Last week we discussed how important it is to effectively manage inventory levels for any business. Inventory can dramatically affect the bottom line (profits) of a business. Sometimes businesses may have too much inventory and end up having to absorb cost such as holding or carrying cost. At other times, businesses may encounter stockouts or shortages which can also play a vital role in the loss of profits.
When businesses encounter potential profit loss due to holding/carrying cost or stockout/shortages, they often look towards some type of ABC analysis. ABC analysis provides business with the ability to provide certain items different levels of inventory based on the importance of the item. So how is a an item classified as important? Items are assigned into 3 different buckets, A, B or C. A items are usually those items that are most important to a business and provide higher annual dollar volume when compared to other items within the manufacturers portfolio. B items, are usually items that provide the business with medium annual dollar volume and C items are those whom fall into the lower annual dollar bucket for a business.
So your next question is ……. (What does this have to do with the Retro Air Jordan Concords?)
On December 23, 2011, two days before Christmas 2011 and the beginning of the NBA season, Nike re-released the Air Jordan XI Concords shoes. Masses of sneaker head fans camped out at stores throughout the United States in hopes of getting their hands on a pair of the coveted Air Jordan XI Concords. However, quantities were very limited and only a few of those whom stood in line for days/hours were able to purchase a pair. A few hours after the release, stockouts sent sneaker fans into outrage and stories of violence due to the lack of inventory of the Air Jordan XI Concords began to spawn in different areas of the country. People were literally killing each other over a pair of theses shoes. There was even a story of a mother who left her two young children in the car alone, while she stood in line waiting for the possibility of getting her hands on a pair.
This scenario really got me thinking of the different effects that inventory can have not only on the bottom line of a business, but on the safety of the community itself. From a business standpoint, I’m sure Nike did very well (in terms of profit and inventory) by releasing only a limited amount of the Air Jordan XI Concords. However, many of its loyal customers/fans were left with the short end of the stick due to the limited quantities.
Based on the ABC methodology, what bucket do you think Air Jordan’s fall under within Nike’s inventory model? Do you think Nike intentionally sets stockouts on Air Jordan’s to make them more attractive to consumers? Do you think Nike ever considered the trickle effects that stockouts would pose to the community?
Below is an article from the Charlotte Observer that covered the story of the Air Jordan XI Concords release within the Charlotte area:
http://www.charlotteobserver.com/2011/12/23/2871323/area-mall-shoppers-squabble-over.html
I would disagree with this report. The reason of my disagreement is due to the fact that the events reported here is not a result of bad inventory management. It is a result of great marketing schemes in regards to high demand.
I really don’t get why Nike does things like that. When you know that people are going to buy your product, especially when they are waiting in line for days, why not just produce enough shoes to meet the demand? It’s only going to put more money in their pockets. I hate when companies do that. Apple knows that everyone wants an iPhone, and they produce enough to meet their demand. They have become one of the most successful companies by doing so because it generates more revenue. Nike should do the same.
Nike and Michael Jordan completely know what they are doing. The Air Jordan Concords are arguably the “best” and most exclusive Jordans ever made. Nike intentionally released a small amount, which in turn increased the hysteria around the shoe and essentially advertised the shoe even more. Nike already has plenty of revenue. Their primary concern is the loyalty of their customers hence the reason why people wait days in line for a pair of shoes.
I definitely think that Nike and Air Jordan want a limited supply on the market. That creates more value toward the shoe because not anyone can have them. It also ties into marketing because it’s kind of like the black Friday phenomenon which ultimately gets people excited.
I would say it would fall in the B analyses because for one they don’t mass produce limited edition Jordans and there are other Nike shoes that are mass produce to accommodate consumers which sells more in quantity compared to limited edition Jordans. To answer the second question, I believe this would deal more in the marketing aspect. So no, they don’t intentionally set stockouts because they set a quantity cap to meet their expected quota, hence they are called “limited edition”. I feel that Nike does think about the trickle effect on the community because they don’t want their brand being associated with people getting hurt which in turns ruins their reputation.
This argument can go either way. Yes, Nike could have increased the quantity produced and sold to satisfy the customers and even made more profit. But maybe Nike already estimated to reach the target profit with the limited quantity. After all, less quantity lead to a higher demand of the product and also the fact that people would be willing to pay more just to get a hold on those shoes. I think it was a good strategy and it worked out in Nike’s favor.
Nike intentionally does this because it helps create more value for the shoe. Most shoe fanatics won’t want shoes that everyone has, because if everyone has them why should they get them? Because of this they set out limited quantity of them in order for people to automatically add value to them. By adding value to them and increasing the demand, they can easily raise the prices higher than if they were just producing mass quantities. The shoes also wouldn’t be Concords if they were just sold to everyone.
Nike knows exactly what they are doing. From prior knowledge, Nike only gives stores about 10-13 pairs of these shoes and the associates who work for the retail stores selling them have first dibs. Whatever pairs are left after they get through them are what is sold, which usually ends up being about 7-8 pairs and that’s for the hundreds of people standing in line for hours. Nike knows that the people who stand in these lines, the ones who don’t get the shoes, will most likely buy the next best pair, usually a pair of jordans or nikes that are available. Since this catastrophe, Nike now does a twitter release, a type of “put your name in a hat” and if your picked you’ll be contacted when you can pick your pair up, if you don’t want them, they move on to the next.