Add Nike to the list of brands and stores discounting excess merchandise to clear it off shelves.
Nike (NKE) said Thursday its inventory levels soared 65% in North America, its largest market, and 44% overall last quarter from a year ago.
After navigating limited supply in 2021 Nike is now carrying far too much product, particularly when it comes to clothing.
“We effectively have a few seasons landing in the marketplace at the same time,” creating a glut, Nike CEO John Donahoe said on a call with analysts Thursday.
Donahoe explained that when Nike factories in Vietnam and Indonesia had to close after Covid-19 outbreaks, goods arrived late for this year’s spring, summer and fall seasons. Then Nike’s upcoming holiday season orders arrived earlier than planned. Meanwhile, the brand still has merchandise orders in transit.
Nike will discount items to move them, and those promotions will weigh on its profitability for the coming quarters, he added. Nike’s stock tumbled 11% during afternoon trading Friday.
To unload goods that are now out of season and shift to the appropriate holiday selection, Nike will move more clothing to its own factory stores, promote online and sell more to discount stores such as TJ Maxx. Nike in recent years has been pulling back on selling products to other retailers. Sending its goods to discount chains is a last resort.
“We are taking decisive action to clear excess inventory, focusing on specific pockets of seasonally late products, predominantly in apparel,” Donahoe said.
Inventory glut has been an issue across retail companies, with Target (TGT), Walmart (WMT) and others saying in recent weeks that they expect the upcoming shopping season to be packed with discounts. This year, retailers seriously misjudged what’s in demand and are sitting on too much casual clothing, home goods, electronics and other non-essentials.
But the level of Nike’s excess inventory was not expected.
“The surprise of the quarter was the magnitude of promotional activity needed to move through excess apparel,” Lorraine Hutchinson, an analyst at Bank of America, said in a note to clients Friday.
Despite the inventory glut, Nike did have some positive news to share: Demand remained strong, especially for sneakers, even in the face of high inflation. Overall, Nike’s sales jumped 4% last quarter from the same period a year ago.
“We see strong consumer demand in North America currently,” Donahoe said. “There’s no signs of any softness.”