Source: The Trouble With Nike’s Futures
The source link is probably the most concise analysis of why Nike’s Stocks have dropped this past year. Matthew Kish also gives a Bear vs Bull analysis with support from one of Nike’s most loyal analysts who sees Nike going up to 100/share, which he downgraded to around 75/share. While I see Nike’s stock recovering and bouncing back to the low 60s, that’s as high as I think it will go, but I don’t want to get ahead of myself. Click through and read the source link and then come back and let me explain why Wall Street is Stupid.
Did you read the source link? Finished? Good, let’s get into it.
When I make a statement or projection I usually utilize data from several places. I reach out and ask questions of reporters on Twitter, I ask consulting groups for advice and then I sit down and write these posts in as simple and direct a way as possible. Writing “Stupid” typically isn’t my approach and I attempt to be a bit more eloquent, but the amount of articles signaling Nike’s demise and Adidas and Under Armour’s growth and taking shares of the market from Nike are hyperbole, getting redundant and foolish.
Along with data from research, I also use my online shop as a microcosm of the market. After over 5 years on Amazon, and years before that on eBay, and years selling kicks at flea markets and in wholesale, my microcosm approach actually follows the trends laid out by industry analysts perfectly. When Matt Powell said that basketball sales were slowing a few years back, I saw this happen directly with a decrease in sales of Nike basketball which my store was primarily based on. I say these things to state that my decision to say “Wall Street is Stupid” is not click bait or a rush to judgement. It’s based in the fact that by myself I generated over 2 million dollars over the last few years. I think that qualifies me as a voice of reason.
Okay no more beating around the bush, let’s get to my top reasons why Wall Street is Stupid to downgrade Nike based on Futures.
- I discussed the amount of Nike stores, but to clarify and repeat, behind FootLocker Nike has the most stores that sell its products. If that isn’t clear, Nike has over 900 brick and mortar locations and they recently opened a Soho Store that will become the paramount of customer service and tech bridging the multichannel sales avenue that is proving to be the wave of the future for every major brand in the world.
- This information is not to be taken lightly. While most people see Nike’s growth in DTC as NDC (Nike.com) and online sales, what I see as the future is a person being logged into Nike SNKRS, or Nike.com and being able to browse the Nike websites. They will then be able to build a profile on Nike+ or some app that is also carried over into the cloud (Yes Nike will have a cloud service) that allows a customer to walk into a store, scan their phone and meet a personal assistant who will be able to customize their shopping experience. This personalized experience will continue to remove the need for Nike to be partnered with an excessive amount of smaller accounts selling the brand. Moving the inventory back into Nike. What’s more evident is that Nike understands its consumers and they get how this generation browses the web.
- This is a big part of why Wall Street doesn’t get Nike’s approach, they are valuating Nike on old standards of wholesale and retail. They aren’t analyzing the Warby Parkers of the world who have launched online and shifted into multichannel and seen incredible growth. Nike works like a startup. Nike understands the importance of content creation for the next generation of sneaker consumers. This is why they paid Ronaldo so much money. This is why Nike is the only major sneaker company to actively launch several Content Management System based websites under the Nike Umbrella. SNKRS and Air.Jordan.Com are only the start as I can see Nike creating a fully functional media company that creates content for YouTube and eventually its own television stations for Nike events. Think about the way colleges are causing ESPN to fail by launching their own sports networks. Do you think Nike isn’t paying attention? I mean if Hypebeast and Complex are considered multimillion dollar websites based on sneaker blogs, and Nike has launched sneaker blogs in SNKRS and Air.Jordan.Com don’t think for a second that they are contemplating a larger media approach for their DTC strategy.
- I have a ton of examples, but the most important thing for this discussion about how Nike is being downgraded is Marketing. Adidas has seen incredible growth this year. Puma has seen incredible growth this year. Under Armour may have dropped from the top 5, but they have grown consistently since their creation. None of this counters the fact that with all of this new growth Nike still retains the dominant position and control of the market. How do you bet against that? Especially when Nike has the ability at any moment to create footwear and apparel from its retro catalog or they can throw more money at R&D than any other shoe company? How do you bet against the fact that Nike will control the eyes for the two most popular sports in the most important market in the world, NBA and NFL? How do you promote the growth of Adidas when they are about to lose the most important sponsorship in this market in the NBA in 2017. Is Wall Street aware of how much money it will take to generate the number of visual representations they have during the NBA season on television and on Social Media when any images of NBA stars in games show up? Adidas will have to be extremely creative in generating awareness and this will take considerable investment in tech (which Under Armour is killing it on) and in endorsements and this doesn’t mercurial entertainers who can flame out at any moment.
This is a chart based on Nike’s marketing from a few years back:
Under Armour generates annually about 5 Billion dollars and that is a bit generous. Adidas generates annually about 16 Billion. Nike generates around 32 Billion. Kevin Plank realizes that to grow they will need to spend much more on marketing and expansion. Adidas will have to spend a lot more than they are willing to disclose on marketing with the loss of the NBA in 2017. Nike can reduce spending and still market better than these two. More important they have built an infrastructure that allows incredible growth in DTC. Who needs Futures when you can reach the masses on your own?