DLNews Biz:

In a red-flag announcement on Thursday, Nike sounded the alarm on cautious consumer spending and a volatile retail landscape, triggering a sharp 14% drop in its shares. The sportswear giant warned of flat sales for the year and unveiled plans to slash costs by $2 billion. Nike revised its annual sales forecast to minimal growth for the fiscal year ending in May, attributing the slump to weakened demand from China, Europe, and other regions.

Reacting to the crisis, Nike unveiled a strategy to streamline product lines and simplify offerings, aiming for greater efficiency. This move comes alongside anticipation of pre-tax charges ranging from $400-450 million due to employee severance agreements in the upcoming quarter.

Chief Financial Officer Matthew Friend underscored the global shift in consumer behavior, noting a move from discretionary purchases like sneakers to essentials and experiential spending, such as travel. The "unfavorable global economic backdrop" has seen consumers prioritizing basics like toilet paper over-indulgent buys.

As the sales slowdown gains momentum, retailers scramble to attract consumers back to stores, engaging in Black Friday and Cyber Monday pricing battles. Despite its online presence, Nike has been hit, and the company is working to boost direct-to-consumer sales. However, it faces fierce competition from rising stars like Lululemon and Hoka in the activewear category.

The urgency to cut costs comes as Nike grapples with a shifting market, where traditional sportswear loses ground to more fashion-forward styles. Adidas has recognized this shift and plans to tighten supply chain management, cut management layers, and increase automation. On the other hand, Nike is ramping up promotions, reducing wholesale forecasts, and carefully managing inventory levels.

In the face of competition from brands like Dick's Sporting Goods and Lululemon, Nike's struggle for market share intensifies, especially among younger consumers. The cost-cutting measure aims to weather the storm and maintain resilience against the evolving retail landscape. Nike's response underscores the urgency and complexity of challenges in the retail sector.