Nike Announces Profit Drop, Layoffs
Mar. 18, 1998
BEAVERTON, Ore. (AP) _ Nike just isn't doing it anymore.
After spending millions to put its swoosh logo on sports stars from Michael Jordan to Tiger Woods and enjoying annual growth of 35 percent over the last three years, the shoe manufacturer has hit a wall.
Nike announced a 69 percent drop in profits Wednesday, the second straight quarterly decline, and said it would lay off 1,600 workers.
The setbacks are the latest for a company hurt by the Asian crisis, a glut of high-priced shoes lingering on store shelves, and a growing sentiment among America's youth that the ubiquitous swoosh is no longer cool.
Kaytee Fuqua, 15, didn't think much of the sneaker maker. ``The people I hang out with all wear Adidas,'' she said as she waited at a bus stop down the street from Portland's Niketown.
In a nearby food court, 28-year-old Jim Terry recalled that when he was a boy, ``I couldn't wait to become a size 3 so I could get my first pair of Nikes.''
But now, he said, ``the market's saturated. So many people are wearing Nike all the time it doesn't have the same allure that it used to.''
``Nike kind of overswooshed the market,'' said Brenda Gall, who follows the company at Merrill Lynch in New York. ``There was too much sameness in products. Consumers got bored.''
What started out in the 1970s as a rebellious upstart, with chairman Phil Knight selling his waffle-soled running shoes out of the back of his car, has become a $9 billion-a-year behemoth.
But the company has become viewed by many shoe-buying teens as a synonym for corporate America, and their views are beginning to show up on the bottom line.
Nike said its third-quarter profits were down to $73.1 million from $237.1 million a year ago _ a drop per share from 80 cents to 25 cents _ while global footwear revenues were down 16 percent and future orders were down 9 percent worldwide.
Nike's biggest hit will be to its 22,000-strong workforce, which will be reduced by 7 percent. That will cost the company between $125 million and $175 million in severance pay, buyouts and pension plans, but Knight expressed confidence that the layoffs will leave Nike ``leaner and more competitive.''
``In spirit, Nike remains a company that is about to change,'' Knight said.
Nike's image-is-everything marketing machine also was stung by a series of scandals to hit professional sports _ at the heart of its advertising strategy _ and persistent criticism of working conditions in factories run by Third World subcontractors.
Fuqua said Nike has a bad reputation with her teen-age friends ``because they work little kids.''
Nike already has changed its slogan from the determined ``Just Do It'' to the more optimistic ``I Can'' as it looks to maintain its current 47 percent share of the athletic footwear market in the United States. Reebok has 16 percent and Adidas 6 percent.
``I think they're looking for ways to improve the strategy they've had,'' said John Horan, publisher of Sporting Goods Intelligence, an industry newsletter in Glen Mills, Pa. ``It may not be as innovative as it was four to five years ago.''
Nonetheless, analysts expect Nike to bounce back from its latest woes after it downsizes and unloads excess inventory, which may take until the end of the year for its Asian markets.
But the future still depends to a large degree on Nike's advertising skill, Horan said, and whether their stable of celebrity athletes can pull their weight with shoppers.
``If they can turn Michael Jordan into a brand that lives on after he retires, and Tiger Woods turns into the international icon people think he can be, sure, they've got lots of options,'' Horan said.