A critical evaluation of the impact of current economic challenges to the financial situation of Nike. (Essay Sample)

A Critical Evaluation of the Impact of Current Economic Challenges to the Financial Situation of Nike. Name of Student Institution Affiliation A critical evaluation of the impact of current economic challenges to the financial situation of Nike. Nike is the market leader when it comes to sports apparel. In North America alone the company controls 37% of the footwear business (Keyser, 2015). For a long time, Nike’s position in this market looked invincible. This is however not the case anymore due to the changes in the business environment. Nike is having to deal with slowing sales and new competitors. Additionally, its retail partners are facing a changing retail landscape. Customers are increasingly making their purchases online on sites such as Amazon. The company is also dealing with inventory issues amid slowing sells of basketball shoes. These changes have made Nike fail to meet its earnings targets for several quarters. This has consequently affected the management of finances in the company. This paper focuses on how the challenges faced by Nike affect its financial goals, how the finances are managed by the company, and the ability of the firm to secure capital. Impact on corporate financial objectives The current financial goals by Nike are focused on getting the company out of the present circumstances. To tackle the issue of declining profitability the company aims to grow their earnings. To attain this goal the company is assessing its pricing model (Jensen et al., 2016). Nike now allows its authorized sellers to discount a large variety of its products. There is, however, a limit to the number of days that a discount can run. Also related to this goal is the objective to reduce operational costs. The high cost of doing business has meant that modest increase in revenue does not translate into increased earnings. Revenue is not likely to increase in double digits in the few coming years. As a result of this, reducing cost is the most practical thing Nike’s management can do. Additionally, Nike is having to diversify revenue sources. Most of Nikes revenue in critical markets is mainly from the sale of sneakers. As a result, a dip in revenue from sells of sneakers has affected the company financial situation significantly. The finance department has come to terms with this situation and it is aiming to diversify the range of sporting goods that Nike has to offer. To attain this target the company aims to quicken the process of inventing and producing new products (Vaughn, 2017). Another goal that the firm has is to be able to trump its competition. Competitors like Under Armour and Adidas are increasingly eating into Nike's market share. To reverse this the company aims to use its financial resources innovatively. Nike’s financial management in the current economic environment To meet the financial objectives, the finance team at Nike is having to change how resources are managed. In a bid to increase profitability the company is looking into ways of reducing wastage of finances. One way that this is being done is through the adoption of thorough auditing standards (Warren & Jones, 2018). On top of that, unnecessary projects that are not likely to improve the situation of the company are dropped. The most significant way through which Nike has been wasting finances is through poor inventory management. A lot of money is wasted in the storage of products in warehouses. Data from Nike shows that the company loses up to thirty base points per product (Matthew, 2017). The company is likely to outsource the stock management process to an experienced logistics company. In the meantime, the company is aiming to utilize collected data to predict demand. Consequently, production is adjusted accordingly. This eliminates the expensive storage cost that comes with overproduction. The other aspect of financial management that has changed because of the economic environment is financial allocation. The new trend in the company is to allocate more money to the research and development department. This is because Nike requires new products to replace its old revenue generators (Brohi et al., 2016). An example of this is in the basketball sneakers market. The Jordan brand has for years been the main generator of income for Nike. In recent times, the sales of this brand have been declining. In 2017, the Adidas AG brand sold more sneakers than the Air Jordan brand (Jayawardhana, 2017). New and innovative products are likely to excite customers this will, in turn, improve revenue. The other department that needs additional funds is the sales department. The trend of customers making purchases online is likely to continue into the future. The sales department should, therefore, have enough funds to develop alternative sales channels. Nike is already making good progress on this front. In the year 2017, online sales on their websites grew by nineteen percent (Feng, 2014). The extra money given to this department will also be important in tailoring customer shopping experience. This is will make Nike stand out from the competition. Ability to secure future sources of funds The current way that Nike is managing its financial resources is scaring investors. For years Nike has had the full support of investors. This means it had more than sufficient money to develop new products and find ways to optimize their operation. The company failed to utilize this advantage and allowed competitors such as Under Armour and Adidas to catch up (Kell, 2017). The ability of Nike to acquire new short term and long term financing is therefore significantly lower. Financiers will want to know the exact strategies that the company is doing to improve its financial position. There are however several things the company can do to woe disgruntled investors. One is to demonstrate that Nike is still a stable company on various fronts. One such front is the company’s expansion internation...