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Investors Fear For Nike's Relevancy As The Company Loses Market Share

Investors Fear For Nike's Relevancy As The Company Loses Market Share
Nike has depended more and more on its recognisable basketball shoes to increase sales, but some analysts and investors are questioning whether this is the right move as the sportswear behemoth loses market share to more recent companies.
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 past 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 would be reducing its supply of 'vintage' 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 favourites on the market for customers, like Hoka, owned by On and Deckers, which has taken up more store space worldwide.
"If we do a post-mortem, maybe there’s been too much reliance on legacy or historical product," said Jim Tierney, chief investment officer of Concentrated US Growth Equities at AllianceBernstein, which owns Nike shares.
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 trainers, which quickly went viral around the world with the slogan "It's gotta be the shoes."
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Nike more than tripled the quantity of Nike Dunk Lows released between 2019 and 2023 and twice the number of Air Jordan 1 Highs released through its SNKRS app, according to data from analytics firm Altan Insights, which tracks the collectible shoe market.
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.
However, experts noted that the growing 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 witnessed a jump in market share to 5.4% from 4.6% in the same period.
In comparison, YipitData, a company that compiles market share utilising email receipt and transaction data, shows that from October to February, Nike's Jordan's market share at the retailer remained over 5%.
"Retro footwear trends are shifting from court styles (in which Nike is overweight) towards chunky dad shoes and terrace styles," according to a Sunday note from Duffy. This has made it possible for rival brands like New Balance and Adidas, who sell a lot of Samba trainers, to attract customers who might have otherwise chosen Nike for their fashion needs.
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 only $87.97 on Nike's US website. In contrast, the low-top Dunks and high-top versions of the shoe may cost up to $165. The non-retro form of Air Jordan 11s, the low-tops, are currently discounted from $130 to $97.97.
Over the past year, Deckers' stock has more than doubled in value while Nike's has lost 16% of its value.
In an attempt to compete with On and Hoka, whose trainers have gained popularity among consumers who wear 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.
"I think the next six months are critical," he said. "We know that newness is coming, but if it doesn't take off now, I think investors will ask the question, 'then when?'"

Christopher J. Mitchell

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