Nike: Just invest in it?

By Bryna Howes 28 May 2019 5 min read

In his memoir, Shoe Dog, Nike co-founder Phil Knight recalls a time when his company was floundering. He gathered his troops in a room and said these words: “This is the moment we’ve been waiting for … If we’re going to succeed, or fail, we should do so on our own terms, with our own ideas — our own brand … We are still alive, people. We are still. Alive.”

The Nike story can hardly be summed up in one paragraph. There’s the swoosh. The phrase just do it. Air Jordans. Michael Jordan. Tiger Woods. Air Max. A million moving parts.

But we think this particular scene in the book aptly captures the fragments — the struggle, the motivation, the humour — that took Nike from a “crazy idea” to an iconic brand.

It’s 1964 and Phil Knight has convinced his former track coach, Bill Bowerman, to partner with him on a new business venture, Blue Ribbon Sport. Knight has secured the US distribution rights for Tiger-brand running shoes from Japanese company Onitsuka Co. The plan is to sell Tiger shoes to runners, normally at track meets. Bowerman’s name is meant to lend a sense of eminence and influence to the fledgling shoe company.

The plan works. In its first year, Blue Ribbon grosses $8,000 in sales. They hire salesmen. In 1966, the company opens its first retail store. In 1967, they expand operations to the east coast. The fairytale was beginning, but Knight and his small, motley crew didn’t know that yet.

You see, no matter its apparent success, Blue Ribbon appeared to keep running into problems.

Fast forward to 1970. It’s clear to Knight that Onitsuka is starting to play games. It won’t offer Blue Ribbon the five-year contract extension Knight has requested and it regularly encumbers Blue Ribbon by sending late shipments, often littered with the wrong sizes.

In 1971, in a fit of frustration, Knight places an order for 3,000 pairs of leather football shoes with a factory in Mexico. At least they now have shoes to sell.
He needs a logo and name for the new line, so he pays $35 to a college designer, Carolyn Davidson, for a logo. She comes up with the now iconic swoosh. Meanwhile, Jeff Johnson, his first employee, suggests Nike for a name. The new brand is born.
Everything seems to be back on track for Knight and his crew, but by 1972, the jig is up.

Onitsuka hears about Nike and severs ties with Blue Ribbon.

Blue Ribbon is no longer; Nike has arrived.

New name, new era? Not so fast.

Over the next few years, Nike endures the same swings and roundabouts Blue Ribbon had; for every positive, there is a negative.

It opens more stores, but it’s also sued by Onitsuka. Nike’s sales continue to grow and the company moves headquarters, but along the way US Customs decides it wants $25 million for retroactive duties on shoes, kicking off a years-long fight. Oh, and somewhere in there, Nike sponsors a hot-headed young tennis star: John McEnroe.

Finally, on 2 December 1980, Nike goes public, just 10 days before Apple.

The price was $0.18 per share. If you had made an initial investment of USD$100 in Nike on that day, you would have stocks worth more than $6 million today.

Part of your success would come down to Michael Jordan.

In 1984, Nike produced a pair of Air Jordan sneakers exclusively for its new endorser, basketball superstar Michael Jordan. Later that year, it released the shoes to the public to wide acclaim.

During the 1985 season, Jordan was fined $5,000 every time he wore the red-and-black shoes on court; the NBA Commissioner was not pleased the shoes weren’t standard white. Nike knew what it was doing, though, and picked up the fine. Essentially, that $5,000 was just pocket money paying for what appears to be some of the best marketing money could buy.

To this day, the Jordan brand makes up a significant portion of Nike’s revenue. For the fiscal year ending 31 May 2018, the Jordan brand brought in USD$2.86 billion in revenue.

And by the way, Michael Jordan is just one of Nike’s many endorsement success stories. Tiger Woods, Cristiano Ronaldo, Serena Williams, and LeBron James are just some of the household names that have been sponsored by Nike over the years.
It’s clear Nike’s sports pedigree speaks for itself. Back in 2015, reported 283 or 64.3 per cent of NBA players were wearing Nike brand shoes.

And this will likely continue. As a company, Nike has a cost advantage that allows it to spend significantly more to sponsor athletes than other brands. As of May 2018, Nike had US$10.5 billion in future cash payments for sport and celebrity endorsements. (This figure does not include Nike products.) With that firepower, Nike is usually the first port of call for athletes.

Of course, the success could also come down to Nike’s knack for smart acquisitions.
In July 2003, Nike paid $305 million to acquire Converse, a former rival. Less than a year earlier, clothing company Hurley International had been sold to Nike for an undisclosed amount.

The success could also be due to Nike’s tendency towards direct-to-consumer sales.

As of 2018, Nike operates almost 1,200 retail stores around the globe. This allows it to manage the relationship it has with its customers directly, which is a powerful thing. In addition, Nike has built out its e-commerce platform and has tested direct selling on Amazon. As at September 2018, Nike’s online sales (owned and partnered) made up 15 per cent of its total sales. It projects online sales will be 30 per cent in 2020 as it continues to boost its online presence.

Of course, despite all its success, there appears to have still been bumps along the way.

In the early 1990s, Nike was criticised for selling goods produced in sweatshops. The company appeared to be slow to respond to the public onslaught, but eventually seemed to cave under pressure. They increased factory audits, improved monitoring efforts and raised the minimum age of workers.

Ultimately, Nike earned praise (and good press) for its endeavours. In 2015, Morgan Stanley called Nike “the most sustainable apparel and footwear company in North America for environmental and social performance.” And, in 2019, Nike was given a score of 57 out of 100 in Fashion Revolution’s 2019 Fashion Transparency Index, which was a 21% improvement on its 2018 score

While consumers can make up their own minds on Nike’s ethical behaviour and practices, it’s worth noting the company puts out regular sustainable business reports where consumers can learn about its pledges and progress. A couple of points from the FY16/17 report:

  • More than 24 billion litres of water was saved by sourcing cotton more sustainably in FY17.
  • Nike aims to source 100% renewable energy in owned or operated facilities in North America by 2019 and help Nike get half of the way to reaching 100 percent renewable energy in owned or operated facilities globally by 2025.
  • Nike completed a multi-year worker engagement pilot, which saw 28,000 workers at 17 factories take part between 2014 and 2017.

As you can see, we think Nike still has its swings and roundabouts, as it always has. But when it came to investing in Nike, we here at Spaceship had just three words for ourselves: just do it.

The Spaceship Universe Portfolio and the Spaceship Index Portfolio currently invest in Nike.

Important! We’re sharing with you our thoughts on the companies in which Spaceship Voyager invests for your informational purposes only. We think it’s important (and interesting!) to let you know what’s happening with Spaceship Voyager’s investments. However, we are not making recommendations to buy or sell holdings in a specific company. Past performance isn’t a reliable indicator or guarantee of future performance.

Words by
Bryna Howes Right Chevron

Bryna Howes is the Head of Content & Brand at Spaceship. She's equally obsessive about cinnamon donuts and scouring the web for great reads.

Nike: Just invest in it?