Blog: Leonie BarrieThe “swoosh” recovery

Leonie Barrie | 25 June 2009

Describing the route likely to be taken by the economic recovery, Nike's president and CEO Mark Parker said he favours the description of “a quick drop followed by a measured yet consistent recovery” rather than the more traditional V-shaped or U-shaped models.

Why? “They call it the swoosh recovery because it mimics the shape of our logo. I’m going to go with that one,” he said.

Of course it remains to be seen whether this will be the emergent route, but it’s clear from Nike’s just-published fourth quarter and full-year results that there’s still a long, slow climb ahead.

The market wasn’t unduly phased by a 30% drop in fourth quarter profit to $341.4m, since this was largely due to $144.5m in charges for recent cost-cutting measures including reducing its workforce and restructuring its business.

The company was also able to blame a 7% drop in revenues on currency exchange rates, without which sales would have been flat.

But what is of particular concern is a 12% drop in worldwide future orders (a key indicator of future sales) for Nike-branded footwear and apparel scheduled for delivery between June and November this year.

By far the biggest challenge seems to be in apparel, where the macroeconomic conditions are hitting hardest. In the US, for example, apparel revenue tumbled 15% to $379.8m – whereas footwear rose 2% to $1.2bn and equipment revenues were up 2% to $85.5m. Futures orders as a whole for the US are down 4%.

Nike has made no secret in the past of its plans to consolidate its long-term sourcing strategy and streamline its supply chain operations so that it buys from fewer, larger factories to leverage economies of scale.

And with a more immediate need to take a “conservative position on inventory purchases generally” against this background of slowing apparel sales, it seems more than likely that there will now be “significant changes,” as Parker put it, to “consolidate with our strongest and most innovative partners.”

 


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