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Document 35 of 67.

July 14, 1998

SECTION: Nationwide Financial News

LENGTH: 482 words

HEADLINE: ANALYSIS - CAN NIKE JAPAN BE "RESOLED"?

DATELINE: TOKYO, July 14

BODY:

Nike Japan Corp. accepted a recommendation from the Fair Trade Commission (FTC) on July 9 to immediately institute guidelines in accordance with the Anti-Monopoly Law and to begin retraining essential marketing personnel.

Corporate offices had been raided back in November, when Nike Japan was suspected of stopping shipments to retailers who balked at instructions to maintain prices on Nike footwear despite dwindling popularity.

A final decision on Nike Japan's transgression should be announced in early August, softened perhaps by the company's acceptance of the FTC recommendation. But the ruling is unlikely to solve the company's problems. Nike Japan has been inundated with problems, from premium-heightened sales and excess inventories to stock price erosion and brand power decay, and the company can no longer ignore market surveys or issues, such as production and marketing management, that have gathered corporate dust.

Intently focused on production, Nike Japan had existed in a world of its own. The company's future-order production system, wherein volume remains constant on orders for six month periods and returns are not counted, was inappropriate for a market flooded with athletic footwear.

So the company has instituted a system that recognizes volume adjustments every other month following receipt of an order. The adjustment journey began only earlier this year, and while output for April shipments was down 40%, year-on-year, inventories will not be properly balanced until at least year-end.

The company had also regulated product content, depending on sales channel, i.e., small retailers offering discount prices vs. large-scale and quality stores selling Nike merchandise above a fixed price. Following the raid by the FTC, Nike Japan stopped the practice and has since become more flexibly inclined in its wholesaling transactions.

The problems originated during the Nike boom from 1995 to early 1997, when Air Max and Air Jordan were in short supply.

Nike Japan latched on to its premium sales channels and produced continuously.

When the boom went bust and prices tumbled, Nike Japan created a profit-buoying price-protection policy, which happens to run counter to the Anti-Monopoly Law.

Understandably, the company got into hot water. The Japanese market represents just under 10% of Nike, Inc.'s worldwide revenues, but local sales are predominantly of the "luxury" brand. The inventory problem in Japan has seriously impacted the performance of its U.S. parent. In its first global SOS, Nike Japan put more than 100,000 pairs of shoes on the export boat heading west in a bid to streamline inventories.

Philip H. Knight, chairman of the parent company, says Nike has bounced back time and again from slumps. However, the conditions for a Japanese recovery are not yet in sight.

(Nikkei)

LANGUAGE: ENGLISH

LOAD-DATE: July 14, 1998