Here is some analysis of the Nike situation
Plunge in profits latest sign Nike's swoosh has hit a wall
By William Mccall, Associated Press, 03/19/98 02:46
BEAVERTON, Ore. (AP) - When Nike changed its slogan from ''Just Do It'' to ''I Can,''
it gave the company the perfect response for bad news that marked the end of three
years of phenomenal growth.
The athletic shoe and clothing juggernaut can and will come back, company officials
said Wednesday after announcing that quarterly profits fell nearly 70 percent and
1,600 people will be laid off.
Chairman Phil Knight blamed the economic collapse in Asia, where Nike has pinned
much of its expansion hopes. The company had cranked up production just before
the financial reversal that has spread from Singapore to Tokyo, leaving Nike with a
huge supply of unsold inventory.
''It's an art, not a science,'' Knight said. ''If you miss it just a little bit, you're going to
get burned.''
Nike announced after the New York Stock Exchange closed Wednesday that
third-quarter profits fell to $73.1 million, compared to $237.1 million a year ago.
Earnings per share dropped from 80 cents to 25 cents, the second straight quarter
the company has reported a decline.
The 22,000-strong Nike workforce will be trimmed by 7 percent, accounting for $30
million to $45 million of up to an estimated $175 million in restructuring costs that
will be felt in the fourth quarter.
The disappointing news came after Nike has weathered persistent criticism about
working conditions in factories run by Third World subcontractors.
And after years of spending millions to put its logo on sports stars such as Michael
Jordan and Tiger Woods, Nike also has been lucky to dodge the various scandals in
professional sports.
Nike is far from the rebellious upstart of the early 1970s, when Knight was selling his
waffle running shoes out of the back of his car. Now it's a behemoth whose $9.6
billion in annual sales dominates the industry.
The company faces competition for the lucrative youth market.
''Nikes have too much flaps, too much Velcro, swirls and see-through spots,'' said
Ty Vandergriff, 17, wearing a backward baseball cap, oversized jeans and plain
adidas shoes. ''Tell you the truth,'' he added, with emphatic gestures, ''the shoes
are just ugly.''
News isn't all bad. Estimates vary, but Nike has about 47 percent of the athletic
footwear market share in the United States, compared to 15 percent for Reebok and
6 percent for adidas.
Analysts expected Nike to bounce back from its latest problems after it downsizes
and unloads excess inventory, which may take until the end of the year for its Asian
markets.
The future also still depends on Nike's advertising skill and whether its stable of
celebrity athletes can pull their weight with consumers, said John Horan, publisher
of Sporting Goods Intelligence, an industry newsletter in Glen Mills, Pa.
''If they can turn Michael Jordan into a brand that lives on after he retires, and Tiger
Woods turns into the international icon people think he can be, sure, they've got lots
of options,'' Horan said. |
