Nike accused of downplaying impact of Indonesian employee evacuations
A leading sports industry observer and an industry newsletter have both questioned whether Nike and other sporting goods brands are understating the disruption that could result from their evacuation of key personnel from Indonesia.
In common with other major athletic footwear brands such as adidas and Reebok, Nike has taken the precaution of redeploying senior employees and their families away from the country, in the wake of the Afghanistan war. In doing so, all of them have said they do not see the situation as presenting serious difficulties and that even if they do have to pull out of Indonesia altogether, they would simply re-route production through partner factories in other parts of Asia.
In an article carried in the US newspaper ‘The Oregonian’ last week, the weekly trade newsletter Sporting Goods Intelligence was quoted as saying that the situation is potentially more serious than was being admitted to. "Brands suggest that they can easily relocate production if the country explodes, but there will definitely be some disruption," the magazine stated. The conclusion was underlined in a report issued by Faye Landes, an industry analyst with Sanford C. Bernstein in New York. A potential production slowdown concerns analysts and investors because, if sustained, it could impact on the companies' ability to fill orders and get merchandise through to retail.
The Oregonian went on to say that Nike may in any case choose to limit production intentionally, if sales continue to decline at their current rate. In a document filed last week with the Securities and Exchange Commission, Nike revealed that order cancellations had picked up since September 11, stating that it remained "unclear what negative effect all of these events will have on our business for the full year." In view of the uncertainty, the company was reported to be developing contingency plans, focused mainly on inventory and cost management, with the intention of reducing the potential impact on earnings.
"The company hasn't changed its expectations for earnings growth in its current fiscal year," said Leslye Mundy, a Nike spokeswoman. However, Landes, the industry analyst, said Nike is not immune to a slowing economy and weak retail environment. "It's hard to believe they will be totally unaffected," she said.
The reports from Landes and Sporting Goods Intelligence coincided with the most violent riots in Indonesia in a series of almost daily demonstrations against the U.S.-led airstrikes on Afghanistan. Police used tear gas, water cannons and warning shots to disperse hundreds of anti-U.S. Muslim protesters in Jakarta, Indonesia. Nearly a third of Nike's shoes are made in Indonesia, the world's most populous Muslim nation. The prime suspects in the September 11 attacks are Muslims who adhere to a radical version of Islam that sanctions terrorism.
