Nike shows signs of weakness amid 'drastic' strategy shifts: Analyst
Nike’s recent “drastic” strategy shifts amid intense competition in the sports apparel industry are signs that “the bloom is coming off the rose” for the venerable brand, according to a Canaccord Genuity research note released this week.
“While there aren't many times in recent memory in which [Nike] has been on a share-losing path (the last is 2009-2011), we believe the combination of a more formidable competitor in Adidas coupled with a sharp deceleration in North America is leading [Nike] to make drastic and necessary changes to the way it goes to market, as evidenced by last week's reorganization and its decision to begin selling on [Amazon],” Canaccord analyst Camilo Lyon said.
As competitors like Adidas and Under Armour chip away at Nike’s one-time stranglehold on the North American marketplace, the Oregon-based company reversed course this week by agreeing to sell some products through Amazon.com’s e-commerce engine. That decision comes days after Nike said it would lay off 2% of its workforce amid a global management restructure.
While still the dominant force in the apparel industry, Nike has lost ground to a resurgent Adidas brand in recent quarters. Adidas reported a 30% increase in revenue in North America for its most recent fiscal quarter, far outstripping Nike’s recent efforts on its home turf.
With store traffic to brick-and-mortar retail partners like Foot Locker on the decline, Nike is increasingly turning to e-commerce and digital efforts to drive revenue. The company said a global restructure of its internal management will allow for increased collaboration on direct-to-consumer sales, product innovation, and renewed focus on key sales markets around the world.
Lyon argues that the restructure “[seems] to mimic steps Adidas has already made,” suggesting that Nike is being reactive in response to surging competitors.
“Nike’s reorganization of its business reporting units coupled with a 2% workforce reduction suggests to us that it is taking dramatic steps to reinvigorate its business, changes that appear to be coming from a defensive posture, not an offensive one,” Lyon said.
Canaccord reduced its estimates for Nike’s 2018 fiscal year, due in part to expected deacceleration of Nike’s North American business.