The Paul George and Kyrie Irving Signature series from Nike are low end items with high end value. The same with the Adidas Lillard Signature line. These models cost 100-120 dollars. Which is still an expensive shoe, but when you consider the production, design, marketing, and endorser, the 120 dollar price point makes these signatures important. They add brand cache and identity. They also allow for the marketing of the brand beyond just comfort and price. Here is what’s amazing about the low end signature releases from Nike and Adidas, they have created signature shoes that are loss leaders and whether they are made in numbers of 10,000 or 50,000, whether they are considered Non-commercial or commercial, this shift in trend for Nike, (Adidas has always been inexpensive in basketball they only ventured into more expensive waters with the D Rose 4 which retailed for 160), it shows that both Nike and Adidas are paying attention to the market. This is not the entire story however…
What is a loss leader? A product that is sold at or close to a loss for the company that acts like a gateway drug to more expensive products. A loss leader can also enable a company to earn 1 million 5% returns vs 20,000 50% returns. What does this mean? A loss leader can sometimes be a winner based on the sheer number of shoes sold. I discussed this in
Why the adidas Superstar is worth more than the NMD and UltraBoost
The problem is when I wrote this article I based it on info from NPD’s Matt Powell where he stated that the Superstar and Stan Smith don’t typically go on sale. This morning a Twitter follower wrote,”Why do people argue numbers with you? Same reason they post Russian hack stories I suppose…” and Powell retweeted that statement. Numbers have to be discussed and argued because it builds a stronger market. I get smarter by writing articles that counter Matt Powell. The sneaker community gets smarter when this is done, but it has to be written with counter arguments that are based in logic, not emotion.
I wrote the Superstar/NMD post against my own knowledge of shoe sales. I’ve been in the market for 12 years. Private footwear companies with adidas accounts have always discounted the shoes. Even Public companies like Footlocker have discounted the shoe. There have been Superstar and Stan Smith adidas sold for as low as 29.99 a pair and at private companies like City Gear they have been discounted to buy one, get one for a dollar. I mean, in 2014 I was able to buy the Adidas Rose 4 at 89.99 get another for a dollar. The Superstars and Stan Smiths were 29.99 get one for a dollar. From a small 7 store chain, I was able to get the ZX Flux for 19.99 a pair at the height of the ZX Flux craze. I state this because when I created that post I took another person’s data as accurate, but all data tells a story, but it tells the story that the person accumulating the data wants it to tell. Is it wrong? No. The average price of the Superstar probably remains at a profit. When Adidas creates shoes that are loss leaders and the company consistently creates small margin footwear, why does it happen and how does my title that Signature shoes matter fit into this?
Let’s look at the names of some of Nike’s shoes that cost much less than signature shoes. These shoes are loss leaders, once again not in the traditional use. Loss Leader here is how I’m comparing an 8 dollar return to a 30 dollar return. Loss Leaders by this definition drive the sales of a company.
I know this is confusing, but just follow for a bit and see if it becomes clear. The following are names of some of Nike’s loss leaders.
Nike Flex – $80, Nike Zoom Streak – 80$, Nike Zoom Winflo – $90, Jordan Rising High -$95, Nike Zoom Evidence – $90, Nike Air Monarch – $55
These are shoes that the sneakerhead community wouldn’t touch with a ten foot pole. These are also the shoes that Nike creates more of making them commercial releases vs non-commercial releases like Signature shoes. I will stop with the Air Monarch because that is the shoe that makes this analysis interesting. The Air Monarch is the best selling Nike shoe. Kind of like the Superstar is Adidas’ best selling shoe. At a price of 55 dollars, is it a loss leader? Not in the traditional sense, but by my definition in this post, it earns a smaller amount back than a LeBron or KD. Here is the interesting part. The shoe has already been made, it has a last, it has tooling and materials. So the cost to make this shoe probably hovers at about 20.00 dollars a pair shipped and landed for Nike. The shoe is then sold at wholesale of 28 dollars. This means that Nike is never losing on the Monarch and if they sell 1 million pairs it’s a huge win. That’s 8 Million dollars. Now look at the other shoes I listed above and those shoes have tech and probably cost about 45/pair to make. At wholesale they are probably at a break even point. Those are traditional loss leaders with a small margin of profit. Got it? If you don’t get it, look at this. Nike made 100,000 LeBrons. The shoe retails at 175.00. The cost to make the shoe including endorsements, materials, shipped and landed is right at 55.00/pair. Wholesale on 175 is 87.50. This means that 3,250,000 dollars. Do you think investors want to see more of these shoes made? Probably, but if you’ve been paying attention the basketball market is down and the LeBron is barely getting sell through and is being RTV’d back to Nike. The Air Monarch is simply a more important shoe for Nike. Got it?
When a person like Matt Powell is analyzing the industry this is what he is looking at. These numbers can’t be argued and they can be verified. If Nike is making 350 million pair of shoes a year and over 300 million of those shoes are loss leaders (not losing money in this definition but making a small percentage), then that makes up the majority of Nike’s income based on Footwear. Remember I’m not arguing Powell’s data, I’m making an argument for the importance of signature shoes, but I have to get there first.
Quick numbers: Nike makes 8.2 Billion a quarter roughly. Nike spends 8 billion in marketing a year. Average annual revenue is 32 Billion. In the 3rd Quarter 2016 athletic footwear sales made 4.6 Billion. Nike had a 52% share which means they made roughly 2.4 billion on athletic shoe sales. For your information LeBron James is the top seller in footwear for the NBA. In 2014 he sold 34o Million dollars. Other sig models were a lot less and they barely make up 15% of the market. When Matt Powell says they don’t matter, in the big picture he is exactly right. So why on Earth would I spend time writing this? I want sneakerheads and the culture to be able to provide an alternative argument based on history of the culture. While it can’t be quantified, it does verify the importance of signature models and athlete endorsements.
Sig models/Limited releases are almost always profit. They are also gateway drugs. The influence of a Signature can not be verified. An endorsers ability to make people interested in the brand in order to sell more of the loss leaders can’t be quantified. In other words, Yeezy is not important because his shoes are sold in small quantities. The same with LeBron or Paul George or Kyrie, but… to harp on commercial/not commercial is almost misleading.
Here are a few points on loss leaders:
No marketing typically
No promotion
No athlete promotion
No in store product placement
No excitement or release information for these shoes.
They are important because they make up the majority of the shoes created by the brand. They would sell regardless of the brand and without endorsers because they are priced right and are solid products.
Right?
This is where I split with the numbers of Matt Powell and I have to explain how Nike came into prominence. It all began with selling Tiger shoes out of a van, Jeff Johnson and all of that, but let’s be serious, Nike didn’t become NIKE until Farrah Fawcett and Steve Prefontaine. Well, I also have to add in Sonny Vaccaro. Sonny was the man that introduced Nike to Jim Valvano and Sonny is the guy that created the sponsoring of colleges and coaches being paid to endorse a brand. Let’s start with why are Farrah and Pre so important? It was the building of the brand of Nike and these two people turned Nike into a marketing company instead of just a small upstart running shoe company. Farrah wore the Nike Cortez, and Pre, well the running boom was taking off in the 70s and Pre was America’s Golden Warrior Runner. Sonny though… Sonny made Nike, NIKE and whether anyone wants to acknowledge this or not, it’s the truth. Nike didn’t become what it was until they began to replace Adidas at the college level in basketball and on the sports fields. I’m moving back and forth, but stay with me. Pre was supposed to run in the Moscow Olympics, he died. That tragedy became Nike’s fuel and moving towards the 84 Olympics Nike started Athletics West and then splashed so many billboards across Los Angeles that people thought Nike was sponsoring the 84 Olympics. In those Olympics Carl Lewis in Nike became a damn star! Enough so that we let him screw up the national anthem, but that’s another story.
In the same year’s time 1983, Jim Valvano and John Thompson’s teams became the most prominent basketball programs in the country, and they both wore Nike which means the most historic moments in college sports Valvano’s championship became Nike’s championship and then a kid from North Carolina decided to wear Nike for the Chicago Bulls in 1984. In one year’s time Nike had a perfect storm that recreated the brand and actually helped them to offset a winning Reebok led by Paul Fireman, who was winning in of all things… aerobics.
Nike wasn’t the behemoth it is now. As a matter of fact in the mid 80s Nike was on the brink of failure and was doing mass layoffs. That SPORTS moment in time for Nike from 80-84 changed everything. Nike was built on sports and the legendary athletes who wear the brand.
When Matt Powell doesn’t acknowledge the numbers on signatures and talks about them being non-commercial, it undercuts the foundation of what Nike was built on. Yesterday he said that Nike needs to stay true to itself. Releasing a Paul George Signature is true to Nike’s brand. Promoting and spending 8 billion dollars a year of their 32 billion dollars per year revenue on marketing those athletes and giving them multimillion dollar deals to sell 10,000 pair can’t be given a valuation and they don’t move the needle in comparison to the Air Monarch, but let’s be honest…
Do the masses ever wear Nike if Farrah, Pre, Valvano, Michael Jordan never wear Nike?
Nike spends 8 billion dollars a year on marketing, sponsorships and endorsements. Those athletes are not wearing the Nike Flex, Monarch (Pete Carroll doesn’t count) or the Jordan Rising High, but if Signature shoes need qualification let your argument begin in the fact that Nike values the athlete enough to spend a quarter of its revenue on Signature shoes and athletes. Signature shoes matter to brands.
