Analysis: The latest inventory levels in the Sporting Goods Industry, Q2 2023

• Inventory levels this quarter vary greatly by region and segment

• Over half of the companies we examined had lower year-over-year inventory levels

• One analyst warns Nike figures are deceiving

• Discounting is expected to continue in North America and Europe throughout the remainder of 2023

Inventory levels in the sporting goods industry

At the end of Q2 2023, inventory levels vary greatly by region and segment, with North America and Apparel and Footwear seen as key worry spots.

Fifteen entrants from our analysis of 27 leading globl companies had lower year-over-year inventory levels at Q2-end, led by Garmin, Nautilus, and Columbia Sportswear.

Fourteen firms, led by Under Armour and Deckers Brands, had higher year-over-year inventory levels compared with Q2 2022.

Nike’s is “comfortable” with its inventory levels

Only Nike had flat year-over-year inventory, but one analyst warns the figures are deceiving given the company’s year-ago figure was too high as well, and that Cost of Goods Sold and Forward Weeks of Supply are better metrics to measure.

By one analyst’s estimate, Nike was likely sitting on $500 to $700 million worth of excess inventory at the end of its Q4 on May 31. Late last month, the company reported a double-digit drop in inventory units and a 10 percent year-over-year decline in inventory dollar value.

“On the whole, we are very comfortable with the level of inventory in the marketplace in relation to the retail sales that we’re seeing as we begin increasing levels of wholesale sell-in in our second half,” Nike CFO Matt Friend said during the Sept. 28 earnings call.

Nike’s rival Under Armour, which recently hired a Gap Inc. senior executive as its Chief Supply Chain Officer, continues to struggle with high inventory levels and has been forced to offer huge discounts to move older, stale merchandise. After reporting a 38 percent year-over-year increase at the end of its Q1, the company saw its year-over-year inventory level increase move slightly downward to 35 percent in our Q2 analysis of inventory. Consider that on Sept. 6, Under Armour emailed clients an “Up to 50% Off, plus an Extra 30% off” offer. On Oct. 2, the deal was altered to “Up to 50% Off, plus an Extra 40% off.”

A  downloadable version of this table is available here.

Analysts react to inventory situation

Creditsafe, a global credit monitoring and risk management firm, estimates that excess inventory of all types will be a bigger problem during this year’s US holiday season, given that one-quarter of all brands and retailers intend to order more merchandise than last year. A further 44 percent of brands and retailers were expected to purchase the same level as they did for the 2022 holiday season.

This is a problem. If surplus stock from 2022 doesn’t sell through this holiday season, profit margins will suffer. And several consecutive years of lower profit margins will significantly impact the fortunes of brands and retailers, who are already losing revenues due to decreased consumer spending on key items.

A  downloadable version of this table is available here.

Discounting is expected to continue in North America and Europe throughout the remainder of 2023 and into early next year as companies aim to get in better shape for the Spring and Fall 2024 seasons and improve merchandise and gross margins.

Slowing discretionary spending by US consumers and vendors and retailers’ desire to “right size” their expected inventory levels have begun to lower import cargo volume into the country, according to the Global Port Tracker. Ships are now sailing fully loaded, and freight rates are declining as a result.

Matt Powell, principal analyst for Spurwink River, assessed the industry’s latest inventory situation saying: “I think the dollar value of inventory is coming back to normal levels, but the inventory is still made up of stale and oversaturated styles. The quantity has improved, but the quality still needs a lot of work.”

Index photo via Pexels / Headline photo Ruchindra Gunasekara on Unsplash