You mentioned that consumer tastes change quickly - I agree with you. Sorry this is sort of like my last statement, but I'm just curious how can Levis keep being so popular year after year, while some other brands vanish. Do you think Nike is destined to follow in Levis footsteps or that of La Gear?
you asked an excellent question and your concerns regarding fashion related companies are wise concerns. levi strauss built it's brand name and image around the core product of blue denim jeans. basic blue denim jeans are not really a fashion product but more of a bread and butter basic which nearly every consumer owns. coca cola is not really a fashion product either but rather a core beverage product which nearly every consumer drinks. gillette co. makes shaving related products which nearly every adult male consumer needs. the three companies i listed above are examples of rock solid corporations whose near and longterm revenue growth is nearly guaranteed. coke and gillette are treated by wall st. as "sure thing blue chips" because of the entrenched, rock solid nature of their product lines. nike management likes to see their company as "in a class with coke and gillette" however it just is not so. sure nke has excellent management and nke has grown steadily over the past twenty years. nke has a brand name recognized worldwide and the brand will definitely be around for many many years to come. however i do not necessarily believe that nke will continue to enjoy the shoe market percentage dominace that it currently holds. the "barriers to entry" are not that tough in the shoe industry. for example visit a shoe store and you will see shoe products from nke, reebok, timberland, addidas, skechers, vans etc.. and many many more. all of these other brands are much smaller than nke yet they have the potential to chip away at nikes sales. for example you might have purchased three pairs of nike shoes last year yet this year you might purchase only one pair of nikes and two pairs of something else.if millions of people do this then nikes sales will suffer. nike is not going away but it is really, really hard for them to keep getting people to buy only nike. the other brands look good too. the "fashion" aspect comes in to play because the other brands ( say timberland with their brown shoes) have nice looking shoes that consumers want to try. coke does not have this problem because most consumers feel coke tastes best, period. the competition just doesn't taste as good. this is why i feel coke has justification for trading at a premium pe multiple, especially when you consider that coke can grow overseas easily by selling 50 cent coca colas. nike is going to have a tougher time growing overseas because nike products cost $50 and up. alot of foreign consumers can afford a coke but cannot afford expensive shoies. right now i think wall st. is pricing nike shares as though nike was as "sure a thing" as coke. i just don't see it that way. i think it is quite possible that timberland, addidas and others can chip away at nikes business. it has already started to happen and i am betting things won't turn around real quickly for nke. nke mangement has stated that they currently have an inventory problem (too much of last seasons styles) and that kind of situation hurts their ability to sell brand new styles. it is difficult to predict the longer term future but in the near term i am not expecting much positive news to come from nike. hope this helps. by the way la gear was pure sex, sizzle and fashion. they were hot for a few years and then ran into inventory problems which killed the brand image. nike is twenty times the size of la gear (in their peak years) and nke has much more professional management. don't worry nke is not going to go away like la gear.
I think that this is the most common misconception about Nike. Nike does not exist to be the latest fashion sneaker for teenagers. Nike's existance (read their Annual Reports on this one) is to create equipment which will help athletes perform better. Now, running shoes and bball shoes happen also to be very popular amongst teenagers sometimes. But, Nike has clearly set its sights on markets beyond the shoe business as there is low growth potential due to increased competition. But, Nike sees its future in soccer (the world's most popular sport that has only caught on recently in the US), hockey (very popular in Canada and Europe and the sport rising in popularity amongst spectators in the US), golf (the fastest growing sport in the world), and women's athletics (a virtually new serious market). Sure people will want them to create fashionable equipment, but I think the real loyalty will be built on how the equipment performs. I personally do not wear anything but Nike in all sports I play because of comfort, performance, and durability. The company has a tough job in the near future, but the long-term outlook is very good and management is very capable in guiding it to their goals.