Nike's involvement in sales promotion inventories rose by 20% year-on-year

On September 27, Nike sportswear manufacturer's quarterly report for fiscal year 2013 (June-August 2012) showed that the company’s first-quarter net profit was US$567 million, which was a year-on-year decline of 12%; it was from Greater China. Revenue was US$572 million, a year-on-year increase of 8%, which was lower than the same period of last year. At the same time, Nike's global orders for future orders have slowed down. In particular, orders from China have dropped significantly.

Nike said that the decline in net profit was mainly due to rising costs and advertising expenses and other factors, resulting in a decline in orders due in part to the company’s efforts to clear its inventory and design products that suit Chinese consumers’ needs.

In this regard, the industry believes that the rising cost, product price increases lead to a decline in consumer purchasing power, a direct result of Nike's performance decline. Moreover, Nike's marketing expenses increased during the quarter, which also dragged down its performance. In view of the entire industry's product inventory overstock and excessive discount promotions, the market is increasingly cautious about Nike's business in China.

China's market decline report shows that Nike’s revenue for the first fiscal quarter was US$6.7 billion, an increase of 9.7% year-on-year and an increase of 18% over the same period last year; net profit was down 12% compared to the same period last year of 645 million, compared with the same period last year. This is a 15% increase; revenue from the Greater China region was US$572 million, an increase of 8% from US$528 million in the same period of last year, and the growth rate was lower than the same period of last year.

Zhao Yu, a strategic consultant in the business division of Key Road Sports Consulting Co., Ltd., told this reporter that all brands are currently unable to escape environmental impacts. “The rising costs and consumer acceptance have not kept pace, which has directly led to a decline in Nike’s performance. Zhao Yu told reporters that Nike’s advertising costs and the rapid increase in marketing costs sponsored by major events are also a reason for the impact on profits.

Earlier, due to concerns about the possible slowdown of orders from Nike, Citigroup lowered its rating from buy to neutral, and Nike's latest order status is in line with this forecast. Prior to the fourth quarter of fiscal 2012, Nike's sales revenue in the Chinese market had a downward trend, and its order growth was significantly reduced from 20% to 2%.

According to Nike’s management, the company is committed to developing products suitable for the Chinese market, striving to achieve a better balance between casual sportswear and high-priced functional products.

Rising inventory incursions into promotional sales As China's economic slowdown has led to a decline in consumer demand, Nike’s performance has also been affected. Some shopping malls, close to Nike's domestic brands Li Ning, Anta, etc. have appeared 4 to 6 fold of ultra-low discounts. Due to competition from competitors, Nike frequently sells its products in the Chinese market.

Xiong Xiaokun, a light industry researcher at China Investment Advisors Co., Ltd., believes that discount promotions for local brands have resulted in a large loss of Nike customers. "The current economic downturn, consumers demand for high-end products to reduce, and more favourable mid-range products with relatively high cost." He believes that Nike will face the pressure of survival in this environment, inventory will increase. As of the end of May 2012, Nike has reached US$3.350 billion in inventory, which is 23.39% higher than the 2.715 billion US dollars in the same period of last year.

"High inventory levels will seriously affect corporate capital turnover and continuing operations. Nike's current state of survival is indeed worrisome. It needs to formulate a series of measures to fully reduce inventory rates." Xiong Xiaokun said.

Therefore, Nike had to participate in fierce sales promotion. Even so, for Nike's higher inventory, analysts still believe it still takes three to four quarters to keep inventory under control.

An investment bank analyst publicly stated that given the entire industry’s product inventory and excessive discount promotions, it is increasingly cautious about Nike’s business in China.

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