Memo: Why Nike Needs Air

The year was 1984, and Nike needed a change.

Now a corporation with revenues that exceed the GDP of all but 80 or so of the world’s countries, Nike nearly 39 years ago executed one of the most important business decisions in history. On October 26, 1984, Michael Jordan agreed to a partnership that would alter the sports business for an entire generation. There is something sort of Orwellian about this year, when a shoe brand with $919 million in sales became one of the most powerful corporations on earth. To accomplish this, they signed an unproven NBA rookie to a contract format that had yet to exist in sports.

A New York Times report, eight long months after Jordan’s signing, detailed the company’s distress. It would snap out of it in two years’ time with the help of the NBA rookie.

Nike’s earnings declined 29 percent in the fiscal year 1984, the first drop in 10 years. ”Orwell was right: 1984 was a tough year,” Philip H. Knight, Nike’s co-founder, chairman and chief executive, said in the company’s annual report. Yet 1985 is even tougher. In its two most recent quarters Nike had its first losses ever.

Today, Nike isn’t just a shoe and apparel manufacturer. Its advertising and public relations strategies contribute to the national consensus. The company’s impact extends far beyond sport; it has reached the stratosphere of culture, economics, and even politics. It’s as much a part of the fabric of America as the flag’s fibers themselves.

The year is 2023. And Nike is still more recognizable than the names of many American presidents. But there’s been a seismic shift.

1985: Michael Jordan vs. 2023: Tiffany x Nike Capsule

While sports has never been bigger as a business, it requires more investment by corporations like Nike to match the influence that it once maintained. Today, a Nike swoosh or Michael Jordan logo is on every MLB, NBA, and NFL uniform and countless more within the NCAA’s ecosystem.

The decline in the influence of professional athletes and the waning of Nike’s share of that influence are two interrelated phenomena. When Lebron James broke the all-time NBA scoring record, it should have moved the sales needle for Nike. Instead, his participation in the promotion of Nike’s Tiffany collaboration was more likely to pay dividends than a special “scoring title” edition of Lebron’s shoes. He’s the company’s highest-profile (active) star athlete. But it was just another passing moment; Phil Knight sat on the sideline looking morose and bored by the spectacle before him. He’d seen a lifetime of those moments and they’ve lost relevance over the decades. In fact, he all but created the economy for moments-turned-advertisement. In Nike and Omniversal Brand, I explained:

To many, Michael Jordan is Nike’s greatest athlete. To others, it’s Kobe Bean Bryant, Cristiano Ronaldo, Tiger Woods, or Serena Williams. For me, it’s Steve Prefontaine. Nike’s first athlete set the stage for decades of the brand’s rebellious and counterintuitive thinking. The spirit of Pre lives on.

So let’s explore how the decline of athletes’ influence and Nike’s waning influence are connected and what factors have contributed to these changes.

Founded in 1964 as Blue Ribbon Sports, Nike was inventive from the beginning. Over the years, it’s become one of the biggest and most recognizable brands in the world. However, in recent years, the company has faced declining influence and has struggled to maintain its position as a leader in the athletic apparel industry.

One of the biggest factors contributing to that decline of Nike’s influence is increasing competition from enterprise brands and direct-to-consumer brands, alike. In recent years, new and innovative athletic apparel companies have emerged, offering consumers a wider range of choices and forcing Nike to adapt to changing market demands.

Companies such as Under Armour, Adidas, and Puma have all made significant gains in market share, challenging Nike’s dominance in the industry. These companies have been able to offer consumers high-quality products at more affordable prices. Nike’s response has been to move further up market, leaving the average consumer behind. Additionally, the increasing popularity of athleisure brands like Lululemon has also had an impact on Nike’s influence. But each of the aforementioned still struggle with a similar problem: professional athletes are less of the attention equation than they were just a decade prior.

With the rise of social media, the rise of the commercially-viable musician, and the increasing number of athletes, it has become much easier for talented (and untalented) individuals to become celebrities and gain a large following. This has resulted in a saturation of the market, making it more difficult for individual athletes to stand out and maintain their influence. As momentum has shifted away from athlete influence, their efficacy of has waned. Look no further than the current struggles at Adidas:

The company’s messy split last year with the musician Kanye West, which could knock about €1.2 billion off full-year sales, and €500 million off its operating profit — an even greater loss than Adidas had calculated just four months ago. (NYT)

This explanation would have been unfathomable when Jordan still played. A rapper’s canceled partnership influenced €1.2 billion off full-year sales? While Nike is pivoting to luxury and monopolizing professional sports, smaller companies are beating Goliath with a smoothed stone. We covered this in a recent member brief on the developing phenomenon.

Read More: The Euro DTCs Invade

But perhaps the greatest factor contributing to Nike’s decline is the changing consumer attitudes towards the company itself. In recent years, Nike has faced criticism for its labor practices and its impact on the environment. From using sweatshops in developing countries to producing its products while contributing to environmental degradation; this is no longer a fair tradeoff to the modern consumer. Enes Kanter Freedom, an NBA player, is the personification of this consumer shift:

He calls himself more than an athlete. He calls himself a human rights activist or freedom fighter, so I was just very disappointed in him choosing money and business over his morals, values, and principles. Obviously, he signed with a company like Nike that pretty much use slave labor and sweatshops in China, and he talks about all the problems that are happening around the world, but when it comes to one specific topic, China, he stays silent. And that is hypocrisy, so that’s why I want to expose it.

As such, this has led to a negative perception of the brand among consumers, who are becoming more conscious of the ethical, socio-political, and environmental impact of the products they purchase. Nike is attempting to address some of its issue. Recall the declining interest in star athletes? Pop star Billie Eilish has replaced the gridiron star.

Nike and American singer-songwriter Billie Eilish have come together to unveil the brand-new Air Force 1 Low sneaker, as part of their commitment to sustainability. 

Nike is still one of the largest and most recognizable brands in the world despite the changing world around it. It’s no coincidence that the upcoming biographical film about Phil Knight’s most important business decision is on the horizon.

Nike needs “Air” to remind consumers that sports matter, athletes matter, and that they are a more reliable bellwether than their pop cultural counterparts. It will premiere in 3,000 movie theater screens and then follow with streaming accessibility (on Amazon) in more than 240 countries.

The 1985 New York Times case study on Nike concluded with a sentiment that is still applicable, 38 years later: “The question now is whether management can keep Nike pointed in the right direction. Nike thinks it is ready to run again. But the race will be tougher this time.”

By Web Smith | Edited by Hilary Milnes with art by Alex Remy 

Member Brief: The First Omniversal Brand

We all have our opinions. To many, Michael Jordan is Nike’s greatest athlete. To others, it’s Kobe Bean Bryant, Cristiano Ronaldo, Tiger Woods, or Serena Williams. For me, it’s Steve Prefontaine. Nike’s first athlete set the stage for decades of the brand’s rebellious and counterintuitive thinking. The spirit of Pre lives on.

Nike is one part retailer, one part media company, and two parts religion. The company has been covered extensively throughout the 2PM library and for good reason. One of our earliest reports on Nike began:

History has a way of changing things. The way that consumers view things today will be different in a decade or two. By every indication, Nike is working to achieve a few things. The Beaverton, Oregon brand has gone all in on iconography, images of people who become bigger than life. Perhaps, their marketing decisions aren’t for our lifetimes. Perhaps they are for the lifetimes of our children.

Its cultural impact, global reach, and inventiveness have contributed to an evolution from independent running shoe company to an omniversal brand.

Defining an omniversal brand: Nike navigates traditional retail, DTC, and metaverse seamlessly through its physical and digital presences. It promotes commerce and relationship development in an integrated manner, elevating the brand in each format. To achieve this, Nike had to accomplish four separate objectives:

  • impact cultural moments
  • fortify its DTC channels
  • defend its intellectual property through resale
  • establish its IP rights through metaverse-adjacent projects

Impacting Cultural Moments

As an apparel retailer: Nike is in a class of its own. The New York Times’ Vanessa Friedman wrote the reflection on Nike’s cultural impact. Her deep dive spanned the early days with Spike Lee, the 1985 tie-up with Michael Jordan (remember, his rookie year shoes were initially banned), its new era of high fashion clout and its growing secondary market resale value. Its competitors can barely reach its stratosphere, though Adidas and Lululemon are trying. It sits on a Mount Rushmore of iconic American brands; its future is brighter because it’s the first of its kind.

It has its founding fathers: Phil Knight, a former University of Oregon runner, and Bill Bowerman, his college coach, who famously poured rubber into his wife’s waffle iron to make a new running sole. It has an anthem: “Just Do It,” introduced in 1988. Most of all, maybe, it has an emblem.

That puts it closer in history to such brands as Coke, IBM, Disney and McDonald’s than any athletic or even fashion name. The only other brand to make the leap so effectively and completely from commodity to identity in the last half-century is Apple.(1)

When a company like Nike, or Disney, or Apple makes a strategic move, it reverberates throughout numerous industries. They each have the ability to exist in every industry at once. Nike wants the resale market, too: a Nike-owned resale site has the potential to capture new ground that Nike has ceded to platforms like StockX.

Fortify its own DTC channels

Nike has proven that it decides its own fate when it comes to distribution. The one piece of the puzzle Nike doesn’t currently oversee? Resale. The sneaker resale market has become a robust secondary trade that marks the most coveted shoes on the internet. Nike accounts for the vast majority of sneakers sold at auction at Sotheby’s, according to the NYT. Companies like Stockx, Stadium Goods and more have built entire businesses around selling after market Nike sneakers. If Nike were to bring sneaker resale under its own hood, that would disrupt the entire sneaker ecosystem. From TechCrunch:

In May 2019, Nike called itself a tech company with the development of Nike Fit, a scanning solution to find Nike app users’ best shoe fit. The product was developed by Intervex, a Tel Aviv-based startup.

A Nike-owned resale marketplace could be an extension of the Nike app as a place to buy and sell used or deadstock, resold Nike sneakers and apparel. Functionally, it would be more similar to GOAT or eBay than Stadium Goods or StockX, which only allow unworn sneakers. (3)

Authentication would be guaranteed under a Nike-owned resale app. Fake sneakers often end up in the after market and those buying from Nike could rest assured they’re buying the real thing. Nike would also benefit from the influx of customer data. They’d know more about the customers most persistently active in both the primary and secondary markets and how to market to the consumers who prefer first market over second market (or vice versa). They could also better control and orchestrate demand without alienating too many customers. From Not Authenticated:

Nike then made bigger moves late last year when it built Nikeland and acquired RTFKT, a digital collectibles platform. And so, retaliation against StockX for selling Nike sneaker NFTs was inevitable.

Resale could seamlessly become part of Nike’s popular SNKRS app. It’s also possible to connect the dots between Nike’s metaverse efforts (which we’ll get to later) and resale. You can imagine Nike rewarding NFT holders with access to a resale auction, for instance. If Nike pulls it off, it would be the first major brand to fully close the loop on its resale business – something other companies would then be interested in copying. Nike is the first omniversal brand.

Defend intellectual property

Competition is fierce. Nike is known to throw its weight around in areas it wishes to own. Nike is no stranger to lawsuits: It’s currently embroiled in a battle with Stockx over Stockx selling NFTs of Nike sneakers as well as counterfeit Air Jordans. It’s taken MSCHF to task over its Satan sneakers. It’s on the receiving end, too. Adidas this week filed lawsuits against Nike over its adaptive sneaker patents and its app suite, which have become a defining strategy for Nike. It’s a typical back and forth spar for Adidas and Nike, but in the grand scheme, Adidas is ultimately nipping at Nike’s heels. From Business of Fashion:

Apps have become important tools for brands to reach customers that are increasingly living on their phones, and Adidas’ apps haven’t generally been as popular as Nike’s. Nike’s main retail app is currently the number eight shopping app on Apple’s iOS in the US, according to intelligence platform Apptopia. SNKRS ranks at 27 and Adidas’ equivalent, Confirmed, at 34.

As of February, SNKRS also had more than 2.5x the market share (vs. Adidas) based on monthly active users as confirmed among the leading, direct-to-consumer sneaker apps.

Establish IP rights in the metaverse

The complaint filed by Nike describes NFTs as “part of the future of commerce.” It also warns that the burgeoning technology is susceptible to trademark infringers seeking to reap profits off of rights that does not belong to them.

As the first omniversal brand titan, Nike’s push into the metaverse is one to take seriously. With RTFKT, the digital studio it acquired last year, it released its first digital sneaker, which sold out instantly and has become a collectors’ item in the virtual world. Nike has been working to carry over its cultural clout to the metaverse, by trademarking its name and logo and partnering with Roblox to built out a branded world, Nikeland. It’s claiming its turf now – other brands will find themselves playing catch up.

Nike’s move into the metaverse is so powerful because it has the means to build, test, and acquire new technologies. It has a metaverse team already in play to help it define its presence in the virtual world. The possibilities are near endless and that represents a huge business opportunity for retailers who will follow Nike’s playbook. Recently, it introduced direct-to-avatar purchases with RTFKT. It’s not just a metaverse strategy. From PSFK:

A key component of Nike’s metaverse-fueled direct-to-avatar virtual product sales approach is the launch of its own metaverse, Nikeland. Hosted within the immensely popular Roblox platform and metaverse, Nikeland has already received almost 7 million direct visits from 224 countries since its launch. Nikeland is free to access, and stocked with minigames. Users are encouraged to outfit their avatars with digital versions of the newest Nike product drops, and shoppers are able to purchase Nike CryptoKick and skins directly for their avatars. (2)

The adoption of Web3 principles by traditional retailers will be gradual but Nike has begun to lay an omniversal foundation by building up its direct-to-consumer business and investing in its own apps, trademarks, and intellectual properties, while reducing its dependence on traditional retail channels. Web3 and DTC are natural partners and Nike will be of the first major retailers to iterate around Web3 principles. It’s not just a new revenue stream: it’s community and status. It’s belonging.

As eCommerce becomes ever-present in our lives, that line of demarcation between eCommerce and our physical lives continues to blur. As brands adopt metaverse strategies, physical goods are getting digital versions. In December, we wrote on the CryptoKicks movement:

Nike prides itself on being first in line to new innovations or opportunities. The few times that it hasn’t been, it’s marketed so well that the consumer eventually forgot that another brand beat them to the punch (Nike has owned the mindshare in everything from NBA basketball to pro skateboarding). The retailer will not have to worry about coming in second on its way to the metaverse.

The retailer seems to understand the value of digital real estate, the future of virtual communities, and the importance of investing in the products that bring the two together today. When the late Steve Prefontaine used to run, it was wild and relentless. He ran for legacy and for principle. He made his own rules and established that he was the best at his craft. He would say, “I have to go out hard and lead from the start.”

Nike’s best athlete laid the strategy for much more than the sports icons it sponsored. The first omniversal brand is available anywhere and everywhere shoes are worn.

By the 2PM Team 

Memo: Brand Brady

The backdrop of the launch of the Brady Brand is a years-long shift in how Under Armour and its rivals are doing business. Adidas and Nike are expanding their definitions of brand equity while Under Armour is tightening the reigns. In February of 2020, 2PM wrote a deep dive into UA’s lack of focus:

There are a number of technical and financial concerns that Under Armour has ahead. With a new CEO in Patrik Frisk, there is an opportunity to course correct in several categories to include: product development, financial health, and brand management. The company that Kevin Plank launched from his mother’s basement has influenced 25 years of performance wear technologies but it’s no longer synonymous with the category that it established.

The message was a timely one. In October of 2020, UA announced a plan to cut back on wholesale partners (it exited 3,000 stores!), minimize discounts, and reduce its SKU count:

As it overhauls wholesale, the brand is also upping its focus on direct-to-consumer channels, where it plans to offer fewer promotions and discounts to fuel healthier margins.

This left the door open to the NFL’s greatest quarterback to go all-in on his own brand without infringing on his existing partnership with Under Armour, an idea that would not have worked as a Nike or Adidas athlete. After years defining himself as one of the best quarterbacks to ever play, Brady is now trying to lead another new brand to victory away from the gridiron. First, it was achieving notoriety for the TB12 supplement empire and now it is a focus on fashion retail. Tom Brady is redefining the playbook for the athlete-anchored brand with Brady, his new line of athletic and lifestyle apparel that debuts next week.

His launch strategy resembles that of a modern brand playbook: the digitally-native department store partnership of choice, the NIL deals, and the emphasis on direct-to-consumer and online storytelling.

In an interview with WWD, the Tampa Bay quarterback outlines how Brady will be sold at brady-brand.com and through Nordstrom. The collection will debut with 145 pieces in three categories, and will maintain a monthly drop schedule popularized by brands like Parade, Noah, Todd Snyder, and Drake’s. The plan is to steadily expand the brand into more upscale categories but for now, the focus is on athleisure and office casual.

Brady’s effort to build a DTC brand follows the USWMNT athletes and and Jimmy Butler’s BIGFACE brand. It’s important to note that all three brands used Shopify for their product launches. It is certainly a new era for athlete merchandising and brand development, with more control and ownership over his namesake brand. What’s notable is who he chose to partner with to create the brand and who he didn’t. Women’s Wear Daily outlined his partnership with Jens Grede, the brand creator behind Frame, Good American and Skims (the latter two of which have big-name influencer associations with Khloé and Kim Kardashian, respectively), who was introduced to Brady by longtime fashion executive Andrew Rosen. The line is designed by Public School co-founder Dao-Yi Chow, who it’s noted is not just a fashion insider but also a marathon runner. The group, collectively, is one that understands the function of sports apparel, the importance of style and how to build and launch modern consumer brands.

Missing from the project? Under Armour, which sponsors Brady. Now, you may understand why.

It’s a sorely missed opportunity for Under Armour, which had a failed launch into elevated sports and lifestyle attire with UAS and an earlier attempt to knock off brands like Ministry of Supply and Mizzen + Main. It dropped UAS in 2016 and lasted one season before the plug was pulled. Brady could have been UA’s next opportunity – the timing is better, and the face of the brand couldn’t be more influential in the sports world. Instead, UA was sidelined, which WWD addresses:

Brady opted to launch the brand with Grede rather than through his longtime sponsor Under Armour. The Baltimore-based sports company is now focusing nearly exclusively on performance sports apparel and its attempt to move into fashion in 2016 with the UAS collection, designed by Tim Coppens, met with limited success and was discontinued after one year. An Under Armour spokesperson said Brady continues to part of the UA family as an ambassador, as he has for 11 years, but said the Brady brand is his personal, off-the-field endeavor and separate from his partnership with the company.

Brady is setting up new rules for the options athletes have before them as they navigate the world of brand sponsorships, partnerships and merchandising. A macroeconomic shift in how his title sponsor does business (Under Armour is retreating from a fashion opportunity), the door is open for what may become a successful attempt to unseat Michael Jordan as the most astute figure in athlete retail (though it’s clearly too early to say). From the new site:

BRADY™ is the first technical apparel brand to apply two decades of pro sports level innovation and engineering to create a system of clothing that performs across every activity. With over 3 years in development, our fabrics and materials fuse natural elements with cutting-edge technology. Designed with the body in mind. Built to move, breathe, and sweat while you compete, live and recover.

Doesn’t this sound like a conflict of interest with Under Armour?

The renewed focus is working for Under Armour but at a cost of going all-in on the opportunities of the moment (though UA is now dabbling in NFTs). UA has chosen to set aside fashion, casual wear, DTC fitness, web3, and metaverse development – leaving Nike and Adidas as the go-to major retailers in those other areas. In fact, Nike is laying the groundwork for further expansion. The brand is currently going up against Lululemon in a patent spat over Mirror technology – demonstrating it’s fighting for ownership in a bigger Nike universe.

Brady seldom loses, these days. Which is why it’s even more incredible that Under Armour didn’t make an exception to their new strategy rules. It’s a decision that they the forefathers of technical fabrics may come to regret if the brand does what every other Brady pursuit seems to do: win.

By Web Smith | Edited by Hilary Milnes | Art by Alex Remy and Christina Williams