M SCIENCE SPOTLIGHT

NKE & The Evolving Footwear Landscape

FEATURING

Drake MacFarlane

Research Analyst

After years of dominance, Nike Inc. (NKE) is struggling to maintain its foothold within the sportswear industry. Due to an evolving landscape, the brand now faces fierce competition from smaller, eclectic companies. This marketplace exposes greater issues for Nike, including lackluster product drops and struggles with innovation. Despite its “victory” image, the company appears to be losing steam.

Since the COVID-19 pandemic, the footwear industry has taken a new shape, with dynamic changes across three major categories of brands. To start, there are the titans of the industry — incumbents such as adidas and Nike. These behemoths have, historically, dominated the footwear market, but now face competition from rapidly growing challenger brands, boosted by the rise of direct-to-consumer and digital channels in the wake of the pandemic. This challenger segment comprises trendy and innovative brands like HOKA and On. The final category comprises mid-tier brands like New Balance, Skechers, and Asics, which are competing for share in a crowded middle market arena.

What’s going wrong for Nike? A lack of innovation and the perception of a stagnant product pipeline has become a sticking point for the company recently. Although Nike has benefited from the enduring popularity of Jordan, and more recent growth from lines like the Dunk and Court, the broader product suite may not be capturing the excitement of new buyers. To combat this perception, the company launched the Air Max Dn design in March, a reinvention of the Air Max, a product line first released in the 1980’s. According to M Science data, however, the Air Max Dn has not taken off. After an initial splash in late March, wherein the product model represented ~3% of observed NIKE footwear spending in our U.S. digital purchase data the week of its release, the product has since moderated to below 1% of observed footwear spending in April and May. This may be indicative of larger issues for Nike.

Monthly NIKE Spending by Footwear Product Line, U.S. Digital Purchase Data

Source: M Science

“Nike’s product pipeline is fairly stagnant,” says Research Analyst Drake MacFarlane, who oversees the Consumer Products sector for M Science. “Nike benefits from the core customer who buys religiously. But you need to be able to grab the incremental new customers, too. Yet, we are seeing them go toward newer brands.” The mid-tier and challenger brands can seize these new buyers, taking share from Nike. “Nike pulled away from a lot of wholesale partners right when new challengers were coming onto the field. If you pull away, even on a relative basis, that’s where competitors can pull in, he adds.  

It may take a while to correct this trajectory for Nike. Footwear lead time moves slowly, for fashion standards. From pitch to prototype to product, the development cycle of a shoe can last one to two years. This remains a challenge for Nike, as online trends move quickly, and it can be unpredictable which trends might stick. Conversely, fast-fashion brands can capitalize on social media movements to meet consumers in the current moment.  

To further complicate matters, Nike also participates in the athleisure space. So, while Nike is struggling with footwear innovation, it must also compete in a saturated apparel segment filled with contemporary designs and styles. “There’s a lot of surface era for competitors to take Nike’s market share across both footwear and apparel,” MacFarlane explains. “The concept of brand loyalty is more nebulous these days for consumers – there’s just more fashion options available than before.” 

Consumers are not the only ones with other options – so does talent. MacFarlane describes how these mid-tier and challenger footwear brands have set up shop in the same area, specifically around Portland, only a few minutes from Nike headquarters in Beaverton, Oregon. Both On and adidas’ North American headquarters are in Portland, and as of May, HOKA has reportedly leased office space in Portland as well. “From an employment ecosystem perspective, there’s just other options available. If you are not able to get cachet at Nike, and you want to innovate, the competitors are innovating literally next door.”  

Nike also faces issues with its image. Nowadays, shoppers are increasingly brand-conscious, especially younger cohorts. “Customers care about how the product relates to them. For a personal perspective, the brand is an extension of identity,” says MacFarlane. “When you’re putting out a new and innovative product that appeals to a particular type of consumer, whether it’s for running or the idea of running, eventually, that has a serious impact.”

Notably, Nike has yet to catch on to the “dad shoe” trend, which is popular with influencers and social media users. The idea is at odds with Nike’s longstanding portrayal. “The brand identity, and really the brand DNA, of Nike does not really lend itself well to ironic ugliness. Nike is named after the goddess of victory after all. It’s about performance. It's about being inherently better. But earnest coolness is not necessarily cool. That's just not what's in vogue,” MacFarlane adds.

Resonating with an evolving customer base and facing new competition creates further difficulties for Nike. “In the grand scheme of things, that means, if they’re not able to resonate with the incremental new customer, there are other options that are very readily available,” he said. For example, take On’s “Cyclon,” a subscription-based footwear product model meant to be recycled regularly. The line represents an attempt towards sustainability, something of interest to younger consumers.

As an industry incumbent and household name, it may be harder for Nike to shift its perception.

“A challenging element for a large brand that has either an ill-defined identity or one that has lost some prestige, either due to poor reception or a lack of social consciousness – whether that’s true or not – is that these perceptions are hard to shift, and can have a significant impact over time,” MacFarlane said.

Nike’s branding has relied on its long-standing partnerships, such as its affiliation with the U.S. Olympic team. With the Summer Games approaching, Nike will be looking to capitalize on Paris 2024 excitement to generate sales. But will this be enough? “Is the average consumer today going to buy a new Nike shoe just because someone wore them at the Olympics?” says MacFarlane. “I don’t really see the connection. For newer brands unfamiliar to the average consumer? Maybe.”

Controversies, such as the criticism around the ill-fitting Nike Team USA Women’s Track uniforms, are not helping. “When you’re a large brand, the higher the likelihood there is that if something goes wrong, people will notice,” he adds.

The M Science Difference

How does M Science track key changes in Nike’s performance?

Our firm provides product-level visibility into over 200 footwear lines. This means our research can pinpoint successful and underperforming launches and campaigns. In the case of Nike, our data indicated the AirMax Dn’s moderation due to lack of consumer interest shortly after its launch. “Even though Nike had growth last year, we saw that it was really just driven by a couple major product lines,” MacFarlane reveals.  

With Nike competitor adidas, M Science data followed the impact of intermittent releases, especially as the company has severed ties with artist Kanye West. For instance, the brand’s Samba style has been on trend for the past year. “We were able to catch the inflection for Samba, Gazelle, and the rest of those very popular Terrace lines,” MacFarlane says. “We could see the cadence in purchases not only in the direct-to-consumer channel, but also the sell-through among wholesale partners.” 

Monthly Terrace Product Line DTC Spending, U.S. Digital Purchase Data

Source: M Science

Our research also leverages European digital purchase data to monitor footwear brands. As mid-tier and challenger companies make in-roads in the European market, our insights help offer clarity on their online segment. We view activity in the U.K., France, Germany, Spain, and Italy, informing our outlook on tracked brands internationally relative to the U.S.  

M Science provides analyst-curated research into adidas (ADS.GR), Crocs (CROX), Deckers (DECK), Nike (NKE), On (ONON), Skechers (SKX), and Under Armour (UAA).   

Within our research, we highlight metrics such as market share, product and demographic segments, price and frequency activity, and customer retention. We also observe changes in spending trends in both the DTC and wholesale channels. Our dashboard solution features 40+ brands in the U.S. and around 20+ in Europe, with explicit visibility brand sell-through among 30+ retail partners. 

If you would like to speak to Research Analyst Drake MacFarlane about Nike or the broader footwear industry…