The hidden danger behind Nike has been lurking for a long time

Nonetheless, there is no doubt that Greater China is becoming an important market for Nike. Nike’s report for the second quarter of fiscal 2011 shows that as of November 30, 2011, Nike Greater China’s revenue was US$482 million, a year-on-year increase. 20%. From the perspective of profitability, Nike Greater China's pre-tax profit was 174 million U.S. dollars, a year-on-year increase of 39%, which was the highest year-on-year increase in Nike's six major markets. The North American market ranked second with a year-on-year increase of 24%.

For this important market in development, Nike has demonstrated its unprecedented importance: After entering the Chinese market for more than 30 years, it finally plans to establish a more than 50,000 square meters Nike Greater China headquarters in China.

This seems to herald a huge change: On the one hand, Nike has completed a phased mission in China's Western Expedition by means of the foundry and agent model. The upcoming battle is that Nike must personally go into battle. On the other hand, the Chinese market has already completed its transformation in the brewing process. The cost of OEM has been rising. The cost of rents, labor, etc. has risen. The frontline market has entered a bottleneck and the market potential for the third and fourth tiers remains to be tapped.

Nike has always been known for its "virtual management" light company model, focusing on the brand and design, launching a charming "smile curve", and vigorously carry out emotional marketing, all the way down the road, but now, at least in China, the situation has changed .

"Smile curve"

Nike's worries are not sudden, but have been lurking for a long time.

Let's take a look at the famous Nike myth: In Beaverton, Oregon, a four-story Nike headquarters cannot see a pair of shoes. The employees are only busy doing two things. One thing is to establish a global marketing network. Another thing is to manage the companies it has spread all over the world. Do not have to produce their own, Nike has created a global business empire. A pair of Nike shoes, producers can only get a few cents of earnings, and with its global sales, Nike can get tens or even hundreds of dollars in profits.

This is Nike's famous virtual business model: all products are not manufactured by their own production, but outsourced to other manufacturers processing. Nike concentrates all its human, material, and financial resources, invests in product design and marketing, and strengthens its product design and marketing capabilities.

Nike handed the design drawings to the manufacturer to produce them strictly in accordance with the drawings. Afterwards, Nike inspected and branded the products and sold the products through its own marketing network. Nike’s strategy saves a lot of production investment and equipment purchase costs, outsources the production of products to companies in Southeast Asia, etc. The use of local cheap labor and raw materials has greatly saved labor and raw material costs.

Correspondingly, Nike has spared no effort or even crazy input on brand promotion: In fiscal year 2011 alone, Nike used $2.448 billion in advertising and promotion, accounting for 11.73% of Nike's revenue.

Nike former director of marketing Scott Bedley had recalled when he introduced the advertising budget to Nike founder Knight in 1987 when Bedbury asked for an increase in advertising budget from $8 million to $34 million. In order to make this budget pass, he made all preparations. However, Knight put forward a question that Bedford never considered: "How do we know that your budget is sufficient?" As a result, Nike's advertising expenditure for the first time reached 48 million U.S. dollars. Since then, this company, which is full of innovative spirits in sports marketing, has maintained a staggering style in brand marketing.

In terms of product design and brand communication, Nike has done its best. This can be seen from its large and expensive spokesperson team. As for production and sales, it is a matter of foundries and agents, but the problem may be precisely in these areas. .

Great OEM

The value of foundries lies in their ultra-low cost: cheap labor, cheap raw materials purchased locally, and low rents. Now, these so-called "advantages" are undergoing obvious changes.

On the one hand, China's cotton-based raw material prices, including plant rents, oil, and rubber, continue to soar; on the other hand, it is the recurrence of overtime and ultra-low pay for foundry workers. Prior to 2010, China was still Nike’s largest foundry, but now Nike’s foundries have shifted to lower-cost countries such as Vietnam.

Nike’s annual report shows that in 2001, China produced 40% of its shoes, ranked first in the world, and Vietnam only accounted for 13%; by 2005, China’s share dropped to 36%, and Vietnam’s rose to 26%, ranking second In 2009, China and Vietnam tied for the first place with a share of 36%; in 2010, Vietnam’s share rose to 37%, surpassing China’s 34%.

Nike's foundries in China are mainly distributed in Fujian, Guangdong, Qingdao, Shandong, Taicang, Jiangsu, Nanchang, Jiangxi, and Taiwan, and most of them belong to Nike’s big industrial and commercial treasurers. Bao Cheng was founded by Cai Qirui in Taiwan in 1969. He is not only an OEM Nike, but also an international sports brand such as Adidas and Reebok. He is the largest foundry of Nike and Adidas.

For a foundry, especially a big-generation factory like Baocheng, there are two general problems:

First, the cost sensitivity is very high. Because of the large volume of supply, a slight change in the unit cost will have a huge impact on the final profit. Therefore, the foundry generally has the characteristics of moving from a high cost land to a low cost place. In the history of factory development, it has never stopped its geographical shift from North America to South America, Japan, South Korea, and Taiwan, to the southeastern coast of the Mainland (coming to the past), and then to Vietnam and Indonesia (the next stop for foundries). ). According to the Nike website, sports shoes are particularly sensitive to labor costs, and companies must control labor costs within 24% to be competitive.

The second is that the requirements for production time are rather demanding, especially for sports shoes OEMs. Because of the increase in people’s consumption levels, the life cycle of shoes is gradually shortened, and the sales period of products is shortened. This reflects the speed of reaction of foundries. Very high demand, from the previous 5 to 6 months delivery, until the current 3 months or so will have to deliver. This means that the foundry must shorten the production process and increase the speed of response.

In China, rising costs have forced Nike's foundries to shift to Vietnam and other places. At the same time, because of the shrinking profit margin of foundries, some foundries have begun to take orders, resulting in Nike’s lack of stocks (as is known, Nike There is a shortage problem). Other foundries require brand owners to increase prices to cope with rising costs.

For a strong brand such as Nike, this kind of trick seems to be scary: You don't do it, and naturally someone does it. However, in the face of super-general industry and commerce that holds most of Nike's orders, the capital of Nike's negotiations is obviously insufficient.

In early 2011, Nike stated that it wants to increase the price of most products. Nike released its 2011 third quarter earnings report, saying that operating income rose by 5.2% during the quarter, but due to rising oil, cotton, labor costs, and shipping costs, Nike's gross profit margin was not high. Nike executives said that in order to ease the rising cost pressures, only price increases.

To some extent, due to the lack of control over the production process, Nike is indirectly "behaved" by the big OEM model. In addition to the inevitable price increase, the shortage problem has also been plaguing Nike. In Dongguan popular with such a saying: "Dongguan traffic jams, global out of stock."

In addition to this, the out-of-control of the cost cycle has made Nike's profits lower. Nike recently announced the first quarter of fiscal 2012 (June to August 2011) results, Greater China revenue increased by 15% year-on-year, pre-tax profit increased 4% year-on-year, including pre-tax profit growth hit Nike Greater China recently 5 The lowest since the quarter. In addition, Nike’s overall inventory amount reached US$3.107 billion in the first quarter of fiscal 2012, and the global inventory amount increased by 41% year-on-year. This inventory amount is at the highest level compared with the amount of Nike’s inventory over the years since fiscal 2006.

Looking at the amount of inventory, Nike now seems to be facing the problem of a large increase in the amount of inventory from 2008 to 2009. Nike paid a corresponding price for its price increase: Take the Chinese market as an example, because Nike raised the price of its products (about 8%). Gains), which led to a substantial increase in inventory.

As a result, the increase in upstream costs is like opening a magic curse, the chain reaction is continuing, and the mirror has turned the other side. The market situation makes Nike difficult to be optimistic.