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Thursday, July 18, 2024

Nike in a slump amid sluggish growth, rising competition

The company projects sales to drop 10 per cent next quarter as the company’s classic brands slow down and Nike faces challenges in the online marketplace.

Nike posted sluggish growth as the largest sportswear brand in the world faced rising competition, a consumer pullback in its key markets and strategy missteps.

Nike’s sales grew 1 per cent last year and were flat last quarter, the company reported Thursday.

Nike (NKE) stock plunged 12 per cent during after-hours trading.

Nike faces a consumer slowdown for discretionary goods and tough competition from upstart running brands like Hoka and On.

Customers are changing their behaviours, passing up discretionary purchases of expensive sneakers and athletic clothing for basics and experiences such as concerts and travel.

Nike is also facing new competition.

Hoka, a French brand founded as a running shoe for hardcore marathoners that soon caught on in the mainstream, is growing thanks to its emphasis on comfort over traditional style.

Meanwhile, Nike’s effort to change its distribution strategy has backfired.

The company in recent years has slashed the number of traditional retailers it sells its goods to while shifting to grow directly through its own channels, especially online.

Nike has said it can make more than double the profit selling goods through its own website and physical stores than it can through wholesale partners.

Nike has said it would focus its resources, marketing and top products on just 40 select retail partners, such as Dick’s Sporting Goods and Foot Locker.

But the change hurt Nike’s sales. Nike has since brought back some of the retailers it initially cut out.

“Nike took it too far and underestimated the importance of third-party retailers. This withdrawal opened the door for those retailers to partner more closely with other brands,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients on Thursday.

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