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How Converse layoffs fit into Nike’s $2 billion saving plan

How Converse layoffs fit into Nike's $2 billion saving plan

Sneaker brand Converse is the latest subsidiary of parent company Nike to feel the heat from the sneaker giant’s $2 billion cost-saving plan that includes laying off 2% of its workforce, Bloomberg reported Tuesday after viewing an internal memo.

The company told Fortune in a statement it “is continually taking steps to support our future growth” and “realigning some of our teams and optimizing the way we work in support of our biggest growth opportunities.”

Converse’s cuts come on the heels of Nike announcing staff layoffs at its headquarters that began in February will total 740 by late June. Nike introduced in December a cost-saving plan not only to reduce its workforce, but to tighten supply, increase use of automation, and restructure its management. CFO Matt Friend said spending slowdowns were responsible for the strategy shift as the company reported just 1% quarterly revenue growth to $13.4 billion compared to the same period a year before. While the American company has a market capitalization of $137.5 billion, making it the biggest sneaker brand in the world, it’s beginning to lose ground to a wealth of stiff competition.

“We are seeing indications of more cautious consumer behavior around the world,” Friend told analysts in December. “We know in an environment like this, when the consumer is under pressure and the promotional activity is higher, it’s newness and it’s innovation which causes the consumer to act.”

Though wholly owned by Nike, Converse has its own marketing, development, and supply chain that operates discretely from its parent, but that doesn’t mean it hasn’t contributed to Nike’s woes. Making up 5% of the company’s sales, Converse’s revenue slumped almost 20% to $495 million in its third quarter, the company reported in March earnings

Strategic missteps

Converse owes its struggles in part to being late in adopting trends appealing to younger generations in a crowded sea of shoe options, Jessica Ramírez, senior research analyst at Jane Hali & Associates, told Fortune. It’s a similar problem to what Nike as a whole is experiencing.

“There’s just an endless amount of options for the consumer today,” Ramírez said. “That’s really what has dented part of Nike…They need excitement.”

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