen as a reflection of the company's somewhat weakened competitive position and a sagging retail sector.
Nike had 70,000 employees at the end of last year, so Thursday's announcement would work out to about 1,400 jobs altogether.
It's unclear how many of those positions will be eliminated in Oregon. The company employs 12,000 at its headquarters and neighboring business parks in Washington County.
Nike said it will launch a "Consumer Direct Offense," to get fewer, but more compelling, products to customers more quickly.
"The future of sport will be decided by the company that obsesses the needs of the evolving consumer," chief executive Mark Parker said in a written statement.
Nike's stock fell 3.3 percent Thursday morning to $52.84. Shares have traded between $49.01 and $60.33 in the past year.
The largest company headquartered in Oregon, Nike had $32.4 billion in sales last year – up 5.9 percent from $30.6 billion the prior year. It reported $3.8 billion in profits. It's in the process of a major expansion of its headquarters campus.
And yet Nike has been losing ground to Adidas and Under Armour, which have been growing faster and taking market share.
Nike executives had hinted in their third-quarter earnings call that significant change was afoot to speed product development. "I didn't find it a complete surprise," said Jim Duffy, a stock analyst with Stifel, of the restructuring. "Business is tough. The company needed to streamline and simplify things."
On Thursday, the company said it will focus on 12 cities — New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan – where it expects to generate 80 percent of its growth over the next few years.
The campaign comes two years after Adidas launched its own "Key Cities" initiative. Adidas, which has been on a tremendous roll in the past two years, has taken momentum and market share from Nike.
"That is a page directly out of Adidas' playbook," said industry analyst Camilo Lyon, of Nike's new emphasis on the large urban areas.
Lyon, of the Canaccord Genuity firm, has for months been warning that Nike's products were drawing lukewarm receptions from consumers. He said the company's products were underwhelming and its innovation lacking.
On Thursday, Lyon credited Parker and Nike leadership for recognizing the need for a restructuring. That said, it could be a year before the reorganization yields appreciable results.
"The reality is, Nike is a massive battleship," Lyon said. "It takes a while to change direction when you've gone off course."
The company put Trevor Edwards, president of the Nike brand, in charge of the new consumer direct initiative.
Additionally, Nike said it will scale back its structure from six regions to four – North America, Europe, Asia, and the Middle East and Africa. And the company said it will reduce its total product lineup by 25 percent.
"Today we serve our athletes in a changing world: one that's faster and more personal," Edwards said in a statement Thursday. "This new structure aligns all of our teams toward our ultimate goal — to deliver innovation, at speed, through more direct connections."
Nike's sudden retrenchment comes after years of sometimes explosive growth. In October 2015, Parker pledged that Nike would grow from $30 billion to $50 billion in sales by 2020.
But the torrid five years have given way to a more uncertain time due to both internal and external factors. Some of the biggest names in athletic retail are struggling. The Sports Authority and a handful of others have failed altogether.
Nike and other major wholesalers have had little choice but to rapidly ramp up their own e-commerce websites and outlet store operations.
Earlier this week, one analyst downgraded the stock of Foot Locker in part because of its heavy dependence on Nike. John Staszak, of Argus Research, noted that sales of Nike footwear have "softened" and inventories are running high.
Matt Powell, of the NPD Group, has also repeatedly mentioned consumers' tepid response to many of Nike's products "I spent the day at retail yesterday," Powell wrote on Twitter on June 3. "Nike really looks sad. The numbers are clear where Nike should be going. It's a shame that no one sees."
That launched a day-long conversation on the social media site as industry aficionados took turns criticizing and defending the company.
Nike is not the only sneaker maker encountering difficult times. After two years of explosive growth, Under Armour has seen demand suddenly level off this year. The company, which will soon open a major new office in Portland, lost money in the first quarter of the year.
The layoffs will take effect over the next several months. Severance packages will be provided.
Layoffs have been rare at Nike. And at 2 percent of the company's total workforce, this downsizing is a relatively small one. When Nike laid off 1,600 in March 1998 that constituted about 7 percent of the total. It shrunk its staff by about 5 percent when it laid off 1,750 in 2009.
Oregon's jobless rate is at its lowest point on record, at 3.6 percent, but Nike's cuts are the latest in a series by some of the state's most prominent employers:
¥ Intel laid off 784 Oregon workers last year, and eliminated hundreds or thousands of additional Washington County jobs through buyouts.
¥ SolarWorld plans to lay off at least 500 workers at its Hillsboro factory next month after its German parent company declared itself insolvent.
¥ And Hillsboro-based SureID has eliminated half or more of its 550 jobs this spring after losing a major contract with the U.S. Navy.
At Nike, Edwards and four other executives emerged as winners in the reorganization.
Michael Spillane is assuming the new role of President of Categories and Product—leading product design and merchandising.
Heidi O'Neill and Adam Sussman will lead a new Nike Direct organization and "will shape the future" of the company's direct and retail sales.
The heads of Nike's consolidated geographic territories will report to Elliott Hill, president of geographies and integrated marketplace.