Nike knocked off course

World's largest sports brand caught off guard by fizzling sales in athleticwear and rise in athleisure competition

NEW YORK • The swoosh seems to have gone out of Nike for now.

But in 2015, the company was on top of the world, with its share value and confidence surging. Chief executive Mark Parker said in October that year that sales would jump 63 per cent by 2020 to US$50 billion (S$68 billion) annually.

"It's clear that Nike is a growth company," he added.

Two years later, his claim is anything but clear.

Increased competition, led by Adidas, has knocked the world's largest sports brand off course.

Since he made the forecast, Nike's stock is down 17 per cent. Sales growth has been uneven, slowing to 0.1 per cent last quarter.

"It went from a company with all these tailwinds and firing on all cylinders to having headwinds and not firing on close to all cylinders," said Mr Brian Yarbrough, an analyst for Edward Jones. "It is going to have to reset expectations."

If Mr Parker and his management team are scaling back their aspirations, they have shown few signs of it. They have told investors that they are changing some aspects of the business - such as speeding up sneaker production - and betting that investors will give them time because of their track record.

That includes the 2010 to 2015 period when Nike dominated the United States with average annual sales gains of 10 per cent. There were no acquisitions - just organic growth that led to a tripling of the stock price.

But Mr Parker did not foresee that the boom in athletic footwear and apparel would fizzle. He did not predict that the rapid growth of sporty attire or "athleisure" would lure non-athletic brands to the segment.

Fashion houses such as Burberry and Jimmy Choo piled in on the high end, while mass retailers such as Target started their own lines.

Adidas, which had struggled for years in the US, managed to close its coolness gap with Nike by focusing on casual looks and pushing partnerships with celebrities such as rapper Kanye West.

"2015 was an extraordinary year and really was an outlier in terms of growth rate in apparel and footwear," Mr Matt Powell, an analyst for market research firm NPD Group, said of the US market. "Everybody thought that was going to go on forever and it didn't."

Now that athleisure is slowing amid a flood of competitors, industry fallout has been substantial. Under Armour has been the worst-performing stock in the S&P 500 over the past year, with a 56 per cent decline.

Mr Parker's projected US$50 billion in sales, which the company had proposed reaching by the fiscal year ending in May 2020, might fall short by US$10 billion.

"They went on a five-or six-year tear that was pretty unbelievable, with eye-popping numbers for a company that big," Mr Yarbrough said. "But they don't command the respect they used to and are starting to lose some credibility."

Nike earlier this year announced its first major layoffs since the financial crisis, cutting about 2 per cent of its workforce, or 1,400 staff.

Cracks have even appeared in Nike's Jordan brand. Since their introduction in the 1980s, the shoes remained a premium product that often sold out in a couple of days.

This success forged a "sneaker-head" culture that powered a secondary online market and fed demand for new releases. Their popularity continued unabated even as memories of Michael Jordan started to fade after the NBA superstar retired almost 15 years ago.

Some Jordan shoes are now being discounted because of lacklustre demand. Foot Locker chief executive Dick Johnson even singled them out as a reason for declining sales during his company's last earnings call in August. He went on to question Nike's marketing and whether Jordan, who is now in his 50s, is still relevant to younger shoppers.

This is quite a turn for a company that is used to being referred to as a standout marketeer with an iconic slogan - "Just Do It" - and revolutionary commercials such as the campaign with Jordan and film-maker Spike Lee.

Nike has been caught off guard by how quickly young consumers shift tastes and begin looking for the next cool product, said Mr Sam Poser, an analyst at research firm Susquehanna Financial Group. With new Jordan products lacking a memorable storyline, kids have started to move on faster, he added.

That has created an inventory glut which has hurt profit margins. This, in turn, makes the brand less cool because it is easier to get.

"They still make great shoes," Mr Poser said. "But they need to rethink where they stand."


A version of this article appeared in the print edition of The Straits Times on November 09, 2017, with the headline 'Nike knocked off course'. Subscribe