In recent years, there has been a noticeable shift in the preferences of young consumers when it comes to footwear. According to Stifel Financial, more and more individuals are turning towards brands like New Balance and Adidas Sambas, posing a potential threat to Nike’s market share. While Nike’s Dunk remains a popular choice, analyst Jim Duffy points out that other segments of Nike’s shoe business are experiencing a decline, making room for competitors offering alternative and bold styles.
Gaining Popularity in the Streets
Stifel’s back-to-school survey highlighted the growing appeal of challenger brands and new trends among consumers. The market is witnessing a surge in the popularity of shoes that are fresh, colorful, and exciting, presenting a diverse range of product lineups at multi-branded retail stores. Of particular note are two styles of shoes that are making waves among consumers, including the “dad” shoe category with brands like New Balance and Asics, as well as the “terrace” shoe segment featuring Adidas’ Samba, Gazelle, and Campus lines.
Shifting Tides for Nike
While Nike’s Vomero 5 is gaining traction in the market, Duffy highlights a decline in the popularity of some of Nike’s classic court styles such as the Air Force 1, Jordan 1, and Blazer. This loss of interest in longstanding staples is a cause for concern, as these shoes have traditionally served as the foundation of Nike’s dominance in the industry. Additionally, other iconic Nike shoes like the Air Max 270 and Vapor Max are also facing a decrease in demand, signaling a shift in consumer preferences away from traditional Nike styles.
Stifel’s survey data paints a grim picture for Nike, showing a significant slide in market share for the brand. While Nike still holds the largest share of “style references” at various retail chains, its dominance has decreased from 61.4% in 2023 to 88.2% in the current back-to-school season. In contrast, New Balance has seen a significant rise from 7.7% to 15.5%, and Adidas has experienced a jump from 0.5% to 13.6% during the same period. These figures indicate a growing preference for alternative brands over Nike in the consumer market.
Challenges Ahead for Nike
As a result of these shifting trends, Duffy has taken a proactive approach by lowering earnings estimates for Nike’s North America business. There are concerns about whether Nike can achieve revenue growth in the middle single digits in the 2025 fiscal year, or if a turnaround is possible in the fiscal fourth quarter. Duffy’s decision to reduce the price target on Nike’s stock by $9 to $79 reflects a bearish outlook, suggesting a potential 6.3% downside from current levels. With Nike already facing a decline of over 21% in 2024 and being listed as the third worst performer in the Dow Jones Industrial Average, the future looks uncertain for the athletic retailer.
While Duffy remains cautious about Nike’s prospects with a hold rating, other analysts polled by LSEG are more optimistic, giving the stock a buy rating. The average price target indicates a potential bounce of more than 7% for Nike shares over the next year, showing a divergence in opinions within the investment community. As Nike navigates through these challenging times, the company will need to adapt to changing consumer preferences and innovate to regain its foothold in the competitive athletic footwear market.