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The failing global economy leads to the decrease in demand. For Nike, this means the decrease in the profit margin in the first quarter of its 2013 financial year, as it said in its latest quarterly financial report. The main reason is the indirect increase in the operating cost. Meanwhile, it was reported by the foreign media that the number of orders in China – a vital market for Nike – is decreasing in these months.
According to its financial report, the net profits of Nike in this financial quarter (ended August 31) amounted to 567 million US dollars and the EPS was 1.23 US dollars. This result was overshadowed by the performance in the same period of last year when Nike’s net profits reached 645 million US dollars with the EPS of 1.36 US dollars. In addition, the gross margin of Nike in the past quarter was 43.5%, lower than the 44.3% figure last year. It is the seventh straight quarter that Nike saw its gross margin got lower. Nike explained that it is the increasing cost that offset the profits brought by the higher price and cost-reduction measures.
Many analysts thought that the increasing cost of Nike came from the bigger expenditure for its plan of innovating key products and the sponsorship for the London Olympics and Europe Cup. Meanwhile, the fluctuations of the global economy have applied certain stress over its cost reduction plan. As its financial report showed, the indirect operating cost of Nike increased by 18% in this quarter.
Meanwhile, the slowed growth in the Chinese market made things worse. In its first financial quarter, Nike’s operating revenue in the Greater China Area (including mainland China, Hong Kong and Taiwan) is 572 million US dollars, up 8% year on year, or 7% if the influence of change in exchange rate is deduced. The growth is lower than last year too.
As reported by foreign media, the number of new orders for Nike in the Greater China Area decreased by 5% year on year. All retailers in China were facing the problems of eased economic growth and excessive inventory – the consumers became wiser when choosing fashion products.
The Chinese market means a lot for Nike. In the 2012 financial year, the total sales amount of Nile was 2.5 billion US dollars, accounting for over 10% of its total sales. Some investment banks forecast that the Chinese market contributed to 30% of the operating profits of Nike.
However, the sign of getting weaker found Nike China in the fourth quarter of the 2012 financial year as its sales income in China began to decrease. In that quarter, the income Nike earned by selling shoes, clothes and accessories in Greater China totaled 667 million US dollars, down 3.89% compared with a quarter before. According to the report from Morgan Stanley, in that quarter, the increase rate in the number of orders of Nike in the world decreased from 18% to 12%, and the number of new orders in China increased by only 2%, much lower than 20% last year.
Simultaneously, the inventory of Nike is increasing too. By the end of May 2012, the value of commodities in stocks amounted to 3.35 billion US dollars, up 23.39% compared with the 2.715- billion-USD inventory last year.
For Belle International and Pousheng International, two major dealers of Nike in China, the inventory is giving out a bigger stress. According to Pousheng International’s report, its inventory value has increased to 554 million US dollars, up 37.16% compared with a year ago. Bell International also reported that the entire inventory volume was a bit big in the distribution channels in the first half of this year. In addition, with a greater discount, the gross margin was squeezed.
A scholar doing researches in the sports brands said that Nike faced a direct problem in China too. Its dealers are very powerful and import Nike’s products at a severely discounted price, which squeezed the latter’s profits. “Presently, Nike is increasing the number and influence of its factory stores and online distribution channels to reduce the inventory.”
Senior executives of Nike also showed their determination to clear out the inventory with retailers and improve the distribution through Nike’s exclusive stores. In addition, Nike will adjust the product design to the Chinese consumers’ fancy and “restart” its Chinese market.
Nike’s equal Adidas dealt with the rigorous test of inventory too around 2008. This led to the 95% decrease in net profits in 2009. However, Adidas made an overall examination for the inventory problem of itself and dealers and proposed the idea of swapping old things with new products. When dealers handled a certain amount of inventory, Adidas will give them subsidies and allow them to sell products at a discounted price.
Now, Adidas has already opened 7000 exclusive stores in China. The financial report shows that the German company saw its net profits increase by 38% and operating revenue increase by 14% year on year in the first quarter of this year. Among them, the Chinese market contributed the sales amount of 385 million euros, increasing by 26% and accounting for over 10% of its global figure –the first time ever. In addition, its sales amount in West Europe, North America, other Asian countries and Latin America respectively increased by 7%, 11%, 26% and 14%.
The economic depression also pulled the Chinese domestic brands into the vortex of high inventory as well.
According to the data, apart from Xtep which had a slight increase in sales revenue in the first half of year, other well-known Chinese domestic brands were excluded from seeing good performance. Anta’s operating revenue decreased by 11.6%; 361° saw its revenue go down by 10%; Peak went through a 28.5% decrease in the operating revenue; and Lining, the biggest domestic sports brand, had an 80% decrease in net profits.
The huge inventory should be blamed for the drastic decrease in their business performance. The new executive of Lining Jin Zhenjun admitted the insufficient efforts in clearing out inventory in the first half of this year and more measures will be taken in the second half year.
Another group of data shows that the value of new orders for Anta decreased by 20%-30% in the first half of this year, slightly higher than the 15%-20% decrease occurring to Xtep.
Although Nike shared the same fate with Chinese domestic sports brands at this moment, very few people are worrying about its future in China. Optimistic opinions still prevail. “Most of its business lies in the first- and second-tier cities. When it began to descend its distribution channels, a new round of growth is going to happen,” said a scholar. And correspondingly, Nike has already launched products tailor made for the lesser markets of China.
According to its financial report, the net profits of Nike in this financial quarter (ended August 31) amounted to 567 million US dollars and the EPS was 1.23 US dollars. This result was overshadowed by the performance in the same period of last year when Nike’s net profits reached 645 million US dollars with the EPS of 1.36 US dollars. In addition, the gross margin of Nike in the past quarter was 43.5%, lower than the 44.3% figure last year. It is the seventh straight quarter that Nike saw its gross margin got lower. Nike explained that it is the increasing cost that offset the profits brought by the higher price and cost-reduction measures.
Many analysts thought that the increasing cost of Nike came from the bigger expenditure for its plan of innovating key products and the sponsorship for the London Olympics and Europe Cup. Meanwhile, the fluctuations of the global economy have applied certain stress over its cost reduction plan. As its financial report showed, the indirect operating cost of Nike increased by 18% in this quarter.
Meanwhile, the slowed growth in the Chinese market made things worse. In its first financial quarter, Nike’s operating revenue in the Greater China Area (including mainland China, Hong Kong and Taiwan) is 572 million US dollars, up 8% year on year, or 7% if the influence of change in exchange rate is deduced. The growth is lower than last year too.
As reported by foreign media, the number of new orders for Nike in the Greater China Area decreased by 5% year on year. All retailers in China were facing the problems of eased economic growth and excessive inventory – the consumers became wiser when choosing fashion products.
The Chinese market means a lot for Nike. In the 2012 financial year, the total sales amount of Nile was 2.5 billion US dollars, accounting for over 10% of its total sales. Some investment banks forecast that the Chinese market contributed to 30% of the operating profits of Nike.
However, the sign of getting weaker found Nike China in the fourth quarter of the 2012 financial year as its sales income in China began to decrease. In that quarter, the income Nike earned by selling shoes, clothes and accessories in Greater China totaled 667 million US dollars, down 3.89% compared with a quarter before. According to the report from Morgan Stanley, in that quarter, the increase rate in the number of orders of Nike in the world decreased from 18% to 12%, and the number of new orders in China increased by only 2%, much lower than 20% last year.
Simultaneously, the inventory of Nike is increasing too. By the end of May 2012, the value of commodities in stocks amounted to 3.35 billion US dollars, up 23.39% compared with the 2.715- billion-USD inventory last year.
For Belle International and Pousheng International, two major dealers of Nike in China, the inventory is giving out a bigger stress. According to Pousheng International’s report, its inventory value has increased to 554 million US dollars, up 37.16% compared with a year ago. Bell International also reported that the entire inventory volume was a bit big in the distribution channels in the first half of this year. In addition, with a greater discount, the gross margin was squeezed.
A scholar doing researches in the sports brands said that Nike faced a direct problem in China too. Its dealers are very powerful and import Nike’s products at a severely discounted price, which squeezed the latter’s profits. “Presently, Nike is increasing the number and influence of its factory stores and online distribution channels to reduce the inventory.”
Senior executives of Nike also showed their determination to clear out the inventory with retailers and improve the distribution through Nike’s exclusive stores. In addition, Nike will adjust the product design to the Chinese consumers’ fancy and “restart” its Chinese market.
Nike’s equal Adidas dealt with the rigorous test of inventory too around 2008. This led to the 95% decrease in net profits in 2009. However, Adidas made an overall examination for the inventory problem of itself and dealers and proposed the idea of swapping old things with new products. When dealers handled a certain amount of inventory, Adidas will give them subsidies and allow them to sell products at a discounted price.
Now, Adidas has already opened 7000 exclusive stores in China. The financial report shows that the German company saw its net profits increase by 38% and operating revenue increase by 14% year on year in the first quarter of this year. Among them, the Chinese market contributed the sales amount of 385 million euros, increasing by 26% and accounting for over 10% of its global figure –the first time ever. In addition, its sales amount in West Europe, North America, other Asian countries and Latin America respectively increased by 7%, 11%, 26% and 14%.
The economic depression also pulled the Chinese domestic brands into the vortex of high inventory as well.
According to the data, apart from Xtep which had a slight increase in sales revenue in the first half of year, other well-known Chinese domestic brands were excluded from seeing good performance. Anta’s operating revenue decreased by 11.6%; 361° saw its revenue go down by 10%; Peak went through a 28.5% decrease in the operating revenue; and Lining, the biggest domestic sports brand, had an 80% decrease in net profits.
The huge inventory should be blamed for the drastic decrease in their business performance. The new executive of Lining Jin Zhenjun admitted the insufficient efforts in clearing out inventory in the first half of this year and more measures will be taken in the second half year.
Another group of data shows that the value of new orders for Anta decreased by 20%-30% in the first half of this year, slightly higher than the 15%-20% decrease occurring to Xtep.
Although Nike shared the same fate with Chinese domestic sports brands at this moment, very few people are worrying about its future in China. Optimistic opinions still prevail. “Most of its business lies in the first- and second-tier cities. When it began to descend its distribution channels, a new round of growth is going to happen,” said a scholar. And correspondingly, Nike has already launched products tailor made for the lesser markets of China.