Nike is one of the most well-known and loved brands in the world, but for shareholders, there’s not much love left. Shares closed at their lowest level for over a decade on Monday, down 77% in the last five years. This didn’t even follow a poor earnings report, this is simply what it looks like when investors slowly lose faith in a turnaround story.
Josh Gilbert, Lead Analyst, APAC & Middle East at etoro explains that a big part of the problem goes back to Nike’s decision to prioritise selling directly to consumers and pull back from wholesale retailers. Nike effectively bet that the strength of the Swoosh meant customers would follow it wherever it sold. Instead, retailers handed that shelf space to On, Hoka and Adidas, and consumers bought what was in front of them. It is now rebuilding those relationships, and there are signs of progress, with wholesale revenue growing again and the running category performing strongly. Winning back shelf space is only part of the challenge, though. Winning back the customer is a separate ordeal.
China has been the other major problem. Greater China sales fell 17% in the latest quarter, as shoppers in the region have been cautious for a few years now, while local brands like Anta and Li Ning have used that to take ground. Nike has also decided to stop selling through the big online partners there and put everything through its own channels. That may improve pricing and brand control in the long run, but that could dent sales in a big way in the meantime.
The wider industry is also under pressure. Running shoe manufacturer On cut its sales outlook last week after quarterly revenue missed expectations, and that raised a bigger question for investors. For a while, the assumption was that the sportswear category was healthy and Nike was simply the broken part of it. On’s update suggests demand across the sector might be softening too, which makes Nike’s turnaround even harder. For many investors, the question is whether this is a glaring opportunity or simply trying to catch a falling knife. Nike remains the biggest sportswear brand in the world, it is back on speaking terms with retailers, and running is becoming a bright spot, something that is needed if it wants to thrive again. Even with this boon, the market remains unconvinced for now
Results at the end of September are the next big hurdle for Nike. When Elliott Hill took the top job, everyone knew this turnaround would be a marathon, not a sprint. The problem is that it is starting to feel more like an ultra-marathon, and after another slide to decade lows, investors increasingly look like they’re running out of legs.
