• Loading stock data...
Friday, July 12, 2024

The State of the Sneaker Market: Nike and Adidas

Both companies have looked to the secondary market for success.


Adidas, Nike, and Under Armour recently announced their quarterly earnings: not surprisingly, Adidas was the fastest riser (+26% in North America), with Nike stagnating (+1% in North America). Under Armour, meanwhile, experienced one of its worst quarters — quarterly losses of $12M, and historically low stock prices.

However, until 2016, Nike still reigned supreme — and what they had built to that point was nothing short of incredible. The brand fervor exhibited by their fans was only matched by Apple, giving rise to a new concept: the sneakerhead.


How did Nike do this?

Two ways: sponsorships and leveraging the secondary sneaker market.

With sponsorships, Nike created their brand through what I call the “contained shotgun” approach: where they have outspent all their competitors within specific categories.

The best example is in basketball, where Nike has occupied all levels of the sport: high school, college, professional leagues, and even pro-am leagues, such as Drew League. This brand affinity has become massive enough that college teams are willing to take a discount to partner with Nike.

That goes multiple levels: players want to play for a Nike school, and merchandise sales increase with a Nike logo.

The logic is the following: take a discount to partner with Nike, and you make up that difference in the extra revenue you receive by recruiting a star player, and by selling jerseys. For Nike, the goal here was to become all-encompassing for basketball fans, while also becoming the first brand to mind when thinking of the sport.

Next, to nurture a burgeoning secondary market (which resembles a black market), Nike created limited releases — strangling supply, which in turn increased prices in the resell market. Sneakerheads occupy the secondary market, and are (like drug addicts) characterized by their low price elasticity and high willingness to pay.


The secondary market created a massive overall brand premium, and while this did not necessarily translate to direct revenues to Nike, it created spillover demand for other products, improving overall net profitability. In other words, as long as:


Held true, it was rational to continue creating limited releases.

And god damn, has Nike been successful at this. In 2014, within the resell market, Nike comprised of 96% of total sales.

In creating and nurturing the sneakerhead segment, Nike maintained a firm hold on the resell market.



Adidas’ rise

In February 2015, Under Armor’s Kevin Plank called Adidas his “dumbest competitor”. I’d argue that in the years since that statement, Adidas has made more intelligent strategic decisions than anybody else in their industry — leading to an ascendant market cap (share price times shares outstanding).


(I included Plank’s Under Armor in red, for good measure).

The reason behind this growth was a revamped strategy, centered around the same two factors that led to Nike’s success: sponsorships and distribution.

Through a completely refreshed sponsorship strategy, Adidas began to reallocate their investments into a category undervalued by traditional sporting apparel brands: the lifestyle market. At the same time, Nike doubled down on segments that were stagnating, such as basketball (through their massive NBA partnership¹) and athletics. Funnily enough, Adidas has executed a similar contained shotgun approach in soccer, with a flood of new and extended partnerships with clubs, leagues, and players. This culminated in the highest number of sponsorships of any other brand for teams contending for major titles in 2017.

Targeting Americans wearing athletic wear for casual use (75% of all customers) was the perfect example of a classic whitespace strategy: examine where your competitors are not occupying, and if profitable, invest heavily into that space. Their endorsements of public figures such as Kanye West and Pharrell Williams, was in many ways, buying low on the lifestyle stock.

From the distribution angle, Adidas borrowed Nike’s strategy: creating limited releases and catering to the secondary market, with releases such as the Yeezy Boost and NMDs. At the same time, Nike started to increase their supply in the market. During this period, Adidas saw resell margins of up to 400%, while new Nike products began to falter. As with Nike’s limited releases, Adidas created spillover demand for products such as their Superstars — the top selling sneakers of 2016.²

All that said, Adidas’ strategy was straight out of the Nike textbook: sponsor aggressively into specific categories, and cut supply for limited releases. This coincided with Nike’s missteps within both areas, leading to gains for Adidas: sneaker sales for Adidas grew 80% in 2016, as per the NPD Group, contributing to the doubling of their market share (11.3% as of May ’17). Meanwhile, as a result of declining basketball sales, Nike moved their focus from the secondary market to the retail market through signatures and player editions — attempting to leverage their unmatched athlete roster.



Looking forward

While Adidas has made headwinds into the sneakerhead segment, it is still Nike’s territory (by recent estimates, a 67% share). Resell margins still serve as one of the best measures of brand strength in sneakers, and outside of a few new entrants within the top 10, the swoosh is still prominently featured. A couple years of popularity is not enough to diminish Nike’s brand — in many peoples’ minds, Nike is still the top sneaker brand.

Therein lies the power of a brand. While Adidas has made all the right decisions over the past two years, for them to overtake Nike within consumer minds, it will take a colossal effort and years of positive reinforcement to do so.

It will not be difficult for Nike to regain some market share within the sneakerhead segment. They have already begun to make their way back into the secondary market. However, Adidas’ entrance into the lifestyle market may have led to a first mover advantage large enough to be insurmountable, at least in the short term.

This advantage should be concerning to Nike, given that their existing partnerships may be well past the point of diminishing returns. These partnerships are all a part of brand building — and a few more years of success may aid in Adidas’ goal to win the sneaker wars.


¹ To be clear, NBA player endorsements are still effective, especially in a league that is increasingly becoming more player-driven. ^

² For an exhaustive history of Adidas resell, check out Josh Luber of StockX’s outstanding analysis here. ^


Front Office Sports is a leading multi-platform publication and industry resource that covers the intersection of business and sports.

Want to learn more, or have a story featured about you or your organization? Contact us today.

https://upscri.be/f32ae1

Linkedin
Whatsapp
Copy Link
Link Copied
Link Copied

What to Read

Everything To Know About the Jaylen Brown–Nike-Olympic Beef

It starts, as it often does, with a carefully parsed emoji.

Struggling Nike Widely Cut Executives in Last Layoff

Nike is, by any measurement, facing a grave emergency.

Nike’s Worst Stock Plunge Forces Big Changes to Win Back Consumers

An already-reeling company is trying to recover from a one-day, 20% fall of its stock.
podcast thumbnail mobile
Front Office Sports Today

Warner Bros. Discovery Faces Final Decision on NBA Rights

0:00

Featured Today

NFLPA Report Cards Have Become the ‘Talk of the Locker Room’ Across..

NFLPA report cards have become the ‘talk of the locker room.’
July 7, 2024

The New College Sports Insiders Are Graphic Designers

Joe Tipton and Hayes Fawcett have become premier news-breakers on social media.
Oct 27, 2023; Sacramento, California, USA; A general of the Sacramento Kings logo on the court before the game against the Golden State Warriors at Golden 1 Center.
July 6, 2024

How Sports Went From Private Equity Punchline to Coveted Asset Class

Once an industry punchline, sports are now a coveted asset class.
July 2, 2024

Willie Mays’s Humility Was Key to His Genius

Mays took heat from all sides, and handled it his own way.
Sponsored

How Sportradar and the NBA are Partnering to Fuel Fan Engagement

How Sportradar and the NBA are utilizing data to enhance fan engagement
Oakland-A's
April 25, 2023

Oakland A’s Could Share Stadium with Triple-A Team

The Oakland A’s could be searching for a place to play.
Sponsored

MLS’ Chris Schlosser on Pioneering the Digital-First Sports League with AI

Chris Schlosser discusses MLS’s growth and digital transformation.
Sponsored

TopSpin 2K25 Brings the Legends of Tennis to Your Living Room

2K sports is reviving a classic with TopSpin 2K25.
Titans stadium.
April 19, 2023

Titans’ Historic New $2.1B Stadium One Step Closer to Reality

About $1.26B in public money would go toward the new stadium.
Crypto-markets-sports-sponsorship
May 20, 2022

Crypto Crash Impact on Sports Sponsorships

Prior to the last two weeks, cryptocurrencies, NFTs, exchanges, and a host…
Insights-Wearables-Consumers
March 11, 2022

The Evolution of Consumer Wearables

The wearables market has seen incredible amounts of growth since the onset of the pandemic. Trends like telemedicine and remote patient monitoring have helped spur adoption and inspired new consumer products that allow for the tracking and collection of biometric data.
February 11, 2022

The Role of Live Sports in Streaming

The streaming wars have intensified as the field is as competitive as ever. One way to retain customers? The answer might be live sports.