A Bloomberg article [31/10/16] points out that Nike is losing out to its competitors in the innovation race. The piece is based on Bank of America Corporation's meetings with Asian suppliers and conversations with competitors.
Are we talking about the same Nike that released the very first self-adaptive-lacing shoe only to find that Puma also released the same type of self-lacing shoe in the last few months?
Yes, Nike dropped a large bunch of their innovations team focusing on wearables a few years ago in favour of more pragmatic R&D efforts. However, we have not seen any signs that the company have cut its R&D spend significantly and think the current lapse has other sources.
FT.com reported on a similar story in September 2016, where Nike released its 'futures orders', a forward-looking indicator of future sales, which rose only 1% in the North American market but was expected to hit 5% by analysts. In addition, the company has also exited its Golf business which may weigh on its results.
Our view is that the drop in Nike's share price may be linked to the growth of Athleisure, a trend which Nike is riding along with many other competitors. Analysts may be concerned about Nike's ability to compete with not only sports-casual retailers such as Lululemon Athletica and Sweaty Betty but the harder to compete with fashion apparel retailers now also developing and selling their own Athleisure ranges. Own brand retailers such as Topshop, Matalan, H&M and many others have jumped on the Athleisure trend providing sharp competition for the traditional sportswear brands.
We recently wrote a piece on Nike's approach to innovation click here to view that post.