Nike is a world-famous brand and company for the production of sportswear and footwear. Nike has gradually developed into a giant in the sports world and has several equally well-known subsidiaries: Hurley International, Converse, Cole Haan, Umbro, and Air Jordan, with about 1150 stores worldwide. In 2021, Nike’s revenue grew by 19% to $44.5 billion. Nike’s success results from constant innovation and timely investments that bring hundreds of millions of dollars to the brand every year. According to the official website, at the moment, the company adheres to three main priorities.
People: Ensuring diversity, equity, and inclusiveness, responsible sourcing, and community building.
Planet: reduce carbon emissions, waste and water consumption, and use chemicals more efficiently.
Children: Through the Made to Play program, the company aims to provide more opportunities for all younger generation members to play sports.
Thanks to high-profile advertising campaigns and stylish designs, Nike has a prominent place in the footwear industry today.
Results: Days in Inventory = Inventory / Daily COGS.
Nike calculations:
2019 Days of inventory = Inventory / Daily COGS = 19.3 / 5.06 = 3.83 B
2020 Days of inventory = Inventory / Daily COGS = 2.75 / 1.06 = 2.37 B
Analysis: The company’s performance dropped in 2019 due to canceling sporting events, mass marketing promotions, and other holidays. Q4 results were significantly impacted by store closures worldwide, with 90% of Nike stores closed for approximately eight weeks due to the coronavirus (quote). As you can see from the table, in 2020, Nike’s performance has increased significantly (by 62%) when the world has already adapted enough to online life.
Improvement opportunity: In 2019, Nike retained a significant amount of inventory, which helped the company make up for lost profits and maintain it. Since there was an increase in stock in 2019 due to the global crisis, Nike did not need to spend on storing inventory.
- New Inventory Level = 2019 Days in Inventory X 2020 daily COGS 95.3 x 2.37 = 225.861
- Reduction in inventory = 2020 Inventory – New Inventory Level calculated above 1.16 – 225.861 = 1.159
- Annual savings = Inventory reduction calculated above x carrying cost rate (assuming a 25% carrying cost) 1.159 x 0.25 = 0.29