What's behind the footwear and apparel leader's stock collapse? The core growth bets that Nike put in place a decade ago have not panned out. While the company's major investment in the Chinese market initially seemed to be yielding strong results, conditions have since soured.
In addition to tariffs and trade-war dynamics creating headwinds and manufacturing repositioning, Chinese shoppers have shown a growing preference for domestic brands. This Rare Signal Is Flashing Again. In 2009, a "Double Down" signal flashed for a little-known chipmaker called Nvidia.
For the first time in years, that same "Total Conviction" signal is flashing for a company 1/100th the size of Nvidia. Continue » Making matters worse, Nike's big bets on direct-to-consumer (DTC) sales in the U.S. and other key markets also had unintended consequences. While DTC sales offered Nike the opportunity to cut out the middlemen and improve its margins, it turns out that the company wasn't adequately positioned to make the move.
In response to Nike emphasizing DTC sales, retailers responded by giving more shelf and floor space to other brands. As a result, rivals competing in the company's core categories had an easier path to growing mind share and market share. While Nike was once almost monolithically cool when it came to athletic wear, the business has clearly lost a step (or more) in that regard.
The brand strength that was long at the heart of the company's growth strategy seemingly carries less cachet with younger generations, and Nike still has a lot of work to do when it comes to getting the business back on track for meaningful growth. Before you buy stock in Nike, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nike wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
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