Nike caught out as China slows

NIke's business in China is slowing faster than expected.

Story highlights

  • Nike reported a fall in new orders in China and said it would revamp its strategy
  • Orders from its greater China region are down 5% year on year
  • Retailers in China were grappling with slowing economy and discerning customers
Nike reported a fall in new orders in China and said it would revamp its strategy in the country as investor concern over its performance sent its shares down.
The US sportswear company said on Thursday that new orders from its greater China region, which includes Taiwan and Hong Kong, were 5 per cent below their level a year ago, confirming a slowdown in a crucial market.
Charlie Denson, president of the Nike brand, said all retailers in China were grappling with a combination of slowing economic growth, excess inventory, and more discerning consumers.
"This is a natural evolution that we've seen in many markets, so it's not a surprise. What is a surprise, like everything in China, is how fast it got here," he told analysts.
Nike shares initially fell more than 4 per cent in after market trading when its results were released, but later recovered slightly to be down 3.2 per cent at $92.90.
Eric Tracy, managing director at Janney Montgomery Scott, said: "Most people knew China was having difficulties but they didn't expect it to deteriorate as quickly as it did."
Nike executives said they would "reset" the market in China by working with retailers to clear excess inventory, improving distribution through Nike-branded stores and tailoring merchandise better to what Chinese consumers want.
Mr Denson said: "So everybody wants to know, how long will it take? I can't answer that with a specific date, what I can tell is you I'm confident we're taking the right actions."
Globally, new orders, a key measure of the company's future revenues, were up 6 per cent from a year ago, but fell short of Wall Street expectations. The orders are due for delivery through January.
Overall the group posted a 12 per cent fall in net income to $567m in the three months to the end of August, although the decline was not as sharp as Wall Street had forecast.
Nike's profitability has been eroding due to higher production costs and marketing spending.
Revenues rose 10 per cent to $6.7bn, ahead of expectations, helped by sales linked to the Euro 2012 football tournament and the London Olympics, where Nike's neon yellow Volt shoes were ubiquitous in athletics.
Several western consumer groups have already reported that they are being hit by reduced economic growth in China.
Mr Tracy said Nike's fall in new orders reflected a combination of economic weakness and sector-specific problems.
"The macro slowdown doesn't help. But there is a specific issue in the athletic, footwear and apparel channel. There is glut of competitors not performing well, being highly promotional and that is causing havoc across the category."
Recalling that Nike entered China 30 years ago, Mark Parker, chief executive, said: "Today, like then, China defies predictions or timetables. But what is certain is that China offers more opportunity for Nike today than it ever has, and I'm completely committed to extending our leadership position there."