Nike, the renowned global sportswear giant, is currently facing an unprecedented losing streak in its stock price. A major factor contributing to this decline is Pou Chen Corp, one of Nike’s key suppliers based in Taiwan. While many attribute Nike’s slump to China’s economic troubles, this alone does not fully explain the situation. Surprisingly, Nike only generates 14% of its sales from Greater China, and its revenue in that region has been steadily declining since its peak in 2021.

Instead, Nike heavily relies on North America, which accounts for 42% of its business. Furthermore, approximately two-thirds of Nike’s global sales come from shoes. Although the company experienced a 7% increase in revenue in its footwear division during the fourth quarter of the fiscal year, this growth rate is comparatively slower than previous periods. However, it is worth noting that Nike has encountered similar setbacks in the past, such as during the Covid-19 pandemic in 2020 and the global financial crisis in 2010.

While the United States may not be currently facing a recession, households have depleted the excess savings they accumulated during the pandemic. Consequently, retail sales, particularly in the sporting goods category, have declined. Consumers may no longer have the inclination for “revenge spending” on new athletic gear, ultimately impacting Nike’s sales.

Investors have been closely monitoring Pou Chen, which happens to be the largest contract manufacturer of branded sports shoes globally. Noteworthy clients of Pou Chen include Nike and Adidas. Although the exact nature of their relationship remains unknown, Pou Chen disclosed in filings that its biggest client accounted for 25% of its sales last year, totaling $2.1 billion. Pou Chen’s latest report indicated a significant decline in revenue for July, with a projected annual decline of 7.7%. The footwear unit experienced a staggering drop of 20%, suggesting that major clients like Nike and Adidas are slashing their orders.

Adidas also faced challenges in North America, witnessing a 16% decline in revenue from the region. However, since this only represents 28% of the company’s overall sales, the impact is somewhat limited. Other retailers, including Dick’s Sporting Goods and Foot Locker, have reported dismal results and revised their forecast downward. Pou Chen’s reduction in workforce and production further underscores the ongoing difficulties in the sports gear industry.

If there is any improvement in the market and consumers gradually revert to an active lifestyle, Pou Chen’s reports are likely to provide an early indication. As the world anxiously watches Nike’s stock performance, one cannot underestimate the impact of its key supplier, Pou Chen, located in Taiwan.

Useful links:
CNBC: China blocks all Nike products for sale as headwinds for the Chinese economy grow
The Motley Fool: Why Nike Stock Dropped More Than 10% Today