Wednesday, May 23, 2007

Giants do fall - no matter their shoes

Nike is a huge brand in China and many investors are keen to see high returns with the forthcoming Beijing Summer Olympics 2008. Nike meantime are concerned at the poor financial performance some shoe outlets have reported this year. This includes Foot Locker and although there has been no action so far Nike may review their retail policy. Nike also did less well last year by misreading their European and US markets and not jumping on the trend for the popular low profile sneakers preferred by skate-boarders. Critics believe Nike has become too big a company to respond to popular trends and this weakness has a knock on effect which adversely Nike’s financial standing for investors. Whilst Nike has diversified into different types of footwear and purchased several other shoe companies which cater for niche demands, the company’s main focus and core business still is the athletic Nike brand. All this at a time when a large number of Nike consumers are not hard-core athletes but ath-leisure buffs. The consumer interests of this not insignificant demographic, who are more influenced by price, comfort and fashion mean greater sensitivities are required if the giant is to continue trading successfully. Skate boarders come from a low profile culture, where their founders shunned big shoe companies and street-wise kids are always interested in serviceable and fashionable footwear and the cheaper the better. The last thing a company like Nike need is to repeat the faux pas their rivals Reebok did back in the late eighties when they misread trends and introduced the Pump. The introduction of the Pump came as an aftermath of the company allowing distribution of their shoes in the US (1979). The strategy was to establish themselves as shoes of quality which despite price worked extremely well. They caught the aerobics craze and captured the market by catering for the female foot. More women buy trainers than men. The Reebok gamble worked again because they had a long tradition designing sports shoes and aerobics was a fresh field where this expertise was appreciated. Success brought greater competition and expensive advertising. New gimmicks and fashion fads between Reebok and their rivals Nike escalated and when The Pump (Court Victory) (introduced 1989 and relaunched 2006) was overshadowed by the cheaper Nike Air Max the loss of sign value which followed severely effected the market position of the company which in 1987 Reebok controlled one third of the trainer market. Nike may need to tread very carefully from now on.

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