Why Nike tanked yesterday and this is the beginning of the end


Nike is seeing 5% growth in revenue compared to the forecasted 20% of UA that has been reigned in to a more realistic 12-15%. If you look at a chart for all three companies above, Adidas has grown 150% while the other two sneaker companies are chugging along.

That said, Nike achieved 19.1% growth in net income, to $1.141 billion, and a 23.6% increase in earnings per diluted share, to $0.68.  So why did they fall?

Numbers follow they do not lead

As I always say, stock investing is more about the product and the brand than the numbers.  This is because numbers and money FOLLOW they do not lead.   At Todd Capital we care about the ratios and growth but we more so care about brand perception and acceptance.

Nike is not the brand that it once was.  They aren’t innovating and they aren’t willing to risk it all in fear that they lose everything.  Additionally, they aren’t the number one undisputed brand in hip hop and fashion like they once were.  After losing Kanye they also seemed to lose the hip hop crowd.  A similar situation happened with Reebok when they dropped Rick Ross. These people need to realize that there is power in the music and in black talent.

This is one problem with being too big to fail.  You are also too big to take significant risks. One thing that you notice is that no current athlete has the draw to their sneakers like Michael Jordan did.  You just don’t see people walking around in Lebrons and Kyries like they did Jordans. I think this is in part because people are done with being walking billboards for brands.  Jordan’s never had huge logos which allowed people to define the brand and give the shoes nicknames.  Now sneaker companies want to take control of the nickname process.  If you look at the Yeezy’s you realize that there are no visible Adidas logos…. It’s because in all actuality, they have the infrastructure but Kanye is the pull.  Lebron is the pull, Steph is the pull.

Unleash the players

I think a lot of this has to do with Nike’s fear of removing the Nike check from all of their shoes.  The problem with this is you put Nike above the star athlete.  You put the brand above the bait (star athlete) and you lose your hook because there is no more draw.  It is selfish, egotistical and the numbers indicate that it is a failed strategy.

If you look at the numbers you see that Jordan brand is much bigger than Nike.  Not the actual brand they created from Jordan but the retros.  No other shoe owned by Nike sells like those shoes.  The problem is that Nike has that in Lebron but they refuse to maneuver him in a way that it allows his ship to grow further. They want to keep him reigned in. Big mistake.

Ego is the enemy

Ego is truly the enemy.  Nike seems to think that they are the reason for their brand’s dominance and not the athletes who puff them up.  In college we did a business simulation competition.  In the competition you could tweak everything from price to design and costs.  You also had the ability to invest in athlete sponsorship.  Every single week the company that invested in athletes came out on top. We learned then and there that it is the player on the court dunking on fools and getting highlights on ESPN that drives people to buy. Not the design of the shoe and not the branding but the highlights.

This was obvious because as soon as a pair of Jordans came out when we were young people said how ugly they were.  But when you saw Jordan out there doing his thing they suddenly became more and more attractive.  Now these shoes don’t even make it to the shelves. They sell the same shoes year over year and people buy them like they are brand new.

Lebrons without the swoosh

The problem is that Lebron, being the Jordan of our time, should be pushed out in front of the brand as the brand not the man behind the swoosh.  Lebron should be the face of Nike not the outdated and played out Nike check.  This is one thing that Under Armour did.  On the newest rendition of the Curry’s the Curry 3 they dropped the big gaudy logo and instead designed a good looking shoe. Depending on whether the Warrios get a ring this could truly propel Steph into legacy.  We have already seen how great he has been playing now that he is the undisputed number one man on the floor with KD seated.  Yall must have forgot he is still the reigning MVP.

The facts is that I think this may be the beginning of the end for Nike.  They are still a great company but the problem with being number one is everyone guns for you.  Right now Adidas, Under Armour and Puma are all gunning at Nike and nobody stays at the top forever.  I am biased because the club owns Under Armour and we are rooting for a rally.  But I have said for a long time that Nike takes their athletes for granted and their belief in their selves is misguided.

Be great!

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