The Short Version
Nike said this week it will move its supply chain “from a mostly fixed structure” to a variable cost one under Pace, a $2.5 billion savings plan with about $1 billion in charges.
Gross margin rose 60 basis points to 42.8% on lower warehousing and logistics costs while revenue fell 4%, and Nike cut 583 Memphis warehouse jobs in April.
Our read: Nike is building a network it can cut as fast as sales fall, but the only cut it has shown so far is people.
The News
Nike will move its supply chain from a fixed to a variable cost structure, CEO Elliott Hill told analysts on this week’s earnings call, as part of a $2.5 billion savings plan called Pace. Work is already under way, he said, to take the supply chain “from a mostly fixed structure to one that is more flexible, responsive, and cost effective.”
The call covered the first quarter of fiscal 2027, which ran from June to August. Gross margin rose 60 basis points to 42.8%, which the release credits “primarily” to lower warehousing and logistics costs, while revenue fell 4% to $11.2 billion. Operating overhead fell 6% on lower wages.
Part of that saving came from Memphis, where Nike laid off 583 people at two distribution centers in April, citing automation, according to a Tennessee WARN filing.
Pace targets $2.5 billion in cumulative savings through fiscal 2031 against about $1 billion in charges, mostly employee costs. Nike’s announcement says the supply chain will shift to “a more variable cost structure” with more technology, and that the changes will mean fewer roles over time.
Why It Matters
Nike expects to sell less for at least another year, so it is building a network it can cut as fast as sales fall. The company has guided full-year revenue down by a high single-digit percentage, which means the next three quarters will be worse than the first.
An operator with owned distribution centers and a long sourcing calendar faces the same arithmetic when volume drops, because the buildings and the headcount cost the same whether the shoes arrive or not. Nike has put a dollar figure on getting out of that position, and the first thing it cut was wages.
By The Numbers
Nike cut 583 jobs at two Memphis distribution centers, with layoffs effective April 3.
Dunk revenue fell “by nearly 50%” in the quarter by Nike’s choice, a $200 million hit. Hill also said Nike had been “oversupplying” its Jordan retro shoes.
Inventory fell 3% to $7.8 billion against a 4% drop in revenue, so stock is building relative to sales.
Pace promises $2.5 billion in savings through fiscal 2031 and about $1 billion in charges.
So, Nike is carrying 3% less inventory with 583 fewer Memphis workers, while sales are guided down high single digits.
Who Else
Two shippers The Conveyor covered last month are spending on owned capacity instead. Wegmans is putting $110 million into a refrigerated building and leaving two leased ones, because modern cold space in its home corridor was close to impossible to rent. TJX put $851 million into offices and distribution centers last year, more than four times what it spent opening new stores, so it can hold goods back until it knows which region needs them.
Both expect more volume through their buildings. Nike expects less, which is why it is paying severance instead of pouring concrete.
Pushback
The one change Nike has shown runs the other way from “variable.” Automation replaces wages, which flex with volume, with equipment, which does not. Fewer shoes through the same automated buildings raises cost per pair, so the 60 basis points this quarter came with the headcount, and holding them next quarter will take more cuts of the same kind.
What’s Next
Nike holds its investor day in November, where Hill said the operating-model detail will come. A named 3PL or a closed building would show the network shrinking. An automation budget alone would show Nike keeping its buildings and cutting staff.
