Nike Inc. has been so dominant for so long in the athletic-apparel sector, it feels strange to even ask if it could stumble from the first-place podium.
But lately, you can't deny it: Nike seems to have lost a bit of its magic.
It was apparent in the company's Tuesday evening earnings report, in which sales in the crucial North American division fell 3 per cent from a year earlier. Company-wide, gross margin declined in part because of a rise in off-price sales.
The gloomy North American numbers weren't entirely surprising. In August, some of Nike's most important retailing partners – Foot Locker Inc., Finish Line Inc. and Dick's Sporting Goods Inc. – each saw one-day stock drops of at least 18 per cent after reporting grisly quarterly results.
In part, Nike is simply being hit indirectly by the forces pummelling stores – namely, dwindling mall traffic and intensifying competition from the likes of Amazon.com Inc.
But it's not that simple. Each of these troubled retailers counts on Nike for a significant share of its merchandise assortment.
And in his remarks to investors about the rough quarter, Foot Locker chief executive officer Richard Johnson said certain models of Nike's Jordan brand were selling at slower rates than they had historically. He also said "the absence of sufficient depth and breadth of exciting new styles in the premium athletic channel also seems to have drawn some customers to markdown product."
So, yes, maybe Foot Locker and other chains missed the mark on pricing and marketing in a tough retailing environment. But there are hints that Nike's product is part of the problem, that the brand is not as coveted and on-trend as it once was.
That idea was underscored by recent data from market-research firm NPD Group, which found Nike's lucrative Jordan brand fell behind Adidas AG in market share in the U.S. sneaker business. Matt Powell, NPD's analyst covering the industry, said on Twitter he never expected to see that change in his lifetime.
None of this means Nike is in dire trouble. It is growing robustly in international markets, which now account for more than 55 per cent of its revenue. For the full year, it still expects to deliver a revenue increase in the "mid-single-digit range," implying growth not much different from last year's.
But it does suggest the athletic giant is at a crossroads; it needs to embrace change if it is to stay dominant. And so it must acknowledge its central tension: The Nike brand is as strong as ever. But some of its product needs work.
Nike's online sales on its own website were up 19 per cent over the same quarter last year, and same-store sales at its Nike bricks-and-mortar stores were up 5 per cent. In the Greater China market, where sales boomed 12 per cent year over year, the company does 90 per cent of its business in Nike-branded digital and physical storefronts.
These numbers tell us that when Nike has complete control of the narrative and world-building in the shopping experience, it does quite well in luring consumers to spend. And that makes sense, because the Nike brand is a rare asset in retailing. It has everyman appeal, but also an aspirational, high-end halo. Only Apple Inc. rivals Nike in having that unique brand positioning.
But Nike product is not consistently on-point. Shoppers are growing tired of basketball shoes, and Nike seems to be struggling to adapt.
And if consumers are content to buy Nike's sneakers at a discount – as many of them were in the latest quarter – then they may not see its wider array of new, full-price styles as special enough for a splurge. In an environment such as a Foot Locker, where many brands abound, Nike shoes don't get much of a boost from brand-building trappings, and they clearly aren't shining.
The good news is that Nike executives have a strategic plan that, in theory, should address these issues. The company is working to dramatically speed up its innovation pipeline, which should help it bring new products to market more frequently. Offering fresh styles more often could help it jump on trends that have a short shelf life. And it is increasing its direct business, including e-commerce and bricks-and-mortar stores.
There's good reason to believe Nike can find its way out of this. But it had better act fast, before a solvable problem metastasizes into something bigger.
Sarah Halzack is a columnist with Bloomberg News.