Nike still ahead of the pack, yet losing ground to Adidas, Under Armor
It was barely a year ago that Mark Parker, Nike's chief executive, made a public pledge as big and bold as his company.
The Beaverton-area juggernaut's sales would explode, he predicted, pushing annual revenue from $30 billion to $50 billion by 2020. Having built a seemingly impregnable position atop the athletic footwear and apparel industry, few questioned that Nike could make it happen.
Today, however, $50 billion seems a long way off. Nike's archrival Adidas has become the story of 2016. Hitting a sweet spot at the crossroads of sports and pop culture, Adidas is posting sustained double-digit sales gains, particularly in the key North American market where it was dead in the water just two years ago.
Nike is still growing. Its dominant position atop the athletic footwear and apparel business remains secure. But Adidas and upstart Under Armour are growing faster. For the first time in recent memory, they're grabbing market share from The Swoosh.
"Nike has had a terrific run, much of it at the expense of Adidas," said Jim Duffy, an analyst with the financial services firm Stifel Financial Corp. "But Adidas has its act together again. They're gaining share, and they're going to gain more."
Possibly more troubling for Nike is the sentiment that its pipeline of hot new products has run dry. "I don't see a whole lot of mis-execution at Nike," said analyst Andrew Burns of D.A. Davidson. "What I hear from the critics is a lack of innovation, newness. Flyknit, (a groundbreaking footwear technology) has been around for four years. It was great. But you can't take credit for that forever."
Camilo Lyon, an analyst with Canaccord Genuity, echoed those sentiments, calling Nike's new products "weak and uninspiring."
Whether Nike's issues represent a temporary hiccup or a more dire matter, they pose one of the toughest management challenges for Parker since he ascended to the CEO's office a decade ago. Wall Street has noticed. Propelled by downgrades by Lyon and a handful of other analysts, Nike's stock has declined roughly 17.5 percent since the beginning of the year. That's more than $19 billion in lost market value.
Nike insists it's stronger than ever. The company declined requests for interviews, but in a written statement said it will "continue to deliver growth" across its portfolio.
"We have the deepest roster of athletes, a strong leadership bench and we're innovating across performance and sportswear, manufacturing, digital services and at retail where we serve the consumer every day," the company said.
Nike is still growing. Its dominant position atop the athletic footwear and apparel business remains secure. But Adidas and upstart Under Armour are growing faster. For the first time in recent memory, they're grabbing market share from The Swoosh.
"Nike has had a terrific run, much of it at the expense of Adidas," said Jim Duffy, an analyst with the financial services firm Stifel Financial Corp. "But Adidas has its act together again. They're gaining share, and they're going to gain more."
Possibly more troubling for Nike is the sentiment that its pipeline of hot new products has run dry. "I don't see a whole lot of mis-execution at Nike," said analyst Andrew Burns of D.A. Davidson. "What I hear from the critics is a lack of innovation, newness. Flyknit, (a groundbreaking footwear technology) has been around for four years. It was great. But you can't take credit for that forever."
Camilo Lyon, an analyst with Canaccord Genuity, echoed those sentiments, calling Nike's new products "weak and uninspiring."
Whether Nike's issues represent a temporary hiccup or a more dire matter, they pose one of the toughest management challenges for Parker since he ascended to the CEO's office a decade ago. Wall Street has noticed. Propelled by downgrades by Lyon and a handful of other analysts, Nike's stock has declined roughly 17.5 percent since the beginning of the year. That's more than $19 billion in lost market value.
Nike insists it's stronger than ever. The company declined requests for interviews, but in a written statement said it will "continue to deliver growth" across its portfolio.
"We have the deepest roster of athletes, a strong leadership bench and we're innovating across performance and sportswear, manufacturing, digital services and at retail where we serve the consumer every day," the company said.
In a business that prides itself on innovation, 2016 has been a strange year for the athletic footwear and apparel business. Shoes designed decades ago are selling in huge volumes.
According to market researchers NPD Group, the three top-selling sneakers in the U.S. in October were updated versions of classic shoes introduced decades ago -- the Adidas Superstar, the Converse All-Star Ox Low and the Nike Huarache.
Adidas has been a big beneficiary of the shift. The German company with North American headquarters in Portland has introduced a constant stream of updated Superstars, Stan Smiths, Gazelles and Sambas, and the public can't get enough. Adidas sold 15 million pair of Superstars alone in 2015, making it the best-selling sneaker of the year "by far," according to former CEO Herbert Hainer.
Adidas' Originals sales jumped nearly 50 percent in the company's third quarter, compared with the same three months last year. That's on top of a 47 percent increase in the third quarter of 2015.
Adidas also has jumped unapologetically into fashion and celebrity, partnering with musicians and designers. The Yeezy line developed with rapper Kanye West has proved a big success.
There was a time when purists would sneer at a sports company cutting deals with rappers and reality television stars, arguing that in the end it would damage the brand. But those days are gone.
Nike notes that it, too, has relationships with non-athletes like comedian Kevin Hart and apparel designer Jun Takahashi.
The consumer shift away from sports is reflected in Nike's revenue. The company's basketball sales declined 1 percent in fiscal 2016, though that decline was more than offset by the continued strength of its Jordan brand. Soccer fell 5 percent, golf 8 percent and action sports 4 percent.
The generic category of sportswear, meanwhile, jumped 14 percent, to $7.5 billion.
The established marketing model of aligning a shoe with a superstar athlete took its lumps inside Nike. Analysts said the lackluster response to some recent editions of the LeBron James and Kevin Durant shoes came because consumers didn't like their looks nor the hefty price tags.
According to market researchers NPD Group, the three top-selling sneakers in the U.S. in October were updated versions of classic shoes introduced decades ago -- the Adidas Superstar, the Converse All-Star Ox Low and the Nike Huarache.
Adidas has been a big beneficiary of the shift. The German company with North American headquarters in Portland has introduced a constant stream of updated Superstars, Stan Smiths, Gazelles and Sambas, and the public can't get enough. Adidas sold 15 million pair of Superstars alone in 2015, making it the best-selling sneaker of the year "by far," according to former CEO Herbert Hainer.
Adidas' Originals sales jumped nearly 50 percent in the company's third quarter, compared with the same three months last year. That's on top of a 47 percent increase in the third quarter of 2015.
Adidas also has jumped unapologetically into fashion and celebrity, partnering with musicians and designers. The Yeezy line developed with rapper Kanye West has proved a big success.
There was a time when purists would sneer at a sports company cutting deals with rappers and reality television stars, arguing that in the end it would damage the brand. But those days are gone.
Nike notes that it, too, has relationships with non-athletes like comedian Kevin Hart and apparel designer Jun Takahashi.
The consumer shift away from sports is reflected in Nike's revenue. The company's basketball sales declined 1 percent in fiscal 2016, though that decline was more than offset by the continued strength of its Jordan brand. Soccer fell 5 percent, golf 8 percent and action sports 4 percent.
The generic category of sportswear, meanwhile, jumped 14 percent, to $7.5 billion.
The established marketing model of aligning a shoe with a superstar athlete took its lumps inside Nike. Analysts said the lackluster response to some recent editions of the LeBron James and Kevin Durant shoes came because consumers didn't like their looks nor the hefty price tags.
Nike shook up its basketball management in June when Michael D. Jackson, global basketball general manager, left the company. Jackson was among a steady trickle of senior-level executives to exit Nike or be reassigned since April.
Under Armour rises
Consumers' new emphasis on fashion doesn't mean that the traditional athlete endorsement no longer works. Just ask Under Armour.
Still largely an apparel company, Under Armour instantly established itself as a player in the basketball footwear market when it introduced its signature Stephen Curry basketball shoe.
Kevin Plank, Under Armour's brash chief executive, told analysts in a recent conference call that the Curry line has propelled the company's footwear sales from $239 million in 2012 to nearly $1 billion this year.
Of course, relying on a single product is a dangerous thing. Under Armour's stock sank nearly 5 percent last week after a Foot Locker executive mentioned the just-released Curry 3 shoe seemed to be off to a slow start.
Still, the Baltimore company, which is building out a new Portland office, has posted 26 consecutive quarters of 20 percent or higher sales growth. Its rapid rise has altered the competitive dynamic in the industry.
"They're at $5 billion a year in revenue and adding $1 billion a year," Nikic said. "It is big enough now to move the needle in the industry. I do believe they are stepping on Nike's toes a bit."
Under Armour rises
Consumers' new emphasis on fashion doesn't mean that the traditional athlete endorsement no longer works. Just ask Under Armour.
Still largely an apparel company, Under Armour instantly established itself as a player in the basketball footwear market when it introduced its signature Stephen Curry basketball shoe.
Kevin Plank, Under Armour's brash chief executive, told analysts in a recent conference call that the Curry line has propelled the company's footwear sales from $239 million in 2012 to nearly $1 billion this year.
Of course, relying on a single product is a dangerous thing. Under Armour's stock sank nearly 5 percent last week after a Foot Locker executive mentioned the just-released Curry 3 shoe seemed to be off to a slow start.
Still, the Baltimore company, which is building out a new Portland office, has posted 26 consecutive quarters of 20 percent or higher sales growth. Its rapid rise has altered the competitive dynamic in the industry.
"They're at $5 billion a year in revenue and adding $1 billion a year," Nikic said. "It is big enough now to move the needle in the industry. I do believe they are stepping on Nike's toes a bit."
Under Armour wants to do more than step on toes. Its goal is to supplant Nike as the leader of the industry. "We've never felt that there was one company at the top of the industry that was unassailable, said Kevin Haley, president of category management and innovation at Under Armour. "Life is too short to strive to be no. 2."
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