What's going on here?
Air ball…! Nike’s stock price fell more than 6% on Wednesday after forecasting that its sales for the rest of the year won’t grow as much as expected.
What does this mean?
Nike is facing battles on various fronts. For one, growth in the North American athletic market has softened overall in recent years – this may be simply because it grew so quickly in the years leading up to 2016. Also, Adidas has ramped up its US game big time, partly with its sales of the casual sneaker brand Stan Smith, which has squeezed Nike’s market share.
Meanwhile, Nike’s traditional sales model is bearing the brunt of a general shift to ecommerce, partly because it still sells a lot of its clothes and shoes via third-party brick-and-mortar retailers (like Foot Locker). All of this has conspired to slow Nike’s sales growth, reduce its profitability (i.e. margins) and hit its revenue harder than Wall Street expected.
Why should I care?
The bigger picture: Nike’s problem isn’t just as simple as the shift to online shopping.
Traditional stores that sell other companies’ products (think: Macy’s) are clearly threatened by online retailers like Amazon. But Nike is a brand that, arguably, can benefit more from consumers’ loyalty and can sell its products directly to them quite easily (e.g. via its own Nike stores). Nike’s troubles, according to its CEO, stem from consumers’ rising expectations: they’re demanding things like personalized service (e.g. personal shopping – yes, Nike does that now), faster product innovation and a better in-store experience.
For the markets: Nike’s down, but it’s far from out. (tweet this)
Nike is stepping up its efforts to develop more technologically advanced products and to sell more products directly to consumers. Unlike some traditional retailers, like department stores, Nike’s model might not be fundamentally endangered; it may just need to do a better job of meeting customers’ changing demands.