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Nike no longer knows swagger
what cannot be counted really counts (3 min read)
How should the cultural swagger of a brand be measured?
Perhaps quantitatively by annual sales, the number of celebrities wearing the brand, or the frequency of discussions of the brand in the media?
Many answers seem reasonable but incomplete.
Perhaps the question is mistaken.
Cultural swagger cannot be measured.
It can only be sensed.
The brand either has it or not.
The brand either passes or fails.
Like how some of your (most difficult/boring/tedious) college courses are graded.
The market is wondering whether Nike has lost its swagger. Sales barely grew in the latest year, marking its worst slump since 2024 (excluding the start of the Covid pandemic).
Nike stock has more than halved since peaking in 2021.
But its other financials appear to tell a different story. It is still the indisputable sportswear leader with $51 billion in sales (>2x Adidas and >5x Lululemon) and mouth-watering 40% ROE (return on equity, >2x companies in S&P 500).
As generalists investors (and not fashion connoisseurs), we think the greatness of Nike lies in its mission.
Nike was built in service of great athletes.
This core mission drives the design and manufacturing of quality products. Combined with masterful story-telling of the core mission, Nike’s products are coveted.
Hence we find the latest letter by CEO John Donahoe baffling.
He wrote two sentences about athletes. No names were mentioned. More words were used to describe product innovation, marketing, and distribution.
If the top-ranking executive does not know Nike’s soul, his people won’t.
We are over-simplifying the business of Nike but our assessment of what made Nike into a $125-billion behemoth is unlikely to be far from the truth.
Distribution, e-commerce, and other facets are important. But they are ancillary to the soul of Nike.
Phil Knight, the founder of Nike and its CEO until 2004, had never failed to show his respect for great athletes.
His final annual letter in 2004 described Tiger Woods, Arnold Palmer, Pelé, Ali, Julius Erving, Pete Rose, Bob Beamon, Bob Hayes, LeBron James, Carmelo Anthony, Lleyton Hewitt, Roger Federer, Tiffeny Milbrett, Michael Vick, Paula Radcliffe, and Ronaldo.
This is what current CEO John Donahoe wrote about athletes:
At Nike, our athletes inspire us to always raise the bar for ourselves.
We’re inspired by elite athletes who perform at the highest levels and drive the energy and excitement of sport on the world’s biggest stages. And we invite new generations into sport, growing the worldwide community of athletes in neighborhoods and communities everywhere
We are not convinced that Mr Donahoe was inspired.
He did not mentioned any athletes.
Mr Donahoe instead dropped names such as AlphyFly 3, GT Cut, Sabrina 1, Dynamic Air, Pegasus 41, and Awaken Your Madness in the rest of his letter.
The first three are shoe names. The fourth is a lifestyle platform (?). The fifth is a performance franchise (??).
Awaken Your Madness is the song for a brand campaign.
Products, platforms, franchises, and songs serve consumers. We get it.
But this is not Nike.
Products, platforms, franchises, and songs serve elite athletes first and foremost. Only then they attract and serve consumers.
This is Nike.
Mr Donahoe’s words read like consultant-speak for “I don’t know what Nike is”.
We think Nike has lost its soul and swagger. It is no longer inspired by great athletes. It let Tiger Woods go after 27-years of partnership. It refused to involve Kyrie Irving in the design of sneakers with his name on it.
Nike took 60 years to become what it is today. It won’t take that long for another slump.
For another great perspective on Nike, we invite you to read this.