News Mar 22, 2024 03:30 AM EDT

Should You "Just Do It" Elsewhere? Nike's Struggles Could Impact Your Investments

By April Fowell

Nike has depended more and more on its recognizable basketball shoes to increase sales, but some analysts and investors are questioning if this is the right move as the sportswear behemoth loses market share to more recent companies.

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Nike has depended more and more on its recognizable basketball shoes to increase sales, but some analysts and investors are questioning if this is the right move as the sportswear behemoth loses market share to more recent companies.
(Photo : by Justin Sullivan/Getty Images)

Nike's Strategic Shift in Response to Market Trends

Following a post-earnings conference call when management said Nike had lost market share in running shoes-a category that has seen a sharp increase in popularity over the last year-shares of the company were down 5.6% in extended trading on Thursday.

Nike CFO Matt Friend informed investors that in order to concentrate on future releases and new product development, the business will be reducing its supply of "classic" shoes, such as the Air Force 1 sneaker.

Compared to five years ago, when basketball shoes from the Jordan brand and court-inspired designs like the Air Force 1 and Nike Dunk led the company's sneaker sales, the decision represents a significant shift for Nike. But there are new favorites on the market for customers, including Hoka, owned by On and Deckers, which has taken up more shelf space worldwide.

Released in 1985, the Nike Air Jordan shoe line was initially created for American basketball player Michael Jordan while he was a member of the Chicago Bulls. Filmmaker Spike Lee and Jordan appeared in advertisements for the sneakers, which quickly went viral throughout the world with the slogan "It's gotta be the shoes."

Nike more than quadrupled the quantity of Nike Dunk Lows issued between 2019 and 2023 and twice the amount of Air Jordan 1 Highs released through its SNKRS app, according to data from analytics firm Altan Insights, which tracks the collectible shoe industry.

Although Jordan does not provide a percentage of overall income, according to Nike's fiscal 2023 annual report, the brand contributes around 16% of the retailer's wholesale revenues, an increase of 29% over the previous year.

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Navigating Changing Tides in Athletic Footwear Trends

However, experts noted that the rising appeal of more recent brands like On and Hoka as well as more well-known athletic wear companies like New Balance indicates that the significance of Jordan sales has turned into a liability for the business. Shifting customer preferences are one issue, says James Duffy, an analyst at Stifel.

In the footwear category, On's market share at Dick's Sporting climbed to 8.2% in February from 6.1% in October 2023, while New Balance's market share jumped to 5.4% from 4.6% during the same period.

In comparison, YipitData, a company that compiles market share utilizing email receipt and transaction data, shows that from October to February, Nike's Jordan's market share at the shop remained over 5%.

According to a Sunday note by Duffy, "retro footwear trends are shifting from court styles (in which Nike is overweight) towards chunky dad shoes and terrace styles." As a result, consumers who might have chosen Nike as their fashion brand instead have been drawn to rivals like New Balance and Adidas, with its best-selling Samba sneakers.

Shopping for basketball shoes has not been as popular for Nike as it was in the past, according to Jessica Ramirez, senior analyst at Jane Hali & Associates. Referring to the category for activity or sports shoes, Ramirez stated that the company's most recent offering, the Book 1, named for NBA player Devin Booker, "did not get a very good review and is a very casual-looking shoe" as opposed to a basketball shoe focused on performance.

Although they aren't performance shoes, several Nike basketball shoe designs, like the Air Jordan 11 Retro, are still in style right now. According to Williams Trading analyst Sam Poser, "the reason we're seeing all these promotions in Nike's non-retro basketball styles is because they're not a fashion uniform the way wearing a pair of 11s is."

As of Thursday, the Air Jordan 1 Mid SE, which retails for $135 normally, was just $87.97 on Nike's US website. In contrast, the low-top Dunks and high-top variants of the shoe may cost up to $165. The non-retro form of Air Jordan 11s, the low-tops, are presently discounted from $130 to $97.97.

Over the past year, Deckers' stock has more than quadrupled in value while Nike's has lost 16% of its value.

In an attempt to compete with On and Hoka, whose shoes have gained popularity among consumers who use them for both runs and the workplace, Nike officials have showcased new running-related items.

According to Tierney, investors are also optimistic that new fashion shoe releases-like the $160 Nike Air Max DN-will offset the decline in Nike's vintage industry.

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