In the 2017 Forbes ranking of the world's most valuable sports brands, Nike, the sporting goods giant, still ranked first with a value of $29.6 billion. Its trial of smart stores during Singles' Day also delivered solid results in China.
But there’s no doubt—Nike has been having a rough time lately.
The “Paradise” tax avoidance scandal
First, Nike got caught up in the “Paradise Papers” scandal.The “Paradise Papers” refer to 13.4 million documents released by the International Consortium of Investigative Journalists (ICIJ), which exposed tax avoidance involving trillions of dollars in assets, including those of the British Queen. Although these actions may not have broken any laws, as the scandal unfolded, Nike was drawn into the public controversy.
▲Individuals and companies involved in the “Paradise Papers,” among which, aside from the British Queen, F1 driver Lewis Hamilton and Nike were two notable names from the sports world that were exposed
Under the weight of ethical scrutiny and public opinion, Nike quickly issued a response:
“Nike complies with tax regulations and ensures that its tax filings are fully aligned with its business and investments.”
Of course, strictly speaking, tax avoidance isn’t illegal—but it does have real impacts on many people’s lives—When companies engage in tax avoidance, they gain higher profits, which directly leads to reduced local government revenues. Local finances, in turn, are closely tied to the lives of residents.
In an era of growing income inequality and increasing instability, as countless people protest holding signs against corporate “tax avoiders” like Apple and Nike, what they’re really objecting to is the hypocrisy of companies that claim “the customer is king,” publish glossy corporate social responsibility reports, profit from users, yet evade taxes through dubious means, disregarding the welfare of ordinary people.
From Nike’s perspective, while their response clarified responsibilities and highlighted their own position, for consumers, the reply came off as insincere and hard to accept.
According to the disclosed documents, Nike’s tax avoidance measures saved them significant tax costs. But looking at this year’s situation, although Nike’s financial data seems strong, the challenges they face are growing.
After all, in Nike’s 2015 targets, they aimed for $50 billion in revenue by 2020. Based on their 2015 revenue of $30.6 billion, achieving the $50 billion goal would require a compound annual growth rate of about 10.3%—an undoubtedly ambitious target.
Beyond financial issues, on the NBA stage—the arena most focused on by users and most valued by Nike—there have been quite a few missteps.
Jerseys that aren’t “tear-proof”
In 2015, Nike announced that it had replaced Adidas to become the official sponsor of the NBA for eight years starting from the 2017–18 season, reportedly for a sum of $1 billion.
After securing the deal smoothly, Nike made various moves. These included launching four different types of team jerseys, displaying the logo on the official versions,making jerseys from recycled plastic bottles with an eco-friendly concept, and integrating Nike’s NikeConnect technology.
Coupled with Nike signing major contracts with NBA superstars one after another, there was reason to believe that the NBA had entered an era where Nike held near “monopoly” dominance.
Players wearing Nike jerseys at the start of the new season
However, when it comes to the most basic aspect of clothing—durability—Nike stumbled badly, prompting users to joke that Adidas was “sitting at home, receiving praise from the heavens.”
Near the end of the season opener between the Cavaliers and the Celtics, LeBron James, Nike’s highest-paid basketball star, became the first player in the new season to experience a jersey tear.
Eight days later, Nike President and CEO Mark Parker stated in an interview that the issue had been resolved. Yet, what followed was the beginning of a string of nightmares.
Warriors forward Draymond Green and Bradley Beal had their jerseys torn during altercations, 76ers rookie Ben Simmons’ jersey was completely ripped off, Cavaliers forward Kevin Love experienced the same, and Lakers’ Tyler Ennis... The jerseys of these five players were damaged to varying degrees.
Even more laughable and frustrating was that all five were Nike-sponsored athletes.
In the first season as the NBA jersey sponsor, frequent jersey tears are unacceptable—especially for a sportswear giant like Nike.
On November 7, Nike officially issued a statement saying:
“We are highly concerned about this situation that occurred during the competition and are actively working on solutions, including standardizing the customization process and enhancing the stitching strength of game-day jerseys. The quality and performance of our products are of utmost importance, and we are now also collaborating with the NBA to prevent such incidents from happening again in the future.”
It is understood that this jersey incorporates new technology, using Alpha Yarns and recycled polyester (approximately 20 recycled plastic bottles per jersey), aligning with sustainable environmental strategies. Additionally, Nike has made more refined adjustments to the jersey design based on 3D body mapping studies of players.
However, the frequent tearing of jerseys has greatly overshadowed the new technology, leaving many worried for Nike.
Harden and Curry scramble to cover logos
Moreover, after Nike became the main sponsor of NBA jerseys, it seems to have fallen short of its goal of turning rival-sponsored players into walking billboards for Nike. Events common in the CBA, such as “logo covering,” have also emerged in the NBA.
Starting with players like Harden cutting off or covering the logo during preseason games, star players from various brands have been trying their best to reduce Nike’s visibility.
By the new season, UA’s star player Stephen Curry rolled down his socks to cover the Nike logo, while Adidas’ star James Harden took a more direct approach by cutting off the part of his sock that displayed Nike’s “swoosh.”
For Nike, the embarrassment in the NBA is just one of the recent setbacks. The scandal of Nike air cushion shoes lacking actual air cushions exposed during this year’s 3·15 Gala is still fresh in people’s minds...
In fact, since last year, Nike’s sales have begun to decline. In the 12 months ending May 31, Nike Group’s revenue grew 6% year-on-year to $34.4 billion, with net profit rising 13% to $4.2 billion. Nike brand revenue increased 8% to $32.2 billion, but gross margin fell 160 basis points to 44.6%. Clearly, the growth rate of the Nike brand has lagged behind that of the group.
With performance declining and unable to rebound quickly, frequent product quality issues, fierce competition, and being embroiled in a tax avoidance scandal, it can be said that Nike is currently facing its most challenging situation in recent years. Nike, caught in the vortex, has reached a critical juncture.
The aggressive ADIDAS
Meanwhile, Nike’s long-time rival Adidas is making a strong comeback, steadily eroding Nike’s market share.
↓Revenue growth rates of Nike, Adidas, and PUMA
In this context, on June 15 of this year, Nike CEO Mark Parker announced that to address the sales decline, the company plans to revamp its global operations and lay off about 2%, or roughly 1,400 employees, while simplifying its regional structure from the original six to four business units.
Additionally, Nike has launched the “Consumer Direct Offense” initiative, aiming to focus on key markets and digital sales, reduce the number of products, and streamline its product line.
These adjustments began to show signs during this year’s Singles’ Day. On November 8, American sportswear brand Nike achieved strategic progress in its new retail collaboration with Tmall. Two smart stores jointly operated by the two parties opened first, conducting digital trials for orders and foot traffic.
At the same time, 50 Nike-owned stores also integrated online and offline channels ahead of this year’s “Double 11,” enabling multi-platform synchronized sales. Nike, which values the Chinese market, is beginning to place greater emphasis on the power of distribution channels.
Moreover, Nike also plans to leverage yoga to expand its women’s activewear and leisure apparel.They will open dedicated “pant studios” sections for women’s athletic pants in 5,000 of their stores, focusing on the yoga market. According to Nike Brand President Trevor Edwards, women’s activewear and leisure apparel, part of Nike’s $7 billion activewear business, is growing faster than men’s.
Financial reports show that Nike’s adjustments are showing results.In the first quarter of the 2018 fiscal year (from June 1, 2017, to August 31), Nike achieved revenue of $9.07 billion, roughly flat compared to the same period in the 2017 fiscal year; net profit was $950 million, a 24% year-on-year decrease. Earnings per share were 57 cents, exceeding analysts’ expectations of 48 cents.
Even though it exceeded expectations, the market did not fully buy it.An article on Footwear News stated that although Nike’s Q1 performance was better than expected, the stable growth in international revenue was offset by a decline in North American sales. In fact, this was the first time in nearly three years that Nike saw a sales drop in the U.S., and overall, the quarter’s sales growth rate hit a seven-year low.
In addition, at the end of October, Nike rarely offered a 40% discount on over 200 items on its U.S. official website for 48 hours. During Double 11, Nike also launched a promotion where selected items were discounted up to 50%. According to incomplete statistics from the EcoSphere, there were 366 discounted shoe styles.
However, experts see such moves as efforts to clear inventory.
Canaccord analyst Camilo Lyon said, “Nike has increased promotions this quarter, while sales on more footwear platforms have slowed. Nike’s somewhat outdated innovation process has shown almost no progress.” Meanwhile, Goldman Sachs downgraded Nike’s stock rating from “buy” to “neutral.”
But at the same time, Adidas’ strong rebound is evident in its Q3 financial report, which shows the company once again achieved robust sales and profit performance, with the most notable growth coming from its expansion in China and North America.Driven by fashion and direct sales, Adidas is making a powerful comeback, threatening Nike’s dominant position.
Don’t forget, 2018 is a World Cup year, and in the field of football, Adidas holds greater influence than Nike. On November 10, they just released the official match ball for the Russia World Cup, and previously unveiled 8 national team jerseys all at once, preparing to make a big splash in the World Cup year.
↓Official match ball for the World Cup released by Adidas
Of course, overall, Nike's leading advantage remains evident. Once their reforms take effect, a revitalized Nike can continue to maintain its position as the world's top giant and may even further solidify its lead. But for now, the massive Nike empire needs sufficient time to implement the adjustments it desires, and time is precisely what Nike lacks the most.
Source: Sports Industry Ecosystem