Nike (NKE.N) has announced its intention to reduce its workforce by approximately 2%, equating to more than 1,600 jobs, in a bid to curtail expenses amidst a challenging market for its footwear and sneakers.
The decision comes as higher rental and interest rates prompt consumers to scale back spending on premium goods.
This trend has led sportswear giants such as Nike and Adidas (ADSGn.DE) to caution that retailers are trimming their orders through wholesale channels.
In December, Nike outlined a cost-saving strategy amounting to $2 billion over the next three years.
This plan includes measures like tightening the supply of certain products and streamlining management layers.
As part of these efforts, the company projected severance costs for employees in the range of $400 million to $450 million for the third quarter.
As of May 31, 2023, Nike employed approximately 83,700 individuals.
Neil Saunders, Managing Director at GlobalData, remarked that these job cuts demonstrate Nike’s proactive stance in anticipation of potentially further softening demand.
Moreover, Nike has faced competition from emerging brands like Decker Outdoors’ (DECK.N) Hoka and On Holding (ONON.N), whose running shoes have resonated with consumers seeking distinctive and innovative styles.
Saunders added, “Nike also wants to invest more in areas like running so it can gain market share; to do that, it needs to balance the additional expenses with some reductions elsewhere.”
According to The Wall Street Journal, the layoffs are slated to commence on Friday, with a second phase expected to conclude by the end of the current quarter.
However, the report assures that employees in stores, distribution centers, and the innovation team will not be affected by the restructuring.
Following the news, Nike’s shares experienced a 4% decline subsequent to brokerage Oppenheimer downgrading the stock to “perform” and revising its price target downwards, citing concerns regarding inconsistent consumer demand in the coming quarters.