The heavyweight players battling for market share are all taking a hit in the stock market. Starting with Nike, of course, which effectively shot itself in the foot by trying to favor its direct-to-consumer sales platform over its relations with retailers.
The direct consequence is that shelf space abandoned by the Swoosh has been taken over by the highly colorful offerings of its rivals, in particular Adidas, back in investors' good graces after the Yeezy disaster and its missteps in China, as well as Hoka and On, which are still posting strong growth rates.
But even these players, despite their commercial performance, are not escaping investor pessimism, as shown by their current valuation multiples, at 10-year lows in all three cases. See on this topic Deckers discounted in the stock market despite the success of UGG and Hoka.
Two interpretations are possible. The first is that the sector as a whole is going through a rough patch that looks set to last, as the latest results from Dick's Sporting Goods, which owns Foot Locker among other assets, could suggest.
The second is that investors are in fact pricing in a Nike comeback. Through CEO Elliott Hill, the company is making no secret of its intentions: to win back lost shelf space and the overwhelmingly dominant position the American group once held, even though it still controlled more than one-fifth of global athletic footwear market share last year.
That view is also reflected in a Nike valuation multiple that remains higher than its peers, even as its sales are falling and its margins are the weakest in the group. Despite the spectacular drop in the share price, tied mostly to the previously exuberant valuation, investors, as we can see, are still relatively confident in the company's ability to regain favor.
The key ingredient for such a rebound can be summed up in one word: discounts. Nike will have to make substantial pricing concessions to win back retailers, who are themselves grappling with a sharp decline in discretionary consumption. In that respect, in the price war now taking shape, the fast-growing volumes and fat margins that Nike's competitors have enjoyed so far could come under pressure.
That is precisely what investors are anticipating, likely with good reason. They will also have noted the very recent appointment of Alexandre Arnault to Nike's board of directors, which sends a signal of possible ambitions to move upmarket into luxury or premium segments, where the Swoosh could forge preferred partnerships.
Remember that the company also counts Tim Cook among its board members, and that he stood out a few months ago for buying shares in the open market. On a related topic, see also Fifteen years at the helm of Apple: taking stock of Tim Cook's tenure.
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