Dueling Bumper Stickers and Nike Inventory
I was confused by the two bumper stickers:
On the left: “Student Driver”
On the right: “This Ain’t My First Rodeo”
If you’re a student driver, IT IS your first rodeo, right?
Nike is trying to pivot after creating confusion with buyers. Part of the challenge relates to inventory.
Nike: “Just Do It” Works…
If you take a look at Nike’s home page, you’ll notice that the company focuses on running shoes and apparel- the stuff consumers wanted for years. Nike also did a great job driving customers into retail stores. Besides Apple, who else has cooler store branding than Nike?
“Just Do It” works- but the prior CEO took the company off track in several ways, according to Fortune:
“He underestimated the importance of partners like Macy’s, DSW, and Foot Locker in selling its running shoes.”
“… with the intention of squeezing out more wholesale middlemen and selling directly to consumers, (The CEO) decided to stop selling Nike apparel to retailers like Dillard’s and Urban Outfitters, and reduced how much merchandise sold at partners like Macy’s and Foot Locker. On top of hurting sales, that left an opening for rivals from Hoka to On Running to New Balance to take up the newly-freed shelf space and gain market share.”
The CEO was replaced by Elliott Hill, a longtime Nike veteran who in 2020 retired as the company’s president of consumer and marketplace.
Time to get back on track.
Inventory Challenges
When you make the decision to slow sales to certain retailers (see above), you may be left with unsold inventory. So, what to do?
The pros and cons of discounting
Well, one choice is to offer retailers a discount. Good news? You move the inventory. Bed news? The total revenue is lower, and retailers may want the same lower price on future purchases.
Nike is a brand with global reach. This 2024 report places Nike as the #6 most recognizable global brand.
If you clear out old inventory by selling at a discount, do you cheapen the brand in the eyes of retailers?
Maybe.
Inventory turnover ratio
Inventory is typically one of the biggest current assets on the balance sheet, along with accounts receivable (AR). If you’re wondering why your cash balance seems to be low, check out inventory and AR: cash may be tied up in those accounts.
The solution is to carry less inventory and sell items faster. The inventory turnover ratio is a metric to track how well you’re managing inventory.
Inventory turnover ratio = (Cost of sales) / (Average inventory)
The goal? Sell more (increase cost of sales) and lower the amount of inventory you carry (average inventory). A higher ratio means that you’re selling inventory faster- and you have less money tied up in inventory.
Food for thought.
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