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Will Nike’s Vietnam Malaise Infect Major Retail Partner?

Nike’s supply chain troubles in Vietnam could mean harder times for retail partners with a higher exposure to the embattled footwear giant.

Even as it warned of continuing “supply chain delays and higher logistics costs” back in June, the Oregon-based company remained optimistic about the future, projecting low-double digit revenue growth for the following 12 months. Just weeks later, however, its factories in Vietnam—a country that accounts for 51 percent of its footwear unit production—began closing as key provinces shut down for what has become, by far, the country’s worst wave of the pandemic.

These closures persisted for months. Last week, Camilo Lyon, a financial analyst with the investment firm BTIG, estimated Nike has lost 40 million pairs a month, or 80 million pairs total, after two months of “virtually no unit production.” By the end of the year, he expects the company will lose another 80 million.

Though the damage Nike has suffered due to the shutdowns in Vietnam will almost certainly become clearer Thursday when the company reports its latest quarterly earnings, the difficulties it faces are already coloring analysts’ reads on the retailers it partners with.

According to MarketWatch, a recent note published by Wells Fargo warned that Nike’s supply chain slowdown could hamper Dick’s Sporting Goods’ momentum. This risk prompted the financial services company to favor its competitor Academy Sports and Outdoors instead.

Wells Fargo acknowledged that both companies maintain diverse vendor bases, but said it was “mindful of concentration risk.” It put Academy and Dick’s exposure to Nike at 12 percent and 19 percent, respectively.

Dick’s Sporting Goods has been flying high so far this year. After posting its “strongest quarter in [its] history” a month ago, the company raised its 2021 revenue outlook for a second time this year from between $10.5 billion and $10.8 billion up to between $11.5 billion and $11.7 billion. This pinned sales growth at a midpoint of 21 percent for the full year, and 33 percent over 2019 totals.

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“Looking ahead, our inventory is very clean, and we continue to aggressively chase product to meet demand,” Lee Belitsky, executive vice president and chief financial officer, said at the time. “We are prioritizing supply chain continuity over costs and expect elevated freight expenses to continue through at least the balance of 2021.”

A couple weeks later, during the Goldman Sachs Global Retailing Virtual Conference, Belitsky acknowledged that the company anticipates higher supply chain costs in the back half of the year. “That’s been embedded within our guidance, but we’ve managed through it as well as we can,” he said.

In his note, Lyon wrote that Nike’s closures in Vietnam have “materially” increased the risk of “significant” cancellations beginning this holiday and running at least through the spring. This forecast lines up with when Belitsky expects Dick’s will see athletic footwear and apparel prices rise.

“Thus far, the [supply-chain] cost increases that we’re seeing have been relatively limited, and primarily, kind of in the big bulky hardlines items that we’ve seen this year,” Belitsky said. “We’ll see some more price increases coming as we look out into the fourth quarter, and into the early part of next year as it begins to hit athletic footwear and athletic apparel, with some of the products coming in from brands and at higher costs.”

Dick’s Sporting Goods aligns with WNBA

Potential supply-chain difficulties in the months ahead aren’t stopping Dick’s from entering a new Nike-centric partnership.

The WNBA has named Dick’s its “Official Sporting Goods Retail Partner,” the chain announced Tuesday. The multiyear alliance starts Thursday with the beginning of the league’s playoff season.

Dick’s will carry an assortment of authentic WNBA sports apparel and equipment, including the jersey collection Nike dropped in April, as well as Wilson WNBA basketballs, tees and the WNBA Logowoman hoodie. The retailer will offer the items at select locations throughout the U.S., including all 12 WNBA markets and through its website and app. According to Dick’s, the partnership makes it the largest national retailer for WNBA merchandise.

Nike's new WNBA jersey collection includes three iterations: WNBA Nike Explorer Edition, the WNBA Nike Rebel Edition and the WNBA Nike Heroine Edition
Nike’s new WNBA jersey collection includes three iterations: the WNBA Nike Explorer Edition, the WNBA Nike Rebel Edition and the WNBA Nike Heroine Edition Nike

The alliance will also include initiatives designed to inspire female athletes and to increase the visibility of WNBA teams and players worldwide.

“This partnership is a significant opportunity for the WNBA as we celebrate our landmark 25th season, with Dick’s Sporting Goods playing a substantial role in driving continued interest and engagement surrounding our league,” WNBA Commissioner Cathy Engelbert said in a statement. “By having a significant presence of WNBA and team merchandise at Dick’s locations in the country, we will now have even more opportunities to connect our fans with their favorite teams.”

Consumers’ spending plans favor athletic footwear over apparel

Wells Fargo published its first annual sporting goods survey Monday.

The report brings good news for footwear. Thirty-five percent of respondents said they intend to spend more on athletic and outdoor footwear in the next 12 months as opposed to 21 percent who said less.

These numbers place the category ahead of all others Wells Fargo surveyed, including bottoms—30 percent plan to buy more and 23 percent expect to purchase less. In all other categories, the report found that more respondents planned to decrease than increase spending. More than 40 percent said they expect to spend less on wearables/gadgets, outdoor equipment, sports equipment and hiking/camping gear in the next year.

Looking at the current year, the survey said 30 percent of respondents reported spending less on outdoor or athletic apparel in 2021 compared to two years ago. Twenty-five percent said they had spent more and 46 percent said they had spent a similar amount.

Unsurprisingly, given these numbers, Wells Fargo found that those who reported exercising less since the pandemic began outnumbered those who were exercising more. Of the 1,000 respondents, 30 percent said their physical activity has decreased since the pandemic began in the U.S. as compared to 2019. Twenty-seven percent said their physical activity increased and 43 percent said it was similar.

Compared to the larger sample, those who exercised more were more likely to favor running and hiking/camping. While 21 percent of total respondents selected running as one of up to three preferred physical activities, 31 percent of those exercising more said the same. Thirty percent of the more active respondents said they favored hiking/camping, versus 25 percent of the overall sample.

Physical activity, however, is not the only thing motivating athletic purchases. More than half of respondents, 57 percent, said they used athletic/sports apparel for both physical activity and day-to-day wear. Just 17 percent said physical activity only and 15 percent said day-to-day activity only. Eleven percent selected “relaxing/lounging.”

Amazon proved the preferred place to shop for outdoor and athletic wear and equipment, with 18 percent of respondents saying they usually shop there. Fourteen percent said department stores; 13 percent each said specialty footwear retailers and branded stores; and 12 percent said Big Box stores.

Meanwhile, Nike dominated as the top brand in both apparel and footwear. Sixty percent said they plan to purchase Nike apparel in the next 12 months and 49 percent said the same about its footwear. Adidas came in second with 39 percent in apparel and 30 percent in footwear. In apparel, other high-ranking brands included Under Armour (35 percent), Old Navy (22 percent) and Champion (21 percent). In footwear, Skechers (20 percent), Under Armour (20 percent) and New Balance (18 percent) performed well.