【Nike,Burned,by,Inventory,Problems】 Nike by you
When people paid attention to the Olympic Games in London, the sportswear brands also lay their stakes into the Olympic marketing. However, the inventory problems are still haunting them in the Chinese market. Even Nike and its international peers are struggling to put an end to it through salespromotion strategies.
“They had wrong estimations about the Chinese market in the past,” said Ma Gang, an independent researcher of the clothing industry. “Previously, Nike believed that the Chinese market would have high annual growth rate for years. And its movements were closely based on this belief. Therefore the high-rising inventory is definitely a problem. The latest quarterly financial report of Nike proved this point, showing that the high inventory has spread the influence to the first-tier brands.
Eased Sales Growth of Nike in China
An on-the-spot survey in Nike’s distribution stores in Shanghai revealed that Nike now was selling its old-version product with a 60% discount and the new products were sold with a 10%-20% discount. When asked about the sales situation, a director of a Nike’s distribution store refused to give direct answers but the journalist making the survey found that quite a few custom- ers visited this store during his interview.
Nike published its financial report of the fourth quarter of this financial year (ending May 31, 2012), showing that Nike witnessed a great decrease in sales revenue in Greater China, which is the second largest market of this company. In this quarter, Nike’s revenue of selling shoes, apparels, and sports gears in Greater China, reached 667 million US dollars, down 3.89% from a quarter before.
The financial report also showed that the inventory of Nike in China shared an opposite path with the sales revenue. By the end of May 2012, the value of Nike’ inventory in China reached 3.35 billion US dollars, up 22.30% year on year.
Ma Gang said: “The increasing inventory is a result from the fact that consumers are not willing to purchase commodities. Then the agents dare not stock goods at a large amount. With the smaller number of orders, the sales certainly dropped.” Then, the decreasing sales could have further influence over the inventory.
A research report of Morgan Stanley said that the growth of Nike’s number of orders around the globe decreased from 18% to 12% in the fourth quarter of this financial year. In China, the drop was more serious since the growth of sales dropped from 20% to 2%.
In July, Nike opened a direct-sale flagship store in Guangzhou Wanguo Outlets, which was its second largest store of that kind in the world. On the first two days after the opening, any consumer who bought things valuing 600 yuan or more could have a 100-yuan discount. Some of the products even saw their price reduce to half or lower. “Two years ago, such a great discount could only be given to the employees of Nike,”said a consumer.
Belle International and Pou Sheng International are the two major distributors for Nike and Adidas in Greater China. Now the two distributors are facing great stress of distribution.
The half-year financial report of Pou Sheng International revealed that the value of its inventory has been increased by 37.16% year on year to 554 million US dollars. The Report also showed that Pou Sheng International’s operating premium dropped to 12 million US dollars, down 71.6% over last year. By the end of this March, this company suffered the loss of 15.7 million US dollars with a drastic 144% decreased compared with the 35.5-million-USD profits in the same period of last year. The company blamed the commitment to providing high discounts for consumers to reduce the inventory for the loss. In addition, the company’s revenue from agency business was 27.6 million US dollars, down 3.6% over last year.
Wrong Judgment to Be Blamed?
The depressed sale of sports brands and the downturn of consumption level this year should be blamed for the eased sales growth of Nike in China. The fast expansion of sports brands in 2008 and the homogenous competition led to the failure of the integration of sports brands. “They would have tougher days than other branches of the clothing industry,” said Zhang Bin, an analyst from the Guojin Securities.
When the entire industry is depressed, Nike has to endure the double impact from both itself and the competitor. As the major rival of Nike, Adidas was overjoyed by its performance in the second quarter of 2012. According to the public data, the German company’s sales revenue in Greater China increased by 19% to 732 million euros from April to June. Inspired by the wonderful performance, Adidas increased its forecast of net profit growth of 2012 from 12%-17% to 15%-17%.
“Nike and Adidas are different from each other in management and marketing strategies,”said Ma Gang.
Analysts said that Nike’s decreasing sales and increasing inventory are attributed to the wrong forecast of the market. Ma Gang said: “Previously Nike wrongly believed that the sportswear market of China would have high growth rate every year and they did it based on this plan. That’s why the inventory problem came out.”
In May 2010, Nike announced the goal of increasing the operating revenue to 27 billion US dollars in 2015 and the accumulative operating cash flow will exceed 12 billion US dollars by then. Nike also announced in a high profile that it would actively invest in the emerging markets of Greater China, Central and East Europe, aiming to bring the additional income of 3-3.5 billion US dollars at the end of the 2015 financial year. However, this goal seemed to be hard to be realized based on the current situation.
Despite the awful situation, Nike’s outlook in China is not as dimmed as many analysts believed that it will have a better time in the future.
Zhang Bin said: “Foreign brands have their own features and the Chinese consumers are going to be more reasonable in the future. Enterprises are to focus on winning the competition with product features. Nike is good at this and has unparalleled advantages. In the future it will become more aggressive in the Chinese market.”
In Ma Gang’s opinion, Adidas encountered the same problem in 2009 but it solved it soon enough. As an equal to Adidas, Nike is believed to have the ability to end the high inventory and return to the normal path as quickly as possible.
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