Few companies benefited from government largesse during the COVID-19 pandemic era more than Nike Inc. Stuck at home and with little else to spend their trillions of dollars in stimulus money on, consumers could not get enough of what the athletic-gear maker was selling. In 2020, Air Jordan 1 Highs were going for a 61 percent premium on the resale market. Nike’s share price soared 40 percent in 2020 and as much as 25.5 percent in 2021, reaching a record high that November. Just four Wall Street analysts out of the more than 30 who covered Nike at the time had recommended investors “hold” the shares, which is often interpreted as a recommendation to sell.
Those heady days are long gone. Nike’s shares have tumbled 37 percent from their peak. The number of analysts with a “hold” rating on the stock has tripled to 12. In its fiscal 2023 earnings report last week, the company divulged that it is sitting on US$8.5 billion of unsold goods despite a slew of margin-busting promotions, a level 23 percent above what it described as healthy inventory levels in 2021. Its outlook for sales in fiscal 2024 fell short of analysts’ estimates. Those Air Jordan 1 Highs? They are selling in the resale market at a 2 percent discount. This leads to an uncomfortable question: Is the US$152 billion global “sneaker bubble” bursting? The answer, at least for Nike, maybe yes.
“Overall, Nike is a solid brand, and it is not suffering from an existential crisis,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients. “However, it isn’t on the front foot either, and has to accept that the year ahead will be one of resetting, retrenching, and reformulating the way it does business.”
A weak spot for Nike is its symbiotic relationship with the resale market for sneakers, with resellers quickly snatching up inventory. That created a scarcity factor for the company’s footwear that allowed it to sell what was in stock at a hefty premium. In some ways, it is not unlike the concert ticket industry.
However, with supply chains having normalized and inflation being elevated for two years, there are signs that consumers are being more discriminating when it comes to spending. On the list of priorities, expensive sneakers are pretty low.
The other issue for Nike is that it has been in an innovation slump, not having released a hit sneaker since it introduced the Nike React in 2019. At the same time, independent sneaker brands have risen and luxury apparel firms entered the footwear business. The aesthetically unpleasing Hoka sneakers, acquired by Deckers Outdoors Corp in 2012 for US$1.1 million, brings in about US$1.4 billion in annual revenue. While Nike is known for style, Hoka is designed for comfort and performance, and has become a mainstay in the closets of marathoners, casual runners and fans of comfortable shoes. Last year, Hoka overtook Nike, Adidas, New Balance and Converse as the No. 2 top-selling sneaker brand on StockX. The French sportswear company Salomon has the resale site’s top selling shoe.
Nike’s track record with women athletes also leaves it at a disadvantage to capitalize on the growing US$63 billion athleisure market in the US. Nike tarnished its reputation among women following scrutiny of the company’s corporate culture and its treatment of pregnant athletes. Several star women athletes such as Olympic gymnast Simone Biles and WNBA player Breanna Stewart have not renewed their contracts with Nike, opting for companies such as Gap Inc’s Athleta, Puma SE and Lululemon Athletica Inc where they have more creative input on the merchandise they sell. With sneaker sales slowing, Nike’s inability to connect with women shoppers is a risk. If it wants to survive the changing sportswear landscape, it needs to expand its roster of women athletes and add new signature apparel and footwear designed along with them.
The good thing for Nike is that it seems to recognize its shortcomings. The firm announced several executive changes last month in an effort to “deliver breakthrough innovation” that could bring the kind of creativity and newness the brand needs. Just last week, it announced a new women-focused initiative called Nike Well Collective, which would include 1,000 new fitness trainers focused on holistic fitness and a series of new trainings and exercises across its apps. Later this summer, it is to launch a signature shoe with New York Liberty All-Star Sabrina Ionescu called the Nike Sabrina 1.
In sports, there is no greater story than the comeback — the aging superstar making a triumphant return. It might be premature to equate Nike to an aging superstar, but it is critical for the company to persuade customers and investors that it can return to the glory days.
Leticia Miranda is a Bloomberg Opinion columnist covering consumer goods and the retail industry. She was previously a business reporter at NBC News and a retail reporter at BuzzFeed News. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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