Constant changes in consumers’ shopping habits and the development of e-commerce has left marks on sports brands, with several growing in popularity and others dropping in sales and buyer interest.
Going public in 1980 sportswear brand Nike rapidly grew in popularity. An investment of £1,000 in 1980 would have grown to over $700,000 in 2015. However, recent developments in the markets have impacted negatively on the company with shares dropping 16% to $52 since 2015. This fall has been attributed, partially, to a rise in e-commerce shopping as the brand’s major distributors, such as Foot Locker, have been negatively impacted by growing preferences for online shopping. Another contributing factor has been the growing success of rival company’s such as Adidas, whose currency neutral sales increased at a rate between 17% and 19% and gross margins increased 0.8pp to 50.0% while Nike’s sales remained flat. Market analysts have forecast that Nike stock prices could decline by a further 10% to $2.41 per share with a possible drop of 6.6% in earnings to $3.96 billion in 2017.
Another company that has responded to a recent lag in customer activity is clothing company Under Armour. Shares have dropped by 8% and as a result plans have been put underway to reduce the company’s workforce by 2% to cut costs. In this quarter revenue grew by only 8%, compared to the same period in 2016 when revenue grew by 28%. In an attempt to increase consumer traffic Under Armour will be directing more of it’s efforts towards direct-to-consumer channels.
While several well-established brands have been impacted by changes in consumer attitudes and the rise of multiple competitors, one company that has rallied is the athletic apparel company Lululemon. In 2014 the business experienced a dramatic drop in share prices, from $81 to $39 following a recall of 17% of stock due to faults. However, in following years stocks have begun to appreciate again, increasing by 33.4%, currently valuing at $61 per share.
As buying habits change, moving towards e-commerce and certain brands, companies will need to innovate to remain relevant in the market. Although Nike has recently declined in value the introduction of their new shoe line, VaporMax has been met with positive results, implying that the company could rally. As the market becomes saturated with more companies some will rise in popularity, leading to higher profits, while others will fall behind and command a smaller portion of the industry.
(Please note: James O’Leary does not currently hold a position in Nike, Foot Locker, Under Armour, or Lululemon. Henry James International does not currently own a position Nike, Foot Locker, Under Armour, or Lululemon).
(Please note: James O’Leary currently holds a position in Adidas. Henry James International currently holds a position in Adidas).