Coaching Nike to get shoe sales back on track

Outlook

Retail and fashion trends turn against athletic shoes

February 13, 2000|By Amanda J. Crawford

LAST WEEK, Nike Inc. warned that its earnings would fall below forecasts this year and next, sending the stock of the Oregon-based athletic shoemaker reeling. The company, which derives 61 percent of its revenue from athletic shoes, blamed the shrinkage of retail space devoted to athletic shoes. Indeed, in the past several weeks alone, two of the nation's largest athletic shoe chains, Venator Group Inc., owner of the Foot Locker and Lady Foot Locker chains, and Just For Feet Inc., have closed what could amount to hundreds of stores. The company also blamed the fall of the value of the euro, which hurts the value of its European sales when they are translated into dollars.

How much are these two trends to blame for Nike's problems? What else is involved? Has the company misjudged growth in the athletic shoe market? What does it need to do?

Robert E. Toomey

Managing director, Dain Rauscher Wessels Inc., Seattle

We think those trends are pretty much fully to blame for the problems right now. Nike's inventories are healthy overall, they've been watching those trends for several months now. All of this is out of their control basically. They have known there has been excess capacity for some time in the U.S. and they have been working very hard over the last year or two to reduce inventory. We think inventories look pretty clean. They may have misjudged the growth in the athletic shoe market a year or two ago, but I don't think they are misjudging the growth right now.

I would point out that the estimated reduction in earnings are really quite minor, 2 percent in fiscal 2000 and 5 or 6 percent in 2001, which in the broad scheme of things is really not that much. Over the last year or two they have been focusing on all the right things: improving their products, improving their supply chain and inventory management, and considerably improving manufacturing efficiency. They've also been focusing on improving their apparel business, which has been soft for a couple years.

The underlying fundamentals in the business continue to improve for them and they are gaining market share and we think they are going to come out of this in a much healthier and stronger position.

Tony Camilletti

Senior vice president, J.G.A. Inc., Southfield, Mich.

Certainly the quantity of distribution would affect anybody's forecasted earnings. But I think the real issue is the change in fashion trends related to athletic shoes among Gen X-, Y-, Z-ers. I think we're seeing a shift in fashion trends to more urban "streetwear" as opposed to athletic footwear. With the Internet, kids have the opportunity to change their minds at the click of the mouse. So it's a challenge for any fashion trend forecaster or manufacturer to keep up.

I don't believe they [Nike] are in a position of strength to control the trends as much as they used to be. The consumer is in a much more powerful position to create those trends. If you are going to go out with the intent to purchase a pair of Nike shoes, just because your local Just for Feet or Footlocker store has closed, I believe you have other alternatives to find the Nike brand. I don't believe fewer stores can be the only reason behind it.

Maybe the megabrands need to focus on isolated sport activities with a deeper concentration on product and style development with which to capture that loyal customer in a more devoted way. I certainly think megabrands and manufacturers need to take a more serious control of their destiny and not rely on chain retailers as heavily as they do now, which in my mind means they need to establish their own retail distribution opportunities.

Bob Carr

Editor, SGB's Inside Sporting Goods, New York

I think the market overreacted. There is a market for Nike's shoes. It's not like the market disappeared. Nike will ultimately start increasing their retail stores themselves, that's my gut feeling. They do a ton of business in Europe, so the fall of the euro is also a major factor.

I think right now the big problem is the retail space and it's going to get worse. You are going to see more closing, especially with the big-box sporting goods stores. The financial reports for stores like the Sports Authority are terrible. That's going to continue to hurt them. Nike will find places to sell their shoes. Short term it doesn't look good, but ultimately with fewer stores, retailers will make more money and that will be good for them.

Pub Date: 2/13/00

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