Yesterday on Thursday, Nike announced that it will cut its global workforce by 2 percent in a broad restructuring, a move seen as a reflection of the company’s somewhat weakened competitive position and a sagging retail sector. Nike is facing a very stiff competition from the likes of Adidas and Under Armour, that recently both . Therefore, with that alone doesn’t need a rocket scientist to predict that Nike is really going through some rough time, hence resulting in this broad restructuring move.
Nike had 70,000 employees at the end of last year, so with this recent announcement would work out to about 1,400 jobs altogether.
It’s unclear how many of those positions will be eliminated as the company employs 12,000 at its headquarters and neighboring business parks.
Nike said it will launch a “Consumer Direct Offense,” to get fewer, but more compelling, products to customers more quickly.
“The future of sport will be decided by the company that obsesses the needs of the evolving consumer,” chief executive Mark Parker said in a written statement.
Nike’s stock fell 3.3 percent Thursday morning to $52.84. Shares have traded between $49.01 and $60.33 in the past year.
The largest company headquartered in Oregon, Nike had $32.4 billion in sales last year – up 5.9 percent from $30.6 billion the prior year. It reported $3.8 billion in profits. It’s in the process of a major expansion of its headquarters campus.
And yet Nike has been losing ground to Adidas and Under Armour, which have been growing faster and taking market share.
Nike executives had hinted in their third-quarter earnings call that significant change was afoot to speed product development. I didn’t find it a complete surprise because business is tough. The company needed to streamline and simplify things.
On Thursday, the company said it will focus on 12 cities — New York, London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City, Barcelona, Seoul, and Milan – where it expects to generate 80 percent of its growth over the next few years.
The campaign comes two years after Adidas launched its own “Key Cities” initiative. Adidas, which has been on a tremendous roll in the past two years, has taken momentum and market share from Nike. That is a page directly out of Adidas’ playbook.
Lately Nike’s products were drawing lukewarm receptions from consumers. The company’s products were underwhelming and its innovation lacking.
Therefore Nike’s restructuring was necessary and unavoidable. That said, it could be a year before the reorganization yields appreciable results.
The reality is, Nike is a massive battleship. It takes a while to change direction when you’ve gone off course.
The company put Trevor Edwards, president of the Nike brand, in charge of the new consumer direct initiative.
Additionally, Nike said it will scale back its structure from six regions to four – North America, Europe, Asia, and the Middle East and Africa. And the company said it will reduce its total product lineup by 25 percent.
“Today we serve our athletes in a changing world: one that’s faster and more personal,” Edwards said in a statement Thursday. “This new structure aligns all of our teams toward our ultimate goal — to deliver innovation, at speed, through more direct connections.”
Nike’s sudden retrenchment comes after years of sometimes explosive growth. That in October 2015, analysts once predicted that Nike would grow from $30 billion to $50 billion in sales by 2020.
But the torrid five years have given way to a more uncertain time due to both internal and external factors. Some of the biggest names in athletic retail are struggling. The Sports Authority and a handful of others have failed altogether.
Nike and other major wholesalers have had little choice but to rapidly ramp up their own e-commerce websites and outlet store operations.
Nike is not the only sneaker maker encountering difficult times. After two years of explosive growth, Under Armour has seen demand suddenly level off this year. The company, which will soon open a major new office in Portland, lost money in the first quarter of the year.
The layoffs will take effect over the next several months. Severance packages will be provided.
Layoffs have been rare at Nike. And at 2 percent of the company’s total workforce, this downsizing is a relatively small one. When Nike laid off 1,600 in March 1998 that constituted about 7 percent of the total. It shrunk its staff by about 5 percent when it laid off 1,750 in 2009.
