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Speaker 1: Sam Dickey is with us from Fisher Fans. Hello Sam,

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Speaker 1: good eating here right, let's talk about Nike, because, as

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Speaker 1: he points out, Nike has has had its stock plum

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Speaker 1: at sixty eight percent from its peak, which about November

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Speaker 1: twenty twenty one is a textbook fallen angel. What's gone

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Speaker 1: wrong here?

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Speaker 2: Well, John Donaho, he was the CEO that came in

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Speaker 2: about five years ago in twenty twenty, and he pretty

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Speaker 2: quickly shifted Nike's focus. So, as you probably know, it

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Speaker 2: used to be all about having sported its course, so

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Speaker 2: organizing itself around megasports like basketball, running football, plus being

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Speaker 2: very very visible in retail stores and using its power

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Speaker 2: its might to elbow out all the wannabe brands off

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Speaker 2: the best shelves. So he did a few things. He

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Speaker 2: wanted to make the company more profitable. So he simplified

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Speaker 2: the company's divisions by men, woman and kids rather than

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Speaker 2: by sport, and he turned his back on the shoe

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Speaker 2: shops and sports retailers to try and sell more products online,

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Speaker 2: which on the face of it makes sense because you

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Speaker 2: have a simpler divisional structure, you reduced a number of

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Speaker 2: expensive sports specific designers, and instead of paying away profit

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Speaker 2: to a retailer to sell your product. You keep that

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Speaker 2: extra profit for yourself and sell directly off your website.

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Speaker 2: But it backfired and Nike he lost its sports specific

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Speaker 2: product innovation advantage. And what's worse, that shelf space that

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Speaker 2: had freed up by turning its back on retailers was

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Speaker 2: greedily gobbled up by smaller innovative brands like Hoker and

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Speaker 2: On Running. Ah.

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Speaker 1: And that's quite key, isn't it, Because because Hoker look

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Speaker 1: at what's happened to Hoker lately, right, And you've got

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Speaker 1: all of these because I mean, part of the story,

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Speaker 1: as you say, is what's going on within the business,

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Speaker 1: but part of it is also the pressure from the

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Speaker 1: competitors like Hoker, like Lulu Lemon as well, isn't it.

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Speaker 2: That's right? And they were able to use their mic

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Speaker 2: previously to ensure they get all the best shelf space

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Speaker 2: in it in a shoe shop for example, and when

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Speaker 2: they turn their back on those retailers, that space was

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Speaker 2: it greedily gobbled up. And ironically here that Hoker and

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Speaker 2: On Running used the same strategy that Nike did back

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Speaker 2: in the day to take on you know, the big

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Speaker 2: players back then probably Eddie, ass Converse, Puma, and use

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Speaker 2: that really kind of sports specific product innovation. So really

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Speaker 2: focusing on running shoes, really focusing on basketball shoes to

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Speaker 2: beat at its own game.

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Speaker 1: Now, look, I know retro is back, Sam, but do

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Speaker 1: you think that maybe overly reliant on their retro styles.

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Speaker 2: Yeah, well, they have been super reliant on those mega brands,

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Speaker 2: and look that that's part of that. So that the

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Speaker 2: changing strategy and that reliance on those mega brands like you, Jordan's,

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Speaker 2: et cetera, which I guess sort of retro has punished

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Speaker 2: the stock. So you know, inventory is every consumer product

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Speaker 2: company's worst nightmare. And Nike's inventory shot up from five

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Speaker 2: billion dollars to eight billion dollars because it couldn't sell

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Speaker 2: enough product vi it's new online strategy. Profit fell, cash

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Speaker 2: flow almost halved. So it not die straits, but the

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Speaker 2: company got itself into a materially worse position than it

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Speaker 2: was and hence, as you say, it fell sort of

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Speaker 2: seventy percent in terms of stock price.

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Speaker 1: Yeah. Now, the thing that you would refer to as

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Speaker 1: Nike's competitive moat is that still intact or is that

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Speaker 1: gone forever?

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Speaker 2: Well, that is the number one question. And remember mote

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Speaker 2: is a sustainable competitive advantage, like a motor around your

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Speaker 2: business to ward off the ravages of competition. In Nike's

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Speaker 2: moat is of course it's incredibly powerful brand, but that

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Speaker 2: brand is supported by its scale. So it used to

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Speaker 2: support that brand with its scale by elbowing you know,

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Speaker 2: the wannabe Hokers and on runnings off the shelves. But

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Speaker 2: it also spends almost five billion a year on marketing

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Speaker 2: and sponsoring the best athletes in the world and that

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Speaker 2: hasn't changed. So they recently wrapped up Caitlan Clark the

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Speaker 2: WNBA Sensation for about twenty eight million bucks, despite Puma

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Speaker 2: adi das underarma or clamoring for attention. And I think

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Speaker 2: it was Lebron James that describes it best. He could

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Speaker 2: have gone with Rebok for one hundred and fifteen million dollars,

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Speaker 2: but we were Nike for ninety million dollars because he

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Speaker 2: went and saw them and was walking the hallways and

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Speaker 2: saw life sized cutouts of Michael Jordan and Tiger Woods

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Speaker 2: and realized he had to side with Nike. And the

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Speaker 2: other thing is that the CEO, John Donna, who's now

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Speaker 2: gone as well, so he's been replaced by Elliot Hill,

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Speaker 2: who started at Nike in nineteen ninety eight, is an

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Speaker 2: intern and he's changed course. He's steered the company back

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Speaker 2: towards its course. So I think the moat is still there,

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Speaker 2: it just needs to be fixed up a.

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Speaker 1: Bit interesting, Okay, So what does this mean for investors?

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Speaker 1: What do they need to consider?

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Speaker 2: It's a reminder of a few things. So of all

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Speaker 2: the types of moats, so I think about cost advantages,

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Speaker 2: customer switching costs, or even patents, brand can be the

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Speaker 2: most fickle one. So a brand note mote needs to

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Speaker 2: be well looked after, which it wasn't under John Donahoe.

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Speaker 2: And it's also a reminder I think for companies that

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Speaker 2: hiring from the outside can be a risk. So John

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Speaker 2: had been on the board of Nike, but he'd never

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Speaker 2: kind of worked for Nike as an employee, had never

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Speaker 2: lived and breathed on a daily basis what makes the

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Speaker 2: place tech? And the new CEO was hired as an intern.

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Speaker 2: That's almost thirty years ago. So what is interesting, Heather,

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Speaker 2: is the proof is going to be in the pudding

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Speaker 2: because the company's reporting it's fully a result tomorrow. And

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Speaker 2: one thing for sure is for sure sentiment is very bearish, which,

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Speaker 2: on the one hand, is very helpful because even a

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Speaker 2: halfway decent result should see the stock price move higher.

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Speaker 2: But if Nike misses earning the expectations significantly tomorrow and

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Speaker 2: can't even get over the very low bar set by

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Speaker 2: a seventy percent full in the stock price, perhaps that

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Speaker 2: amazing brand mode is even more damage than the market thinks.

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Speaker 1: Interesting. Okay, Hey, thank you very much. I really appreciated it.

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Speaker 1: As per usual, Sam that Sam Dickey Official funds.

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Speaker 2: For more from Heather Duplessy Allen Drive.

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