Factory closures in Vietnam and Indonesia due to the pandemic have resulted in Nike losing 10 weeks of production time since mid-July, leading to a revised short-term outlook for the company and warnings that demand will likely exceed supply in the next few quarters.
Chief Financial Officer Matt Friend said North America transit times for the Oregon-based company are now nearly twice as long as they were before the pandemic, largely due to port and rail congestion and labor shortages. The European market has also deteriorated and retail sales in China have slowed due to regional closings and lower footfall.
“We assume that all regions will be influenced by these factors,” said Friend in a conference call with investors and analysts.
Continue reading: Adidas and Nike among brands hit by supply chain issues amid the rise of COVID in Vietnam
Nike is one of several brands hit by widespread factory closures across Vietnam, a hotspot for sneaker manufacturing. The country has registered over 700,000 COVID-19 cases since early July and has maintained lockdowns in high-risk areas. Vietnam appears poised to lift those restrictions, however, as Hanoi, the country’s capital, eases some mandates earlier this week.
Friend said some of Nike’s factory partners have also begun approving their reopening plans, although factories in Vietnam are not expected to reopen until next month, which will severely impact the availability of Christmas and spring items.
As a result, Nike has revised its outlook for the coming quarters and expects revenue growth to remain unchanged or low-single-digit in the second quarter and revenue to grow in the mid-single-digit range for the full fiscal year, contrary to the previous full-year forecast expected growth in the low double digits. “This situation will be dynamic and not linear,” said Friend.
The sportswear and sneaker giant is also looking in other regions to maximize production in other regions like China and use air travel to overcome the temporary supply chain problems.
“Over the past 18 months we have demonstrated our ability to cope with turbulence in order to be even stronger and better positioned,” said President and CEO John Donahoe on the conference call. “And we will continue to do so as we navigate these current supply chain issues.”
A digital head start
Nike is also facing increasing pressure from startup sneaker brands like Allbirds and Roger Federer-backed On Holding, both of which recently filed for IPO. ThirdLove also hit the company earlier this week when it unveiled its new line of sports bras and activewear; and Adidas removed pages from Nike’s D2C playbook to double its e-commerce business over the next five years.
Related: Sneaker startup IPOs are underway at Nike
But Donahoe told analysts that Nike is actually in a stronger position compared to its competition than it was before the pandemic, as consumers accelerate their transition to digital, and thus feed into the D2C strategy the company launched in 2017.
“When we get to the other side, we’ll be in even better shape,” he said. “We are becoming more agile, more direct and more digital.”
Nike reported that sales were over $ 12 billion for the first quarter ended August 31, an increase of 16% over the same period last year. Nike’s direct sales (D2C), which includes both online and in-store sales, was $ 4.7 billion, up 28% year over year due to increased traffic in the brand’s own physical Retail, which grew 24%.
Overall, Nike’s digital business grew double-digit for the quarter, although consumers continued to shop more in person. D2C digital sales now account for 21% of the brand’s total sales, and Friend said the company is “well positioned” to meet its goal of 40% of sales by 2025.
“Everywhere in the market, both owned and partnered, it is clear that online to offline is becoming second nature,” said Donahoe. According to PYMNTS data, online and mobile cross-channel consumers, or those who prefer to shop digitally and pick up in-store, have increased by at least 28% since the pandemic began.