Months of surging pandemic demand followed by supply chain issues and a fear of understocking has led many industries to a position where they need to burn through inventory in the coming months.
Nike (NKE) finds itself in a situation when companywide inventory is up 44%. In North America it's up 65%. Comparatively, Nike inventory was flat year over year in 2021 and was up 15% in 2020.
"There are record high levels of inventory across the sector with demand slowing. Nike's 150 [basis points] increase in markdown pressure one quarter into the company's calendar [fiscal year] is indicative of a fragile environment," Cowen's John Kernan said, Retail Dive reported.
But unlike other companies with inventory issues, some are arguing that recent changes to the retail focus at Nike is contributing to their issues.
Back in February, Foot Locker (FL) admitted that its "largest vendor is accelerating its DTC (direct-to-consumer) strategy."
The strategy seems to have worked on the front end.
Nike just reported Nike Digital's highest net revenue quarter ever, as the company's online marketplace saw its highest traffic in history during the most recent quarter.
Nike says it has been focused on creating one-to-one connections by delivering "personalized consumer journeys and experiences."
The company's SNKRS casual footwear platform saw 3.8 million member entries just for the Travis Scott AJ1 that was released in July.
But all that success could have a hidden cost, according to retailers.
Nike's Double Edge Sword
"Our partners are and will remain a vitally important part of our marketplace strategy," CEO John Donahoe said during the company's most recent earnings call.
Despite those assurances, Foot Locker says that Nike purchases will make up 60% of its total this year, down from 75% in 2020 and 70% in 2021.
“Both JD Sports and Foot Locker are magnets for exactly the customer Nike wants to sell to. And now that the landscape has shifted, having a small army of retail partners ready to do everything to shift one more unit can make all the difference,” Richard Hammond, founder and CEO of customer analytics firm Uncrowd told Retail Dive.
Retail relationships offer predictability, according to some. Store floors and stockrooms have finite capacities, and the turnover rates in stores are fairly steady.
Nike's DTC strategy is less predictable, Jeffrey Sward, CEO at Merchandising Metrics told RD.
Nike Invests in DTC
Nike has spent a lot of time and money upgrading its DTC experience to entice shoe and apparel shoppers to go through the companies own avenues.
This week, the company offered shoppers another carrot, by making it easier for normal people to get access to the company's more exclusive releases.
Under updated rules, Nike says it can cancel orders placed with automated ordering software or technology on its website or apps.
The company also said it could charge restocking fees, decline to issue refunds and suspend or close the accounts of people using its direct-to-consumer channels to resell items. The company also reserves the right to impose purchase quantity limits.
All of these measure are designed to keep bots and resellers from dominating the secondhand selling market.
