As part of its broad restructuring program first announced in December, Nike is set to cut about 2 percent of its total workforce, or more than 1,600 jobs, to lower expenses as demand for the brand comes under pressure. The Wall Street Journal was the first to report the new round of layoffs late on Thursday.

Reuters had its take on the issues at Nike, suggesting that higher rent and interest rates have led sneaker customers to cut back spending on high-priced goods. Others argue that the slowdown may also be a shift in brand preference as brands like Hoka and On take more mindshare, even in the urban retail space, as consumers look for innovation and freshness.

“The brands that are hot right now are not low-end brands,” offered active lifestyle market analyst and advisor Matt Powell. The brands that are doing well are high-end like Hoka, On, Lulu, Vuori, and Alo Yoga.”

Part of the issue, Powell noted, was the fact Nike virtually shut down the innovation lab during COVID-19. He said they instead tried to live off their pipeline of Air Force 1 and other less innovative products that kept the cash coming in — until it didn’t.

Powell said brands like New Balance, Brooks and Asics are all doing well at retail because they have kept the innovation engine going and are reaping the benefits.

Nike lost its head of global men’s running last week after Deckers hired her as president of the Hoka brand. (Read SGB Media‘s coverage below).

Nike, Inc. announced a broad restructuring program in December while slashing its revenue guidance for its fiscal year amid softening online sales, promotional pressures, and heightened macro headwinds, particularly in China and EMEA. (Read SGB Media‘s coverage below).

For its fiscal year ended May 31, 2024, sales are now projected to increase only 1 percent against a prior outlook of a mid-single-digit increase.

“Last quarter, as I provided guidance, I highlighted a number of risks in our operating environment, including the effects of a stronger U.S. dollar on foreign currency translation, consumer demand over the holiday season, and our second-half wholesale order books. Looking forward, the impact of these risks is becoming clearer,” said Nike CFO Matt Friend on a conference call with analysts. “This new outlook reflects increased macro headwinds, particularly in Greater China and EMEA; adjusted digital growth plans based on recent digital traffic softness and higher marketplace promotions; life cycle management of key product franchises; and a stronger U.S. dollar that has negatively impacted second-half reported revenue versus 90 days ago.”

Nike inventory (in value) was down 14 percent at the end of the latest second quarter versus the prior year and down high single-digits versus the prior quarter. In total, Nike inventory dollars are down over $1.5 billion from the peak at the end of Q1 in the prior year, with days in inventory continuing to improve. Total footwear and apparel inventory units across the marketplace are down double-digits versus the prior year.

The Journal said the cuts were expected to start on February 16, and a second phase would be completed by the end of the current quarter. The layoffs are not expected to impact employees in stores and distribution centers or those in its innovation team, the report said.

The cost-cutting program is designed to shave $2 billion in expenses over the next three years. Friend said Nike would look for cost savings “both up and down our P&L and across our value chain.” Areas of focus as part of the plan include:

  • Simplifying product assortments;
  • Improving supply-chain efficiency;
  • Leveraging scale to lower the marginal cost of operations;
  • Increasing automation and speed from data and technology;
  • Streamlining organizational structure; and
  • Reducing management layers and enhancing procurement capabilities.

Nike said at the time it expects to take a restructuring charge of $400 million to $450 million in its second half, primarily related to severance costs, which will be recognized mainly in the third quarter.

Friend added, “And as we look to drive greater efficiency and productivity, we will reallocate and invest the majority of these savings to deliver the greatest consumer impact on our largest growth opportunities. Ultimately, we believe that building a faster and more efficient Nike will accelerate future growth and innovation and deliver long-term profitability, creating value for years to come. We will continue sharing updates over the coming quarters.”

Nike Inc. President and CEO John Donahoe said on the call that the cost-cutting steps would enable Nike to invest more in innovation and better target areas of the company with the strongest growth potential, citing women’s, Jordan Brand, and running.

“We’re getting back on our front foot, accelerating the flow of our innovation and executing with excellence across our winning formula of innovative product times distinctive storytelling times differentiated marketplace experiences,” he said.

He cited momentum in trail running, which grew over 20 percent in the last quarter, and basketball, where Donahoe called out “huge momentum” in the sales of signature sneakers of players Sabrina Ionescu, Jayson Tatum, Luka Doncic, and Ja Morant.

Donahoe added, “The second half of fiscal ’24 represents the start of a multi-year product innovation cycle that will introduce new franchise concepts and platforms, elevating our full portfolio. And while there’ll be some key moments in the second half, this innovation cycle will take some time to fully ramp up, given our size and scale.”

Innovation is king in this market.

Image courtesy Nike

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For more SGB Media coverage about this evolving story, see below.

Deckers Brands Taps into Nike Running Leadership for New Hoka President

EXEC: Nike’s Reduced Outlook, Planned Cuts and Market View Takes Broader Market Down