Nike has announced an anticipated increase in costs by approximately $1 billion due to the ongoing tariff war initiated by former President Donald Trump. This financial burden arises as the sportswear giant seeks to reduce its reliance on manufacturing in China.
The company’s market value has plummeted by a third over the past year, prompting strategic measures to cushion the impact. These include raising prices in the United States and diversifying its sourcing to other countries.
“These tariffs represent a new and meaningful cost headwind,” stated Matthew Friend, Nike’s Chief Financial Officer.
“With the new tariff rates in place today, we estimate a gross incremental cost increase to Nike of approximately $1 billion. We intend to fully mitigate the impact of these headwinds over time.”
Navigating the Tariff Impact
Last year, nearly 60% of all Nike-branded apparel was produced in Vietnam, China, and Cambodia, while 95% of Nike footwear was manufactured in Vietnam, Indonesia, and China. Despite the challenges, Friend emphasized the company’s strong relationships with factory partners and its leadership’s experience in managing disruptions.
“Nike has consistently been a top payer of US duties,” Friend noted.
“We will optimize our sourcing mix and allocate production differently across countries to mitigate the new cost headwind into the United States.”
Strategic Adjustments and Consumer Impact
Friend acknowledged the importance of manufacturing capacity and capability, despite a 60% tariff rate imposed by the US, which affects about 16% of footwear imports to America. He assured that the business is working diligently to minimize the impact on consumers.
However, he also revealed plans for a “surgical price increase” in the US starting this autumn, alongside efforts to reduce overheads through “corporate cost reduction.”
Financial Performance and Market Reactions
Friend’s comments coincided with Nike reporting its worst quarterly earnings in over three years, with revenues dropping 12% to $11.1 billion in the three months ending May. Nike’s CEO, Elliott Hill, remarked, “The results are where we planned. That said, we’re not happy with where we are.”
Analyst Mamta Valechha from Quilter Cheviot commented on Nike’s performance, stating,
“Nike continues to slump, with its fourth quarter the worst in at least two decades.”
Valechha added that the figures suggest Nike “may nearly be at rock bottom,” noting the compounded difficulties from the pandemic and tariff threats.
Looking Forward
The announcement comes as Nike navigates a challenging economic landscape, exacerbated by global trade tensions and shifting consumer behaviors post-pandemic. The company’s strategic adjustments, including diversifying its supply chain and implementing price changes, signal its efforts to stabilize and potentially regain its market position.
As Nike continues to adapt, industry observers will be keenly watching how the company balances cost pressures with consumer expectations, and whether these measures will suffice in restoring its financial health.
