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After Nike’s Inventory Spike, Analysts Say Markdowns Will Continue to ‘Erode Margins’


Under Armour, Adidas, Puma and Dick’s Sporting Goods shares were all down on Friday after Nike’s inventory pileup and margins miss sparked anxiety across the industry.


The Swoosh’s leadership position in the industry could spell a larger problem as consumers continue to reevaluate their spending habits due to spiking inflation.


Indeed, the athletic giant reported on Thursday that it ended the first quarter of 2023 with inventories at 44%, or $9.7 billion, driven by “elevated in-transit inventories” from ongoing supply chain volatility, partially offset by strong consumer demand during the quarter.


Sam Poser, equity analyst at Williams Trading LLC, noted that the only path forward to correct this inventory misstep is to markdown goods, which can get very tricky. “This risk to adopting an aggressive markdown strategy, is you don’t want consumers to get used to only buying your product when it’s on sale,” Poser told FN. “Nike needs to make sure it has a lot of newness at the other end of these markdowns that will get consumers to purchase full-price product again.”


The other bad news, Poser added, is that these markdowns will hurt Nike’s competitors even more. “Nike’s markdowns will undoubtedly spur a promotional environment across the whole athletic market, which you will see affect other brands, especially Under Armour, in their next earnings report.”


Liza Amlani, principal and founder of Retail Strategy Group, echoed this sentiment. Amlani told FN that the entire sector is worried. “High levels of inventory and supply chain bottlenecks are impacting every brand and retailer with no end in sight,” Amlani said. “Nike, like other brands, overbought and high promotional activity will not only erode margins but will drive more consumers to buy at discount. Athletic brands should be worried as consumers will be looking for Nike deals.”


Amlani added: “The athletic market needs to rethink their merchandising and assortment strategies. Tighter buys, less markdowns and slow growth projections are necessary while consumers ride out the recession.”

Read More at https://footwearnews.com/2022/business/athletic-outdoor/nike-inventory-problems-across-athletic-market-1203351324/amp/

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