Passage Five We wouldn’t have imagined it After years on top, Nike suddenly looks like a world-class marathoner who, in mid-race, questions whether he’s got what it takes to keep on running. Nike’s symptoms of distress: a global glut of shoes, flat sales in key market, and declining profits. Moreover, the global brand champ that captured its own winning corporate mindset with the "Just do it" ad slogan has a new pitch. "I can"— to which investors seem to be restoring. "No, you can’t." Losing faith, they have knocked Nike stock from its all time high of $76 about a year ago to a recent $46. What happened While Nike has tripped on fickle fashion trends and heightened competition before, its main obstacle today appears to be its own success. Here’s why: Big-brand backlash. When he founded Nike in 1972, CEO Phil Knight contended that "if five cool guys—the best and most popular athletes—wore his shoes, other people would want to as well. The strategy worked wonderfully, of course, and now Nike controls an astounding 47% of the U.S. athletic shoe market. But the brand has become too common to be cool. "I call it the Izod syndrome." says John Horan., publisher of Sporting Goods Intelligence, referring to the once-hip golf shirt. "Nike is everywhere." Brand expert Watts Wacker, chairman of the consulting firm First Matter, believes that the ubiquity of the Nike logo —the over—Swooshing of America—turns off important core consumers, the 12-24-year-olds. "When I was growing up: we used to say to that rooting for Yankees is like rooting for U.S. Steel," Wacker says. "Today, rooting for Nike is like rooting for Microsoft." The Marlboro mistake. Indeed, many cool-conscious youngsters have gravitated to other brands such as Adidas (which sells sneakers at lower prices) and Timberland (a leader in the outdoorsy "brown shoes" trend). Instead of responding with hotter products or lower prices, Nike did what many overconfident giants do (think Marlboro, pre-Marlboro Friday): It raises its price ahead of inflation. "Retailers loaded up, but the products weren’t necessarily reaching consumers’ closets," says Josie Esquivel, who follows Nike for Morgan Stanley Dean Witter. Now, Nike is paying with price cuts—in the 50% range—last tear’s models (except the irrepressible Air Jordan line). The (Asian) economy, stupid. Nike’s inventory glut is messiest in Asia, largely because the company operates few outlet stores there. (In the U.S. Nike sells almost half of its leftover shoes through its 41 factory stores and the rest through discounters like T. J. Max) Also, Nike was particularly ill prepared for Asia’s economic collapse because Knight has long believed his company’s sales are recession-resistant. Management expected revenues in Asia to almost double this year, from $1.2 billion, but retailers canceled orders at alarming rates. It looks as though sales will rise marginally at best. Waffling on Wall Street. Nike worsened its woes by failing to acknowledge them soon enough. "Early last year, there was a major crack I the day," says analyst Esquivel. "It took them over two months to say, ’Oops, we have problems." She lowered her rating on the stock from buy to hold last May just before Nike warned that profits would fall short of expectations. As more negative news followed, Some analysts complained that management was hard to reach for information. One executive, CFO Robert Falcone, antagonized major shareholders and left in January. Will Nike get back up to speed Probably it’s one of the world’s most powerful brands, and Knight is resilient as well as smart. But the recovery will be long and painful. Knight and his senior managers are currently working on a plan to close facilities and reduce Nike’s work force worldwide. A big restructuring charge will hit profits hard this year, and growth will likely be slow during the few years. In order to recover, Nike will certainly need flesh products to excite bored consumers. "The lineup for the coming year looks OKEY," says Ralph Parks, president of Foot Action, the second—largest athletic—shoe specialty retailer. "It looks better than 1997’s, but I’m not sure that core consumer is quite ready to jump back in." Most important, Nike needs a new vision of itself and its brand. This task belongs to Knight, who turned 60 a few weeks ago and says he plans to work until he dies. That’s a good thing, because the boss’s favorite motto "There is no finish line" seems more appropriate now than ever.
A. it has not supplied the Asia’s market with enough low-priced products B. many Nike’s own outlet stores in Asia cannot cooperate well with each other C. Nike’s managers do not know Asia’s culture D. Nike’s CEO, knight is overconfident that his company can always resist economic collapse
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