On Thursday, Nike, the world's largest athletic shoe and sportswear manufacturer, announced plans to cut 1,750 jobs, or five percent of its workforce. Following the news, the company's stock rose nearly three percent, to close at $50.95.
In February, Nike planned to cut 1,400 jobs, or four percent of its workforce, in an effort to reorganize and streamline its global supply. The decision to increase cuts came in reaction to a four percent drop in sales in the most recent quarter. While the company has fared better than most of its competitors, its stock value has dropped by 25 percent over the last year, as high-priced athletic shoes have emerged as a luxury purchase that can definitely be delayed in the middle of a recession.
Oregon is one of the places where Nike's cuts hit first and hardest. This, after all, is the state where the iconic brand began in 1964, when legendary track coach Bill Bowerman struck a handshake deal with one of his former runners and began building custom-made running shoes. Even today, the company's headquarters are on Bowerman Drive, and that's where the first 500 job cuts happened. Given that Nike has roughly 6,800 workers at its head office, this represents a layoff of slightly over seven percent, which is two percent higher than the global average.
While the remaining 1,250 jobs will be shed from locations around the world, it seems likely that many will come from offices in China and Vietnam. In late March, the manufacturer announced plans to cease orders to three factories in the area, citing decreasing demand for products, paired with a desire to reduce inefficiencies in its supply chain. Nike has 640 contract factories located around the world and offices in over 45 countries; if the company continues to see a slump in sales, it is reasonable to expect that more and more positions will be shed from far-flung outposts as the company draws inward.
At the same time, China is emerging as one of the manufacturer's top overseas markets. Sales in the Asia Pacific region jumped by 39 percent over the past year, and China was singled out as an independent region in a recent reorganization. This suggests that the production powerhouse (and emerging market) may end up seeing a resurgence in investment, particularly if Nike finds a connection between the people it employs and the shoes that it sells.
Take the first steps to building your portfolio.View Course »