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Nike Still Tops Despite Sneaker Blowout

By Rich Duprey – Updated Apr 14, 2019 at 10:14AM

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There shouldn't be any lasting damage to the company's reputation after the high-profile failure.

It was the blowout heard 'round the sports world. Less than a minute into a basketball game between the University of North Carolina and Duke University, Zion Williamson, a standout for Duke, suffered a catastrophic blowout of his Nike (NKE 3.79%) sneaker that caused the player to fall and injure his knee.

Duke ended up losing the game, and Williamson was sidelined for several weeks after the Feb. 20 accident. Nike shares dipped immediately after the disaster, though today they trade about 1.5% higher, suggesting investors don't think there will be any lasting impact. Williamson returned to the court on March 14, and he seemed to perform as well as ever with 29 points, 14 rebounds, and 5 steals. 

Many wondered what brand of sneaker he would be wearing, but he was back on the court in Nikes -- though this time it was a pair of Kyrie 4s (named for Boston Celtics star Kyrie Irving) rather than his previous Paul George model.

Check out the latest earnings call transcript for Nike.

Basketball player dunking basketball

Image source: Getty Images.

Nothing but net

Not that anyone really expects a repeat of the incident (Nike has said it was an "isolated occurrence"), but the ongoing performance of the top basketball prospect will be scrutinized. And data from YouGov suggests there still could be fallout for Nike if Williamson doesn't remain at the top of his game.

Before the Duke-UNC game, Nike was riding a wave of favorable reactions due to its high profile during the National Basketball Association (NBA) All-Star Game weekend. Nike routinely battles adidas (ADDYY 7.39%), Puma, and Under Armour for player contracts that are lucrative for both sides. LeBron James, for example, was signed to a $90 million deal right out of high school and has since signed a $500 million lifetime endorsement deal.

YouGov continuously surveys consumers to track their views on brands. Nike's Impression score, which is based on responses by adults to the question of whether they have an overall positive or negative impression of the brand, had hit a high of +44%.

As a result of Nike's prominence, YouGov data also showed the number of consumers willing to buy Nike sneakers or apparel was climbing to a high, as 31% of adults had expressed interest in buying Nike gear on Feb. 15, with as many as 43% saying they were willing nearly a week later, after the infamous sneaker failure.

A turn for the worse

But Nike's YouGov Buzz score, which asks whether adults have heard something positive or negative about a brand in the prior two weeks, went from a +15% beforehand to -5% after Williamson was injured. Impressions plunged to the high 20% range, and Purchase Consideration was back down to around 30%.

Since colleges also have endorsement contracts with apparel companies, which require their players to wear the brands -- and Duke had signed a 10-year sneaker deal with Nike in 2017 -- Williamson had no choice but to be in Nike footwear for his Thursday night return.

Recently Williamson was live-streaming on Instagram and was seen prominently wearing adidas apparel. A reporter tweeted a screenshot of the stream, saying: "What do you call Zion Williamson Instagramming live in an outfit with 12 adidas logos? Negotiations."

Even though Williamson is wearing Nikes now, he could also work out a more lucrative deal from rivals trying to steal market share from NikeCoincidentally, an adidas sneaker had a similar malfunction during an Indiana-Wisconsin game the following week.

Still held in high regard

Basketball plays an outsized role in the buying habits of sports-minded consumers. YouGov found that 61% of NBA fans have a positive impression of Nike, and 31% of them say celebrity endorsements can affect their purchase decisions. And 29% of college basketball fans say the same thing.

So there is the potential for Nike to suffer from this incident. If there is another catastrophic failure or if Williamson signs a contract with adidas or another brand, Nike may take a hit, at least temporarily.

But because the brand continues to be held in high regard by sports-loving consumers, Nike should be able to move beyond the big blowout without much damage to its reputation.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool recommends Nike. The Motley Fool has a disclosure policy.

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