Nike! Say it ain't so! Nike (NKE) gets taken to a sell at Bank of America Merrill Lynch; this, one of the greatest innovators, the dominant athletic apparel company of our time. What the heck? What's going on?
Simple.
Competition.
For years, Nike had the run of the table. Ever since Phil Knight blew away the competition, all laid out beautifully in his autobiography, Shoe Dog, and then taken to the next level by Mark Parker, Nike has had no peer in the business. Periodically, there'd be a challenger. I remember when we heard about Fila as a competitor. Or Reebok. Or Saucony. All pretenders.
And yes, Adidas (ADDYY) did have a good run for certain.
But they all died on the vine as Nike ran away with the business worldwide.
Suddenly, though, out of nowhere, Nike has not one powerful competitor, but two of them. Adidas has made a powerful return with its retro Stan Smith shoes. Most of you probably don't know who Stan Smith is. He was the great tennis player of my formative years -- the guy we all wanted to be in the seventies. His shoe has made a remarkable comeback.
They are, as my parents would say, all the rage.
If it were just Adidas, I think Nike could handle it, though. But Kevin Plank's Under Armour (UA) is suddenly in the mix and he's not afraid to hurt his own stock short term. In fact, as his release said last week: "We need to continue to invest in the business in order to capture the massive opportunity in front of us."
Them's fighting words.
And they are words that say "look out below" when it comes to gross margins. No wonder Bank of America Merrill Lynch took Nike to a sell. Sneakers have gotten way overpriced worldwide. Plank's ending that, in order to take share.
Can there be a winner in all of this carnage? I am still a believer in Foot Locker (FL) , which can benefit almost like an arms dealer in this war among the shoe makers. Dick's Sporting Goods (DKS) can, win, too. But we have to be careful in retail, because we know that the consumer's regarded as soft even as the Commerce Department's aggregate numbers show otherwise.
This share-take moment isn't contained to just shoes. This morning we heard about price competition in artificial joints from Zimmer Biomet (ZBH) , which, while it blamed most of its disappointment on shocking supply chain issues, did mention softness in the American market.
Last week we got a dramatic shortfall from NovoNordisk (NVO) because of price competition in the insulin and human growth hormone markets. They've been incredibly lucrative for years. And then, there's the stunning market share battle in the pharmacy benefit management business led by AmerisourceBergen (ABC) , which has decided to slash prices to take away business from McKesson (MCK) and Cardinal (CAH) . McKesson's stock lost almost 25% of its value last week when we learned about the price war. Cardinal reported this morning and the numbers weren't disastrous, so we've gotten a knee-jerk bounce but the war's been searing and the losses palpable.
We're used to price wars in some areas of the economy. We've seen them at the phone companies. We've known them in retail. We are used to them in restaurants. But sneakers, drugs and joints? It's all new. And all bad. Hence the flight, one that's not done, and might not be done until tax loss selling finishes at the end of 2016.
