New playing fields for athletic apparel

E*TRADE Securities2

07/28/17

Back during Michael Jordan’s heyday, Nike once said, “It’s gotta be the shoes.”1 And matter the shoes did. The Jordan line has been a runaway success for Nike, and its investors, helping the company become an industry-standard bearer in athletic apparel.

But this market, now mainstream and fashion-forward, is facing many of the challenges plaguing retail today, including changing consumer preferences brought on by technology. It’s a tough world for the brick-and-mortar set, but several popular brands are stepping up their game to succeed in the new environment. We look at three well-known apparel brands and what recent moves may mean for interested investors.

Changing lanes

Like many others, Nike, adidas, and Under Armour are adjusting their approaches to the new market dynamics:

  • Nike dealing. Nike’s shares are up 12.27%2 year to date and recently spiked on news of a new partnership. As one of its biggest product retailers, Sports Authority’s bankruptcy likely caught Nike’s attention. Nike’s response? Double down on e-commerce with a deal that some say could help the company increase its brand and market share among online-heavy millennials. In detailing its fiscal 2017 fourth quarter earnings beat, Nike announced that it would sell select products directly through Amazon for the first time. Previously, Amazon only carried Nike products through third parties. 
  • adidas running. adidas has been on a run as well, with its shares up 25.72%2 this year. Helping the company has been its foam-cushioned running shoe, Boost. Launched in 2013, the shoe came with an added bonus—it had crossover appeal in the lifestyle category. Boost helped give birth to a new approach for adidas, wherein it increased creative engagement with partners outside the sports world. One recent partnership, adidas’ collaboration with rapper Kanye West and his YEEZY Boost shoe line, has opened new doors for the company.   
  • Under Armour evolving. Relative newcomer Under Armour came to the market as a disruptor, being the originator of performance athletic apparel designed to keep athletes cool and dry. Under Armour has had some growing pains this year, as its shares have declined 34.21%.But it appears the company is looking to take a page from adidas’ playbook and combat headwinds by increasing its presence in the premium lifestyle category.3 It’s also looking to expand its horizons geographically, outside of the U.S. 
Athletic apparel companies, year-to-date performance

Source: Morningstar

Finding new kicks

In fact, Under Armour’s lead basketball pitchman Stephen Curry was in China this week on a much-publicized promotional tour for the company. In many ways China may represent the next frontier for those interested in athletic apparel.4 China has a burgeoning middle class, a huge millennial population, and a government committed to investing in athletic programs. Yes, the U.S. remains the dominant market, but it’s a mature market. Conversely, China is virtually a blank canvas for these brands. No wonder Under Armour and others run their stars over there to market their products, spread their brand style, and try to cultivate followings.

For investors, tracking how these companies adapt to new market dynamics and gain footing in nascent markets like China may be a good way to gauge whether athletic apparel could have a place in their portfolio. 

 

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1. Nike Basketball, 1989. https://www.youtube.com/watch?v=fkY7W6kCRY4

2. As of July 26, 2017, according to http://beta.morningstar.com/stocks.html

3. Welty, Matt. “ASAP Rocky’s Biggest Challenge: Making Under Armour Cool,” Complex Sneakers, 11 Jul. 2017. http://www.complex.com/sneakers/2017/07/asap-rocky-making-under-armour-cool

4. Bain, Marc. “Here’s what happens to the athletic wear industry when China starts going to the gym,” Quartz, 23 Mar. 2017. https://qz.com/939224/heres-what-happens-to-the-athletic-wear-industry-when-china-starts-going-to-the-gym/