Nike and Flex, a contract manufacturer, have agreed to wind down its footwear manufacturing operations in Guadalajara by the end of the year.
Christopher E. Collier, Flex’s CFO, said on the company’s second-quarter conference call on October 25, “Regarding Nike, we have worked hard with Nike to make our footwear operation in Mexico technically and commercially successful. In recent weeks, however, it became clear that we are unable to reach a commercial and viable solution with Nike and have mutually agreed to wind down our Nike footwear manufacturing operation in Guadalajara by December 31, 2018. We are finalizing the terms and details of the wind-down and we are striving to retain many of our affected employees and to repurpose our facility.
“In connection with the closing of the operation, we recognized $30 million of exit costs primarily related to our estimated impairment of fixed assets. We may incur additional costs as we complete the wind-down.”
Asked further in the Q&A session “what went wrong” with the Nike relationship, Collier said, “Okay, I would say that we are disappointed where we sit right now. We’re limited in what we can say as we’re in the midst of negotiating the terms of disengaging with Nike. What I can say is we actively build out our operation into a productive system that we are proud of. Part of fixing it was developing the commercial agreement where Flex shareholders would have a sustainable return, and we were unable to come to that agreement with our partner, thus, this decision.
“I think as we step back, Nike was extremely unique and differentiating, and I think that it was an important feature that we went after and we are just being very thoughtful at this stage in terms of where we sit. And since we can’t get to a commercial agreement where our shareholders – where this is a sustainable return, we decided to exit.”
The two companies first formed their partnership in February 2015 with the promise to accelerate innovation to Nike’s supply chain with a focus on bringing speed, customized solutions and increased performance innovation to footwear production.