Clarke said U.S. inventories should by worked off by the end of the company's fiscal year ending in May 1998, and the Asia-Pacific region should be cleared by December. While that would empty Nike's warehouses, it would still leave piles of shoes clogging retail channels for some time.
One hedge fund manager, who is short Nike, worried that the company would transfer excess inventory from Asia to Europe. "Europe is now becoming a problem," he said. "That was the safe haven. I'd bet they're shipping a few million pairs of sneakers from Japan to Europe, which will further depress that market." As for the U.S. he added: "No one believes they'll get rid of all their inventory by May."
On the flip side, Andrew Sidoti, an analyst with William Smith in Denver, says he is cheered by Nike's speedy sell-through of closeout products -- merchandise that Nike sells to retailers at a discount to move it out of its warehouses. "That means the brand is still intact and things aren't going to hell in a hand basket," he says.
Clarke even said there were signs of resurgence in athletic footwear in the U.S. "Fall futures booking for outdoor shoes are up 56%," he said. "That's been a precursor to a full-fledged return to athletic."
Nevertheless, making a rare appearance on Nike's conference call, Philip Knight, chairman and chief executive, acknowledged the seriousness of the situation. "It's a dark day around these halls," he said. "Even in these dark days, there are moments of some humor," he continued on a lighter note. He then relayed how baseball player Ken Griffy Jr. of the Seattle Mariners called him to place an order for some batting gloves, noting the Nike's layoffs.
As expected (click here for an earlier story Wednesday), Nike said it would cut its global workforce by 1,600 people, or 7% of its staff. About 50% of those cuts will come from the U.S. Also as part of the restructuring, the company said it would take a charge between $125 million and $175 million in the fourth quarter. Nike also said it plans to reduce spending by $100 million in fiscal year 1999, with much of that reduction coming from U.S. advertising.
"Our problems haven't been too much marketing," Knight said. "But too much ineffective marketing." He added that he's not criticizing the company's new "I Can" campaign.
But some call the costs savings window-dressing, given that Nike has said its revenues would likely be flat next year and gross margins could decrease by $100 million due to the lower closeout pricing. Clarke said the company originally cut about $300 million from its spending budget. But Nike decided certain investments were crucial to its long-term growth. Those expenditures include opening 40 outlet stores around the world, which many analysts consider crucial since they serve as an effective way to move unsold merchandise out of the retail channels. But others question a proposed $80 million earmarked to build three Niketowns -- one each in Miami, Denver and Berlin. Those stores are considered showpieces, rather than integral pieces to Nike's profitability puzzle.
Air Jordan sneakers and Brand Jordan apparel were among the company's strongest sellers, which prompts some investors to wonder who will fill the shoes of the Chicago Bulls superstar when he retires.
Still, Knight was adamant that Nike will ultimately get back on track. "We don't need to redesign our strategy," he said. "We need to lean on product development in shoes and apparel."
But even the most exciting new products will have trouble finding space on retail shelves until the glut of unsold merchandise is pushed into consumer's closets.