Nike's Cash Flows - Faster than Usain Bolt!

Nike's dominance in the sneaker market is undeniable, with revenues skyrocketing like Usain Bolt on the track. However, a closer examination of their receivables sheds light on a different aspect of their business dynamics.

Out on the court or in the boardroom, Nike always comes to win. But are they running up the score when it comes to collecting cash? A look under the hood of their balance sheet shows the secret to how the swoosh stays laced up for success.

From turning over accounts at lightning speed to keeping competitors in their dust with efficient operations, Nike's receivables strategy is the full-court press their rivals can't return.

In this deep dive, we'll break down the stats to see how Nike manages working capital like a point guard bringing the ball up on a fastbreak. By the final buzzer, you'll understand why their receivables leave the competition in the dust quarter after quarter, year after year.

So lace up and run with us as we uncover how Nike aces the receivables game.

Nike’s DSO is 7 days lower than the industry

Over the past five years, Nike has consistently maintained a lower Days Sales Outstanding (DSO) of around 33 days, while the industry average is approximately 40 days. (see graph)

In 2023, Nike’s DSO was 31 days, demonstrating its superior efficiency in collecting customer payments. In contrast nearest competitor, Adidas, had a DSO of 41 days in the same year, highlighting Nike’s stronger performance.

How is Nike able to consistently maintain steady DSO levels?

We look at the strategies that help Nike have a lower DSO.

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• Strategic DTC Focus and Retail Partner Reduction: Nike’s shift to Direct-to-Consumer (DTC) channels by cutting ties with major retailers like Big 5 Sporting Goods, Dunham’s Sports, Urban Outfitters, Dillard’s, and Zappos has boosted operational efficiency and revenue. This focused approach enables faster payment collections and has also expanded Nike’s member base and generated over $12 billion in additional revenue.
• Growth in Online Sales: Nike has successfully adopted a digital-focused sales strategy. In 2023, nearly 30% of their total business came from online sales, contributing significantly to their ability to directly and quickly collect payments from customers. This enables Nike to have a lower DSO.

Nike clears inventory 12% faster than peers

Nike excels in inventory management, with an average Days Inventory Outstanding (DIO) of 105 days over five years, beating the industry average of 119 days. (see graph)

This means Nike has a competitive advantage in turning inventory into sales faster. 

In 2023, Nike’s DIO was 106 days, while Adidas’ was 157 days, highlighting Nike’s efficiency in the footwear industry. Nike has also been able to maintain steady DIO levels in the last five years, reflecting its strong supply chain practices.

How does Nike maintain a lower DIO than its peers?

Here’s a look at how Nike clears inventory faster.

• Demand Forecasting and Inventory Optimization: With acquisitions like Celect and Zodiac, Nike improves demand forecasting accuracy, optimizing inventory levels and minimizing inventory holding periods. By aligning inventory with market needs and leveraging hyper-local demand predictions, Nike maintains a lower DIO compared to peers.
• Personalized Customer Experiences: Nike’s 3-D foot, scanning service swiftly measures and scans shoppers’ feet, sending data directly to their phones. This reduces returns and boosts inventory turnover, contributing to Nike’s lower DIO compared to competitors.

Nike leads with 67% supplier promptness

Over the past five years, Nike has kept steady relationships with its suppliers, as shown by its consistent Days Payable Outstanding (DPO) figures, averaging about 41 days. (see graph)

In 2023, Nike’s DPO was 39 days, significantly lower than Adidas’s 65 days. This reflects Nike’s effective management of supplier relations, ensuring timely payments while staying operationally efficient, contributing to its consistent DPO success.

How does Nike keep a good relationship with its suppliers?

• Long-term relationships: Over 90% of Nike’s footwear and branded apparel is made by factory groups with whom they have worked for over 15 years. This trust and mutual respect facilitate smoother collaboration, potentially leading to increased efficiency, innovation, and responsiveness to Nike’s needs.
• Sustainability and Ethical Practices (February 2019 FLA Reaccreditation): In February 2019, Nike’s social compliance program was reaccredited by the Fair Labor Association, reaffirming its dedication to ethical practices. By paying suppliers promptly, Nike aids in implementing these programs, fostering a supply chain that prioritizes sustainability, ethical labor practices, and social responsibility.

Nike just did it with a higher CCC

Nike’s DSO and DIO are highly efficient, shining examples of best-in-class working capital management. However, its average Cash Conversion Cycle (CCC) of 98 days over the past five years is 1.1 times higher than the industry average CCC. (See Graph)

The slight wrinkle in Nike’s receivables game plan emerges through its average DPO of 41 days – steady, but on the longer side compared to competitors. This pulls its overall CCC higher relative to industry peers.

However, Nike clearly understands the value of cultivating enduring supplier relationships through prompt payments and a shared commitment to ethical operations. By keeping production partners in the game over the long haul with a DPO of 41 days, Nike maintains an advantage in innovation, quality, and responsiveness that more than makes up for those extra days in the CCC.

Nike runs ahead in the receivables race

While competitors need help with extended collection periods and efficient supply chains, Nike upholds the gold standard through tight working capital management. With industry-leading DSO of 31 days, DIO of 105 days, and CCC of 98 days, Nike’s holistic approach to receivables and its entire supply chain leaves others far behind.

That’s what you can expect from the gold standard brand – Nike takes working capital management as seriously as everything else because that’s what championship organizations do. When the final buzzer sounds, Nike is undoubtedly the team to beat, both on and off the field. The scores don’t lie – Nike just does it better.