How Do Large Companies Deal with Excess Inventory?
Image Source: Business Insider
Since the outbreak of Covid-19, we all have known that many companies worldwide have experienced the delay of the supply chain, suffering from the delay of production, selling, and profit-earning. Similarly, as its factories in Indonesia and Vietnam were closed after Covid-19 outbreaks, Nike’s goods have arrived late for the spring, summer, and fall 2022. The inventory level of Nike has spiked 65% in North America, its largest market.
To deal with its extra inventory, Nike decides to supply more clothes, shoes and other sports products at a highly discounted price to its factory stores, other online platforms and discount stores like TJMAXX. By doing so, there are greater varieties for the consumers, which are more cost-effective, diverse, and attractive to purchase.
Optimistically, the direct and digital sales of Nike increased 14% and 23% respectively, and its quarterly revenue increased 10% to $12.7 billion, above the $12.28 billion projected by Wall Street. Following this trend, hopefully, Nike starts to recover from its economic losses due to the Covid-19. However, others argue that the profit margin of Nike could decrease as a result of the excess inventory. In addition to the salary of the employees, transportation and maintenance fees, Nike may not necessarily earn as tremendous profits as it seems to be.
Moreover, even though ideally, the consumers will buy more Nike products from various channels, they tend to save more money at this stage. Despite the nationwide sale, they could be less likely to spend more on Nike products, and Nike could encounter the excess inventory and the consequences again. Furthermore, the excess inventory could end up in the landfills or transported to less economically developed countries (but people there may not need the clothes). This not only wastes precious resources (water, electricity, cotton, etc.) and human efforts, but also could destroy the desirable public image of Nike: producing shoes from recycled ocean trash, supporting groups of athletes regardless of their background…
All in all, although nationwide on and off-line sales could clear Nike’s excess inventory and make more profits, the effects could be overestimated, because of the huge market damage by the Covid-19, the lower consumer confidence and environmental degradation. The long-term effect of this approach still needs to be determined, but at least Nike is making more profits. To combat the effects of Covid-19 on business, Nike could also work on research and development (e.g. develop and promote on-line workout apps) and the local production of its products. Nevertheless, it is expensive and takes time, like the Covid-19 itself.
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