An inventory increase of 44%.
That’s the big news sending shares of Nike Inc. (NKE) sharply lower. The stock is off 11% in early trading today, and has lost more than half of its value since peaking in November of last year.
Nike has a huge inventory problem right now. And that’s dragging profits, projections, and ultimately the stock sharply lower.
Thankfully, there’s a silver lining for you as an investor (and possibly for you as a consumer).
We’ll get to that shortly.
But first, let’s take a look at how Nike’s inventory problem got started.
Supply Chain Weakness? Or Supply Glut?!
A few quarters ago, retail companies like Nike were struggling to get inventory.
Thanks to pandemic lockdowns, the global supply chain was incredibly clogged.
- Factories had trouble getting raw materials.
- A tight job market made it tough to produce products.
- Shipping delays kept products from hitting shelves.
And in response to these issues, retailers like Nike double-ordered merchandise from different suppliers — hoping that some of this merchandise would eventually make its way to shelves.
Fast forward to mid-year 2022…
Now all of these orders are being filled and retailers like Nike have too much inventory!
And in many cases the inventory is off-season which makes it extremely difficult to move off shelves! (Who wants to buy Nike baseball cleats when the season is almost over?).
So with too much of the wrong inventory piling up, Nike has to offer product at discount just to make room in warehouses and shelves around the world.
(Incidentally, the same thing happened for many technology companies — and now that market is swimming in a glut of semiconductors, prices are dropping. We’ll cover that another time.)
Nike’s 44% inventory glut is bad news for NKE investors. But it’s actually good news for two other stocks you should have on your radar.
Discount Retailers Get Premium Merchandise
Discount retailers like TJX Companies (TJX) and Ross Stores (RST) are actually benefiting from the problems at big retailers like Nike.
That’s because when big retailers have too much inventory, they often turn to discount stores like TJX and RST for help.
Here’s how it works.
NKE sells bulk amounts of excess retail to companies like TJX and RST at deep discounts.
By unloading truckloads of merchandise, NKE gets something for their products. And more importantly, this frees up room in warehouses and on shelves for the newest high-value merchandise that is in season.
TJX and RST can then take the merchandise (which was bought for a song), and sell new apparel and accessories to its own customers for a reasonable markup.
In today’s inflationary environment, more customers are turning to stores like TJX and RST. That’s because shoppers get more bang for their buck with these plays.
And thanks to excess inventories from Nike and many other name-brand retailers, discount customers can now get high-quality merchandise for very affordable prices.
Good news for consumers. And GREAT news for investors!
I’d suggest adding TJX and ROST to your watch list. I’ll definitely be looking more closely at these two companies over the weekend — and possibly adding them to my own 20-20 Watch List.
In today’s turbulent environment, it’s important to keep a watch list of the best stocks that can help you profit through our current bear market.
That’s exactly why I created the 20-20 Watch List — so you could look over my shoulder and see the stocks that I’m considering for my own family’s wealth.
Here’s to growing and protecting your wealth!