Michael Jordan: The signing of Michael Jordan in 1984 proved to be one of the single biggest boosts to Nike’s publicity and sales. The Jordan line of shoes is a powerhouse in its own right, and is by far the most successful basketball shoe of all time.
Converse: In 2003 Nike paid $309 million to acquire Converse, a century old company who used to dominate the athletic footwear market. Converse filed for bankruptcy in the 90s and was still struggling when Nike swooped in to purchase the company. This allowed Nike to diversify away from their traditional sports image and sell into the leisure footwear market using one of the oldest brands in the business.
NBA: In June 2015, Nike signed an 8-year deal with the NBA to become the official apparel supplier for the league. While the official financial terms weren’t disclosed, sources say the deal is worth roughly $1 billion. Nike took the title from Adidas following an 11 year contract with the NBA.
Amazon: Nike became an official first-party seller on Amazon in June 2017, providing them with access to the most powerful distribution system in the world. The brand wanted direct agency over how its products were displayed and sold on the Amazon platform, giving it control over messaging, plus access to customer feedback and other customer data. Amazon has always struggled with fashion brands as consumers are cautious of buying such high-ticket (and easily forgeable) items on the online marketplace, so this represents a big step for both companies.
1) Retail Struggles: Nike has been feeling the pressure put on the retail industry by increased online competition. This is affecting high street retailers that sell Nike’s products, with major department stores like House of Fraser and Debenhams closing branches across the country. Nike is in a better position than most to deal with this however, and has been heavily investing in its direct-to-customer sales, worth 29.6% of overall 2017 revenue compared with 16% in 2011. This has included partnering with Amazon as an official vendor of Nike’s products and dedicating resources to grow its website and social media presence. Despite this, Nike is not immune to the struggles facing retail, and the effectiveness of its online strategy is still to be seen. Nike’s finances for the last quarter evidence these growing pains. Selling direct should result in an increase in gross margin (profit after the cost of things required to make the goods has been subtracted, but not including overhead costs like rent) due to increased control over pricing. Despite strong sales figures, Nike’s gross margin was lower than expected in the last quarter, indicating that it doesn’t have the control over pricing to be expected.
2) Controversy: The big news about Nike right now is the decision to make controversial figure Colin Kaepernick the face of their latest campaign. Colin Kaepernick was one of the first athletes to kneel during the national anthem in protest of racial injustice, sparking an international response with many coming out both in support and against his actions. Those who disagreed with Kaepernick’s actions reacted badly to Nike’s decision, starting a #JustBurnIt campaign which involved thousands burning their Nike products and cutting the logo off apparel. While the stock price initially fell following the announcement, it appears to have had a strong positive impact on sales. Nike sales grew 31% from Sunday through Tuesday over Labor Day this year following the release of the ad on Monday, besting 2017’s comparative 17% increase. While the full impact of the campaign is yet to be seen (Nike's recent quarterly results predate it's release), early analysis suggest it's success and chief executives within the company have spoken off their pride in its results. However, the long term results are still to play out, and the controversy still gives reason for caution (particularly with the president himself actively speaking out against the company).
3) Competition: Nike’s most significant competitor is Adidas. While “The Brand With The Three Stripes” is still a lot smaller, it’s gaining ground on its larger rival. Adidas brand sales in North America were up 25% in 2017, compared with 3% for Nike. Analysts quote multiple reasons for this accelerated growth including innovative products, poor performance of Jordan (Nike’s basketball brand) pushing customers over to Adidas, and Adidas having a better understanding of customer fashion trends. On this last point, Adidas have been working with Kanye West to release a line of signature sneakers. While these are being produced in limited runs, so will have had little effect on the bottom line, it is likely causing a “halo effect” and driving demand to the rest of Adidas’ product line. While Nike can enjoy the top spot for now, the future may hold much more balanced market share in the footwear market.
Nike's continued ability to outperform the S&P 500 shows the power of a strong brand and its success in a tough sector has been remarkable. With their online sales continuing to grow and the sales boost from the Kaepernick campaign kicking in, the company should be able to maintain its strong growth rate. Nike’s continued innovation is the driving force here and particularly in digital technology. The growth rate of their digital revenue has reached 34% in 2018, including Nike’s SNKRS shopping app which in turn drives sales. Nike’s focus on digital innovation is clearly evidenced by their acquisitions of consumer data analytics company Zodiac and body-scanning software firm Invertex in March and April this year. Further, while the US remains its core market, Nike has established itself as the leading footwear supplier in China. With 190 million Chinese citizens online streaming the 2017 NBA finals, the resulting boom in demand for basketball products went directly into Nike’s bottom line. Their stronghold in the world’s second largest economy will continue to pay out over the coming years. All in all, despite undoubtable challenges, Nike is looking to continue running the sneaker game going forward.