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Tighter Inventory Pushes Profits at Nike

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Nike is following the lead of Macy’s and many other firms, squeezing more revenue out of smaller inventory. The firm, which is both a retailer and a wholesaler, has seen direct-to-consumer revenues rise by 20 percent in 2013, to than $2.5 billion. E-commerce revenue was up 30 percent. At the same time, inventory levels were only up 13 percent.

This combination – revenues outpacing inventory – has been seen at many firms, as the lean years from 2008 to 2012 brought on a collective screw tightening. Firms have reduced staff, automated processes, refocused on core competencies, and also improved ordering and tracking to reduce inventory dramatically.

At Nike, significant investments have been made to maximize production efficiency as well, utilizing their split position as a wholesaler and retailer. In the long term, the company plans to stay ahead of rising labor costs in apparel manufacturing markets by “engineering the labor [cost] out of the product,” as Charlie Denson, Nike’s departing brand manager, said.

In the near term, the company plans to tinker with prices to keep margins balanced.

At Macy’s, omni-channel fulfillment allowed them to turn every store into a miniature distribution center. Tight inventory tracking meant that they could fill all orders through all channels, in the markets where discounting was least likely. The company experienced dramatic increases in margin relative to inventory.

A spillover of these efforts was better trend tracking, which enabled them to focus on shorter orders and modify production in-line, to better please consumers. It’s paid off – the My Macy’s program, which customizes stores to meet local tastes, is widely credited with floating the company through the recession without the disruptions that struck other large legacy retailers. None of it would have been possible without the technologies that facilitated better inventory.

Nike, Macy’s, and other firms are all showing the benefits of an inventory strategy that keeps more capital in play for manufacturing and product development.

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