Struggling with supply chain woes amidst the pandemic, Nike is feeling the heat worldwide
Global production and shipping disruptions plague shoe giant Nike due to Covid-19. From labor shortages in Vietnam and Indonesia, to container scarcity leading to shipping delays, problems pile up for this sportswear titan.
In a recent update, Nike acknowledges battling issues spanning from dwindling shipment containers to labour shortfall associated with factory closures in Vietnam and Indonesia, teeming with pandemic complications.
Financial executive Matthew Friend at Nike reported that the company is up against the tide of global supply chain challenges, which both hinder manufacturing and course the movement of its goods globally.
Friend expects all regions to experience effects from these obstacles.
The supply chain struggles are impacting Nike's financials, manifesting in mixed Q3 results. While the sales figure fell short of analysts' projections, the net profit surpassed estimates, indicating underlying strength.
Friend emphasized that the company's performance would have been sharper had salvageable stock not been scant due to logistic strain.
Nike's stock nosedived 4% in the pre-market Friday trade upon news of this dismal forecast.
The multinational firm now projects double-digit sales growth for this fiscal year, revised from the previous year's double-digit increase prediction.
Supply Chain Maladies
According to Friend, over the past few months, the situation has worsened.
Nike manufactures up to 75% of its shoes in Southeast Asia, primarily in Vietnam and Indonesia. But the company has recently grappled with pandemic-driven restrictions causing factory shutdowns. For instance, Vietnam has lost 10 weeks of production since July.
Lamenting the scenario, Friend shared that the shipping period for Nike products from Asia to North America has doubled from around 40 days to 80 days.
As Friend explained on Thursday during an analysis, in the last 90 days, two unexpected issues have surfaced: longer delivery times and temporary factory closures in Vietnam and Indonesia due to local government orders.
As it stands, Indonesian factories are now fully operational while almost all shoe factories in Vietnam remain shut due to government restrictions.
The executive alluded to plans to gradually reopen several facilities but acknowledged that the voids will persist until the factories can resume full-scale production and output at normal capacity.
Nike faced challenges in other areas too.
The CFO admitted that shipping time for Nike team's cargo in North America, Europe, the Middle East, and Africa had shot up dramatically, attributing the surge to port congestion and railway delays, as well as a labor crunch.
Pandemic-induced disruptions to global supply chains have burdened consumer goods with bottlenecks, resulting in goods shortages and making it costlier to transport them to their intended destination.
The lingering hurdles, along with the emergence of questionable alternative options, such as Delta Air Lines, imply that holiday shoppers could see both high and low prices during this season.
Retailers like adidas, Crocs, and Hasbro have flagged disruption warnings in preparation for the year-end period. Booksellers encourage customers to place their Christmas orders well in advance.
Shipping companies anticipate the global crisis to persist, attributing to considerable hikes in cargo transportation costs and the possibility of rising consumer prices as a consequence.
In response to the crisis, Nike revealed plans to boost air freight expenses during the festive season.
"In this challenging supply chain environment, we'll do our best to deploy all levers possible," said Chairman and CEO John Donahoe.
Contribution by Hanna Ziady
