Athletic shoe and apparel giant Nike
As I recently discussed, the price of cotton continues to trade near record highs and is becoming a headwind for many apparel companies. However, large diversified apparel companies like Nike should be able to fare better than smaller competitors because of purchasing power.
For a stock that was up more than 40% year to date and sat at 52-week highs, such margin worries marked an opportunity to take a profit. However, after listening to the conference call of one of Nike's retail customers, I believe the selling has created a good opportunity for investors who like buying best-of-breed companies.
Shoe retailers such as the Finish Line
Many analysts have scolded Nike for not participating in the toning shoe fad. As competitors like Reebok and Skechers
Shifting the market
Nike has still refused to make toning shoes and tout the same silly benefit claims that its competitors have made, but the company has fought back by branding training-specific shoes with the slogan, "The shoe works if you do."
What Nike has done, according to Finish Line executives, is essentially broadened the scope of toning shoes to fit into the training-shoe category in which Nike towers over its competition. On the conference call, Finish Line CEO Glenn Lyon said, "The toning thing is not going to go away. It may take on more of a training approach to it. But it's all part of performance, which is right up our alley. And again, we'll trend against those whether its running, training, toning, basketball, and our ability to do that will keep our inventories fresh, keep our selling prices high, and I think that this all serves us well."
When asked about this change in positioning from toning to training, Finish Line's Chief Merchandise Officer Sam Sato told Reuters that it was being driven by Nike. So Nike has transformed the entire trend into a small part of the training segment that it dominates. In addition, while its competitors are being forced to discount the toning shoes significantly, Nike's premium training shoes don't require such markdowns. Toning shoes are already starting to pop up at discount retailers like TJX Companies
While many analysts have been quick to admonish Nike for not participating in a fast-growing fad, that approach has never been what Nike has been about. Nike is not a follower, and it's not a discount brand. It has earned its premium status through years of breakthrough innovation and branding efforts that may never be matched in the world of consumer discretionary goods. Nike doesn't need toning shoes; toning shoes need Nike -- and as usual, that spells trouble for its competitors.
Andrew Bond doesn't own shares in the companies listed. Costco is a Motley Fool Inside Value selection. Costco and Nike are Motley Fool Stock Advisor picks. The Fool owns shares of Costco. You can follow Andrew on Twitter @Bond0 or on his RSS feed. Try any of our Foolish newsletters today, free for 30 days. The Fool has a disclosure policy.