Good evening, friends, today we're going for a night run!
So make sure your shoelaces are tied - on your marks... get set... go!
Wait, stop - Nike was left behind!
What's happening to Nike?!
Nike's stock is down 60% from its all-time high in 2021 - plummeting from its peak of $171 - straight to $71.
Did its shoelaces come undone? What's happening to Nike?!
In our restaurant, this dish is named: 'Direct to consumer connection - on a spark of mismanagement - and inflationary seasoning with a hint of competitive pressure'.
But you'll agree that one sentence cannot justify a 60% wipeout of the sports giant's value - so let's leave Nike behind for a moment - and jump behind the scenes!
Let's start with direct to consumer - in 2017, Nike decided to focus more on its Direct to Customers business (meaning - the company sells the product directly to the consumer).
The reason: to save costs, increase gross margins, and simplify operations.
The strategy worked great during the COVID era, but growth slowed.
What did this cause? Retail weakened much more than expected!
And when retail is hurt - brand awareness is hurt - so despite Nike's strong brand - this step definitely damaged the brand.
To understand how much the brand was damaged, you need to understand how Nike's brand was built - retail stores market their most successful products - and often - these were Nike's products.
And when Nike decided to kick out retailers and ship products itself?
It earned a few dollars...
But lost billions!
Nike missed out on global marketing that was F R E E!
But wait - now that Nike is behind - and no longer at the top of the shelves - who jumped straight to the top? The competitors...
And what did this cause? - Increased competition!
The empty spots Nike left in stores were filled with competitors' products!
And when our darling inflation tied its shoelaces and sprinted straight onto the stage - consumers became more price-sensitive...
They tended to buy less from Nike's increasingly expensive online store - and went to retail stores offering discounts and found other footwear brands - and meanwhile, while competitors are skipping between store shelves - Nike is left behind.
And who is celebrating on stage in the meantime? Inflation!
The rise in raw material costs due to global inflation increased production expenses - and to maintain stable gross margins - Nike continues to raise prices - but where are the buyers?!
And so, friends, the equation that slapped our Nike squarely in the face was born:
Inflation leads to weaker purchases of Nike brands - while Nike raises prices - and customers? They skip between stores and buy competitors' products.
The resulting equation gives our Nike a resounding slap that makes it realize that while it remains at the starting line - competitors are vying for first place!
Nike, seeing the picture - got a wake-up call and began urgent management changes!
Well - many of the problems we told you about largely stem from the mismanagement of Nike's CEO at the time.
Last October, Nike's board of directors woke from its slumber - fired the CEO - and appointed Elliott Hill as Nike's new CEO, with over three decades of experience with Nike in his repertoire!
He began his career in 1988 - and has since held 19 different roles at Nike!
What is the new CEO's mission?
Hill's role is to 're-energize key product lines' - which is business euphemism for 'producing better products and renewing relationships with retail partners who were kicked out during the previous CEO's tenure'.
Hill's current focus and challenge is Nike's recovery - and getting the brand back on track!
The main question that should concern investors now:
Is Hill the right person in the right place at the right time?
Tomorrow - a particularly interesting part 2!
We will try to assemble the puzzle of clues and dive into the most interesting data!
- What does technical analysis say about Nike?
- Who are the big investors not fazed by current challenges and betting big on Nike? (In billions)
- And which Nike management members put their personal money into the company's stock - and what do they know that we don't?
Stay tuned!