Nike's (NYSE:NKE) problems may be bigger than you think. Beyond flat sales, losing market share to rival Adidas (OTC:ADDYY), and its sneakers and apparel no longer holding the cachet they once did, the footwear giant is reportedly losing its grip on an important consumer demographic: teens.
Analysts at Piper Jaffray say teens are abandoning Nike at an alarming rate, with the brand shedding between 600 and 800 basis points of market share with teens depending on how they sliced up the data in its biannual Taking Stock With Teens report. Make no mistake, Nike is still the top brand overall, but it is quickly losing mindshare among teens across all categories, and that could portend greater hardship for Nike in the future.
Teenagers have always been important to Nike in particular and brands in general because they tend to be early adopters of trends and wield significant purchasing power, some $92 billion, according to Statistic Brain.
However, today's teens tend to be less loyal to brands than those who came before them, and companies have to convince them their product is a good value.
Nike isn't alone in feeling the changing tastes of teen spending. Piper Jaffray says Fossil, Michael Kors, Ralph Lauren, Steve Madden, and Decker Outdoors' UGG brand saw the largest declines among major brands. But Nike, as the industry leader, saw some of the sharpest drops overall.
It may be it's getting harder to convince teens today that spending $150 to $200 on a pair of Jordans is still a good deal, especially since Michael Jordan's star power is fading. Foot Locker (NYSE:FL) said in August that Jordan sales in North America in the second quarter "slowed considerably compared to historical rates," which is dragging down its performance as 68% of its merchandise purchases are from Nike.
Adidas, on the other hand, is surging. Second-quarter sales rose nearly 20%, and Adidas said full-year top- and bottom-line numbers would be better than expected. From sports stars like James Harden to entertainers like Kanye West, Adidas has been hitting hard on personalities, design, and technology.
A rising star
Not only is Adidas stealing from Nike, but it's completely undermining Under Armour (NYSE:UA), a brand now classified by teens as an "old brand," according to the Piper Jaffray research. And streetwear brands like Vans and Supreme -- brands that have strong sway with urban youth -- saw their popularity surge. Privately held Supreme even managed to crack the top 10 list on Piper Jaffray's survey for the first time.
That suggests that streetwise brands carry a level of authenticity Nike finds hard to duplicate, and its focus on sports stars, like its recent NBA sponsorship, may actually work against it. In contrast, Adidas has been targeting streetwear, and that may in part account for its greater gains.
While Nike is attempting to counteract a number of these trends, including by selling directly to customers via Amazon.com as well as through its own website, the heightened competitive pressure may lead to further discounting of its shoes. Although that may be necessary to help pick up sales, it's never a good sign for a "luxury" brand to appear to be begging for sales in the mass market. There are plenty of examples of high-end brands going down market and facing worsening trends than before, including Tiffany, Coach, and Banana Republic. It signals panic and desperation, which is never a good look.
Because Nike has been such a dominant force, its brand erosion is skewing the teen survey, which found the brand's mindshare losses accounted for the entire loss experienced in the athletic apparel segment from when Piper Jaffray conducted its spring survey.
Losing teen consumer support is extremely worrisome and indicates Nike may have a lot further to fall before it's able to regain its footing.