Supply chain issues have been in full effect ever since the covid-19 pandemic has spread across the globe. Footwear imports have been one of the goods majorly affected by the supply chain disturbance. Even Nike, the biggest sportswear brand in the world, has said production problems in Asia and Trans-Pacific shipping delays will weigh on sales. Of all the Nike factories around the world, the United States factories make up 6.4% of them worldwide.
Nike’s revenues have increased greatly since the start of the covid-19 pandemic, but it seems that the supply-chain issues have caught up with them. Nike reported on Thursday the revenue was $12.25 billion before the quarter ended on August 31st. This is up 16% from last year this time but has stayed flat since June 2021. These numbers were below that of what the Wall Street analysts had predicted of $12.47 billion. Executives of Nike express that their demand for their product stays high and the only reason that they are not reaching these predictions is because of the supply network issues.
Matthew Friend, Nike’s finance chief said that Nike lost 10 weeks’ worth of production in Vietnam due to the lockdowns after the surge of covid-19 cases. Another problem is in the transportation of goods. It’s taking an average of 80 days to get products from Asia to North America; this is twice the amount of time compared to that of pre-covid times. Most of Nike’s footwear production is in Vietnam where they now have been placed on lockdown until at least October 1st, this could continue to cause flat revenue growth for the highly demanded company.
To try and relieve supply-chain issues Nike and other shoe and apparel companies have sent a letter to President Biden requesting him to speed up Covid-19 vaccination donations to Vietnam. The United States has delivered six million vaccine doses to Vietnam since July. Nike has also been trying to shift some production out of Vietnam and using air freight to avoid congestion at ocean ports to get ready for holiday months.
Although supply-chain issues are in full force, it does not seem to be stopping the biggest sportswear brand in the world whose net income numbers from August 2021 are up 23% from the previous August. The net income numbers may have been higher had there have been no issues in the supply network. This will not be a major issue for Nike though due to such high demand for their product.
5 comments:
It will be interesting how big brands like Nike will adapt to these supply chain delays. Thankfully, most economists predict that these issues won't be a permanent issue. But after the height of COVID-19 in 2020, it will take 1-2 years for the market to return back to some level of normalcy. So they will most likely have to learn how to deal with these issues as they continue to linger.
Besides price hikes on all their products, they could refocus on limited edition products that can sell with higher margins and don't require as many materials as selling mass market shoes.
It will be interesting to see how Nike's supply chain issues affect the holiday season. I never thought how the U.S. giving vaccines to other countries could assist in our imports of other countries. It will be vital for big brands like Nike to pay attention to the COVID numbers and the possibility of new variants to alter their supply chain plans for the future.
The hold that such big companies have on the government is extremely interesting. The fact that Nike was able to push the US government to roll out more vaccines to Vietnam, and they complied, shows the power that comes with the brand. Having said that, it is also necessary that Nike begins to diversify there places of production, by either bringing it more to the US where they have immediate control over such issues, or heading more towards South Asian countries, where labor costs are low and lockdown isn't being implemented.
Supply chain issues seem to be a common idea now-a-days with companies. In all markets and all companies the lagged supply chain is causing issues of all sizes. Adapting to these problems will be the difference maker. I think Nike can adapt no matter what, but for them it will be about adapting in the most cost efficient way. The dependence on other countries like you mentioned is tough, as it is out of the control almost completely to Nike. Hopefully Biden can do something to help these countries affecting U.S. supply.
In Eisha's comment, she said that it's interesting that big companies have such a hold on the government. Your article focused specifically on Nike, however, it is important to also analyze other big corporations such as pharmaceutical companies. We have discussed it several times in class, but you often don't see small investors going into legal action when something goes wrong with their money that they invested. It is not until investors who are providing the majority of the funding have a problem. The big investors will be the ones that impact how the company runs and what it decides to do because they can threaten the firm with removing their funding. The same general concept is also happening with the government. Big investors and big companies provide the majority of the funding for political campaigns and other projects which then allow for those investors to continue to have leverage on that candidate due to the amount of money they are providing.
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