Nike plans to cut about 2% of its workforce, over 1,500 jobs, to reduce costs as consumers face financial challenges that make it difficult to buy non-essential items, like adding more sneakers to their collections.
Nike's Leadership Holding Themselves Accountable
In a memo, Nike CEO John Donahoe reportedly said that this is how they will boost their growth, mentioning, "We are not currently performing at our best, and I ultimately hold myself and my leadership team accountable."
Recently, Nike has noticed that its customers are spending less due to ongoing financial pressures. CFO Matt Friend mentioned to analysts on the company's last earnings call in December that there are signs of cautious consumer behavior globally, stating that total retail sales didn't meet their expectations, with weaker demand outside the key consumer moments.
Nike's Two Phases of Layoffs
Nike announced that the layoffs will happen in two phases. The first round will begin this week, and the second will finish by the end of May, which marks the end of its fiscal fourth quarter. According to the company, the timing for cuts in Nike's EMEA region will vary depending on local labor laws. As per Nike's statement, it remains unclear which departments will be affected, but layoffs won't affect retail employees or warehouse workers at Nike stores.
The cuts are happening as consumers spend more cautiously and the retail industry prepares for a decrease in demand for non-essential items like clothes and shoes, which are Nike's main products.
Quietly Laying Off Jobs Hinting at a Larger Restructuring
In December, Nike announced a large restructuring plan to reduce costs by approximately $2 billion over the next three years. It revised its sales forecast downward due to expected lower demand and wholesale orders, weaker online sales, and increased reliance on promotions in the marketplace.
As part of its cost-cutting plan, Nike aims to simplify its product range, enhance automation and technology usage, streamline the organization by reducing management levels, and utilize its size to improve efficiency.
Just before the restructuring announcement, The Oregonian revealed that Nike had been quietly laying off employees for several weeks, hinting at a more significant restructuring. Cuts were made in various departments, including recruitment, sourcing, brand, engineering, human resources, and innovation. It's uncertain how many jobs Nike has cut since December.
On Friday morning, Oppenheimer downgraded Nike's rating to "perform" and reduced its price target for the next 12 to 18 months, citing slow consumer demand, a slowdown in production innovation, and increased competition as reasons for the downgrade. The firm said that Nike is not broken but believes the company and its brand are going through a transition soon.
Donahoe stated that laid-off employees will receive a complete package of financial, healthcare, and job placement support services, saying, "We will emerge stronger and better equipped to fulfill our purpose to serve all athletes and grow the future of sport."
