Nike has been investing heavily in improving its operational capabilities and supply chain efficiencies

Nike has been investing heavily in improving its operational capabilities and supply chain efficiencies

Sporting goods giant Nike Inc says it will continue to put substantial money and resources into its supply chain to increase speed to market, and ensure it stays ahead on innovation.

The company revealed its plans on an earnings call yesterday (20 March) after it revealed third-quarter earnings that beat analyst estimates thanks to the strength of its namesake brand, gross margin expansion and strong sales.

The company has been investing heavily in improving its operational capabilities and supply chain efficiencies to deliver products to multichannel consumers as quickly and as innovatively as possible.

Last June, CFO Don Blair said Nike wanted to ensure a range of supply chain and manufacturing initiatives were in place this fiscal year. This, he said, would include raising labour productivity, reducing materials waste, producing more premium product, and potentially bringing manufacturing closer to market.

On yesterday's call, CEO Mark Parker explained that Nike has made a number of investments into the operation of its supply chain and more closely tying the timing of production and shipping, through to the final consumer.

“We've also done a lot of work in the innovation space around how we manufacture product and how we design and develop it,” he added.

Nike recently renewed its NFL on-field apparel rights contract, adding three years to a five-year deal that took effect in 2012. For this sponsorship deal, Parker said the company has had to do "some very different approaches" to ensure it is able to respond quickly to changes in demand, whether it be for specific teams or specific athletes.

"That goes all the way to the manufacturing revolution type of investments we've made around technologies like Flyknit. So we are putting a lot of money and a lot of resources against how our supply chain evolves to increase speed and make sure we deliver to consumers as quickly and as innovatively as we can," he said.

Management also touched on the disruption caused by the West Coast port delays, which affected shipments into the US for around nine months, and are continuing to cause delays due to backlogs waiting to be cleared.

Blair told analysts Nike's North America business was affected by the congestion in the quarter, reducing revenue growth and increasing inventories.

“While we anticipate the flow of product will soon begin to return to normal, we expect we will have somewhat higher inventory levels and lower margins in North America for the next few quarters as we work to re-balance supply and demand in the market,” he explained.

“We do expect it will take a few quarters to return to fully normalised product flow as there are significant number of containers to be cleared from the ports on the West Coast.”

Creating further separation
Aside from the port disruptions, Nike, like many other apparel firms, has faced an increasingly volatile macro environment that has seen an intensity in foreign currency headwinds, fluctuation of product input costs, and an evolving global political landscape.

While not completely immune to such an environment, Nike said it sees this as an opportunity to create “further separation” in the marketplace.

“Our globally diverse portfolio of geographies, categories, brands, product types, and distribution channels gives us a distinct competitive advantage,” said Parker. “By going deep into the business, we're able to see opportunities to serve the consumer and drive growth, despite the choppier landscape.

“This surgical approach to finding new dimensions of growth ensures we capture the full potential of our brands around the world. And that includes driving strong growth in areas of our business that are already well established such as Western Europe, China, North America in footwear, as well as businesses such as women's, young athletes, apparel, and e-commerce, where we are accelerating development.”

In particular, Nike said it will continue to drive growth in its e-commerce business by increasing consumer access to product customisation. Examples of this in the third quarter included bringing new Flyknit options to NIKEiD, the group's online customisation tool.

Parker added: “We are going to continue to invest in digital. We believe that's where the consumer is and is going. And that's where our brand is and is going. But from an economic standpoint, it's been a very positive driver for business, both top line and bottom line.”

In terms of innovation, management believes it will be about “bringing a complete offense” across categories, across product types, and up and down the price point spectrum.

Earlier this week, Nike unveiled a new tennis polo, its second ColorDry garment made using fabric dyed using CO2 instead of water, in a process that also saves energy and eliminates the need for added chemicals.

“We have a major focus on elevating the state of innovation in our core product, and you'll see that coming through the pipeline here in the quarters ahead,” Parker told analysts. “But certainly innovation is not reserved for the upper price point premium product. It runs up and down the price spectrum, and that's a very, very important part of our growth strategy going forward.”

More specifically, heading into the final quarter of fiscal 2015 and beyond, there are “tremendous opportunities” globally for the Nike brand as it looks to build on what is working in running and strengthening the business to accelerate growth.

“We are excited to have a robust continuous pipeline of ground-breaking footwear innovations, which we'll bring to the market over the next 18 months,” said Trevor Edwards, president of brand. “We will also leverage the momentum in platforms such as the Lunar Flyknit and our Air Max 1 to continue to drive growth. Overall, running continues to be a tremendous source of innovation and inspiration for Nike, and one of our key long-term growth drivers.”