Nike warns of shortages as ocean congestion and Vietnam closures hurt stocks
- Nike’s inventory grew 12% year-on-year as already long transit times worsened and prevented the company from meeting strong consumer demand, CFO Matt Friend said on the call. to the company’s first quarter results. It now takes 80 days for Nike to move a product from Asia to North America, up from 40 days before the pandemic, he said.
- Mandatory COVID-19 lockdowns in Vietnam and Indonesia will lead to further inventory availability issues, Friend said. Ten weeks of production at shoe and garment factories has already been lost in Vietnam since mid-July, and it will take several months to return to full production, he said. Production in Indonesia is now operational and “is back to full capacity”.
- For Nike, the plant closures “created a gap in the flow of inventory, initially ordered for delivery from mid-October,” Friend said. Nike expects inventory shortages to persist over the next few quarters, according to Friend, with regions in Asia with less inventory in transit through the pipeline being the hardest hit by the closures.
As peak season approaches, retailers like Nike are looking for suppliers outside of Vietnam and finding ways to bypass transport delays to ensure that the products arrive at their destination on time.
Nike is building on its previous experience with COVID-related plant closures, taking into account how long it will take affected facilities to return to full production and adjusting operations accordingly. Friend said the company is maximizing its footwear production capacity in other countries and shifting clothing production to countries like Indonesia and China.
The next challenge is to adapt to long transit times. In ocean freight, congestion has returned to “peak in severity” along the Asia-North America route, Flexport said in a September 21 market update.
“Shippers and importers continue to pay unprecedented high prices to get urgent cargoes on time for the holiday season. Labor constraints, dry runs and supply disruptions related to COVID-19 are expected to continue to put additional pressure on capacity in the coming months, ”said Flexport.
For Nike, new strategies are also in place beyond the factory line. The company uses air travel when needed, Friend said, a popular move given the challenges of shipping.
“And then, we continue to use a seasonless product approach to meet incredibly high consumer demand, given our success that we’ve had to sell at full price, even though the product hits the market later than expected. “said Friend.