Nike plans to increase its orders for footwear and apparel 7 percent over the next six months and will turn to greater use of air freight to “meet the tremendous growth in orders” for the fall.
The athletic wear giant, traditionally a major user of ocean container shipping, says the air freight will drive up costs and cut into margins, pressuring the company to tighten its supply chain as sales grow.
“We’re managing the supply chain a lot tighter, reducing discounts and closeouts, increasing our closeout margins at the same time managing inventory as well as we ever have,” President and CEO Mark Parker told investment analysts in a conference call this week after Nike released its earnings report on the fiscal year ending May 31.
“We’re expanding margins from some of the other businesses, … (with) leaner inventories,” he said.
Nike’s overall revenue fell 1 percent during the 12-month period, but net profit grew 30 percent to $2.52 billion and the company’s profit grew 53 percent on an 8 percent hike in revenue in the fourth quarter. Nike’s inventories declined 13.4 percent during the year as the company extended a strategy of lean manufacturing and distribution.
“We further streamlined our supply chain with a new distribution center in Memphis and another D.C. targeted to open in just a few months in China.,” Parker said.
The growing demand, however, is “some good news, bad news,” said Chief Financial Officer Don Blair, since it is “creating the need to do some additional air freighting.”
Spot market air freight prices have grown more than 20 percent in some Asia markets in recent weeks as demand out of the region has outstripped supply.