Sporting Good:Implications from Nike’s restructuring:Embracing a New Era

Conclusion: we expect strong vendors & distributors will become evenstronger, recommend buy the value chaiithe current dowcycle

    Event: (1) restructuring, (2) cut 25% number of styles and (3) increase speedAccording to HK Economic Journal (dated 2017-Jun-16), Nike plans to (1)restructure its business organizatiowhile cutting 2% of global workforce,(2) cut number of styles by 25% (3) cut product creatiocycles ihalf.

    We have confirmed with ODMs that the restructuring has beewellcommunicatedby Nike earlier this year.

    Implications: major overhaul to eco-system, the strong will become stronger

    Vendor consolidatiocalls for niche positioning: reductioistyles (SKUs)and cycle time will push another round of vendor consolidation, iourview. We see vendors with competitive niche taking market shares fromthose that are smaller iscale. Notable shifts: Eclat taking high-end fabricorders from Rui Yi, Shenzhou taking mid-end apparel orders from otherChinese vendors, Feng Tay & Yue Yuetaking share from Ching Luh. Nikealso expanded its vendor list of the “Nike Lab” brand for more innovation.

    Eclat commented that it will further branch into niche segments and hasreceived new orders from Nike. Shenzhou’s strong Nike growth YTDreflects consolidatio(“related research” table ithe right-hand-side).

    How would Nike cut product creatiocycles ihalf? New desigtools,automatioand Flyknit: currently product desigtakes c. 6 months (50%of the total cycle time). We believe Nike has beeimplementing newdesigtools co-working with Flex to reduce the desigcycle. Onproduction, we saw major investments iautomatiotools by leadingODMs since 2H16, with Yue Yuebeing one of the most aggressive.Equipment makers including Shima Seiki (￥5,050, Not Rated) likelybenefited. Flyknit is another driver to cut lead-time with “Express Lane”.

    Distributor efficiency programs: leading distributors are accelerating theirinvestments iefficiency programs (Quick Strike, Direct SupplyPrograms…etc.). This will trigger better SSSg and market share gains.