Nike: ‘Engineering labour out of the product will reduce costs'
28/06/2013
“We have definitely seen some fairly significant increases in wage rates in a couple of countries,” said Nike president Charlie Denson. “I think the one in Indonesia certainly was pretty well publicised. We haven't seen the growth in quite that level in other places. But they have all been added up.
“With respect to Flyknit, I think the longer term solution to addressing a lot of these labour cost issues is really engineering the labour out of the product and that really is with technologies and innovations like Flyknit and there are a number of others that we have in the pipeline that are aimed at the same thing.
“We are in the midst of a fairly major effort to scale Flyknit across other models. We are just scratching the surface in terms of the potential that it offers from a performance and an aesthetic standpoint, let alone the manufacturing capabilities.”
The statements were made as part of the investors’ call to discuss the brand’s fourth quarter and fiscal 2013 results. Revenues increased 7% in the three months to May 31, to $6.7 billion, better than analysts had expected. Full-year revenue grew 8% to $25.3 billion.
The key markets for the company were the US – which saw a record year for stores and online – and China, described as needing “discipline and patience”. “The race from China is a marathon. It’s not a sprint,” said Mr Denson. “We are set up for the long run.”
Revenues in North America exceeded $10 billion with most key categories, as well as footwear, apparel and equipment, growing at a double-digit rate. “Clearly, we are up to our game in products, distribution and how we connect with consumers.
“New innovations in technologies continue to accelerate the pace of change in the industry and our business, and we are focused on leading on changes. In fiscal year '13, that created greater differentiation and separation for Nike, and that's key to expanding our leadership position.”
The company has also “ramped up investment in manufacturing innovations" to counter rising labour costs, said chief financial officer Don Blair. "These will increase the efficiency of existing production methods and over time create more revolutionary improvements in our sourcing base."
He added he expects gross margin for the next quarter will be flat as continued labour cost inflation and unfavourable foreign exchange rates offset the benefits of easing raw material costs and higher selling prices.
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