Struggling to navigate supply chain issues amidst the pandemic, Nike is grappling with hardships worldwide
The coronavirus pandemic has brought unprecedented challenges to shoe giant Nike, with global production and shipping disruptions causing headaches for this athletic wear titan. From labor shortages in Vietnam and Indonesia to container scarcity resulting in shipping delays, the list of problems seems endless for Nike.
In a recent update, Nike acknowledged battling supply chain issues ranging from dwindling shipment containers to labor shortfalls related to factory closures in Vietnam and Indonesia, complicated by pandemic complications.
Financial executive Matthew Friend at Nike admitted that the company is up against a tidal wave of global supply chain challenges, which not only hinder manufacturing but also impact the movement of goods worldwide.
Friend expects all regions to feel the effects of these obstacles.
The supply chain woes are taking a toll on Nike's financial performance, as evident in its mixed Q3 results. While sales fell short of analyst expectations, net profit surpassed estimates, suggesting underlying strength. Friend noted that Nike's performance would have been even stronger had salvageable stock not been depleted due to logistical strains.
Nike's stock dipped 4% in pre-market trading on Friday in response to this dismal forecast.
The multinational company now projects double-digit sales growth for this fiscal year, revising its prediction from the previous year's double-digit increase.
Supply Chain Hassles
According to Friend, the situation has worsened in recent months.
Nike manufactures around 75% of its shoes in Southeast Asia, primarily in Vietnam and Indonesia. However, the company has been grappling with pandemic-related restrictions leading to factory shutdowns. For instance, Vietnam has lost approximately 10 weeks of production since July.
Lamenting the situation, Friend mentioned that the shipping period for Nike products from Asia to North America has increased from around 40 days to 80 days.
Friend explained during an analysis last Thursday that in the past 90 days, two unexpected issues have emerged: longer delivery times and temporary factory closures in Vietnam and Indonesia due to local government orders.
At present, Indonesian factories are operational again, while almost all shoe factories in Vietnam remain closed due to government restrictions.
The executive hinted at plans to gradually reopen several facilities but acknowledged that the voids will continue until the factories can resume full-scale production and output at normal capacity.
Nike faced challenges beyond Southeast Asia too.
Friend acknowledged that shipping times for Nike's cargo in North America, Europe, the Middle East, and Africa have skyrocketed, attributing the increase to port congestion, railway delays, and a labor shortage.
Pandemic-induced disruptions have burdened consumer goods with bottlenecks, resulting in goods shortages and making it more expensive to transport them to their intended destinations.
The lingering challenges, combined with the emergence of questionable alternative options, imply that shoppers could see both high and low prices during the holiday season. Retailers like adidas, Crocs, and Hasbro have issued disruption warnings in anticipation of the year-end period, and booksellers encourage customers to place their Christmas orders well in advance.
Shipping companies anticipate the global crisis to persist, leading to substantial increases in cargo transportation costs and the possibility of higher consumer prices.
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 available levers," said Chairman and CEO John Donahoe.
Contribution by Hanna Ziady
Additional Facts
Nike is battling multiple supply chain challenges, including labor shortages, shipping delays, and factory closures in Southeast Asia, contributing to its financial struggles. The company's reliance on a centralized production model exposes it to significant risks, further complicating matters. Furthermore, geopolitical and environmental events, economic uncertainty, and rising costs for raw materials, labor, and logistics add to the complex web of issues Nike faces.
To address these challenges, Nike is investing in digital transformation, focusing on direct-to-consumer sales, real-time inventory management, and machine learning and artificial intelligence to optimize supply chain efficiency. However, the journey towards a more resilient supply chain remains a hurdle for the shoe giant.
