The next round in the Nike affair
For those of you really wanting a high grade, here is a new instalment on the move by Nike we discussed in class. It does not stop here...
From a shop in Kentish Town, Nick Mavrides has been kitting out north London’s amateur footballers for 30 years. But now a letter from Nike has left him wondering how long he will be able to continue.
In July last year, Nike closed his account because his business, Ace Sports, had fallen €1,550 short of meeting its €10,000 (£8,600) minimum annual-purchase obligation. After three decades, Nike gave Mavrides just two days’ notice.
For years, the behemoth of the sporting goods industry had steadily restricted Mavrides’s access to its more desirable products, making sales harder to achieve. By the end, he couldn’t even get his hands on shin pads or goalies’ gloves.
“They’re behaving like big bully boys,” the 68-year-old said. “The majority of teams who visit my store insist on having the Nike brand. If I show them an alternative from another brand, they turn their noses up. The implications are massive.”
Ace Sports is one of dozens of independent retailers being dumped by Nike as part of a global initiative to funnel more of its $39bn (£30bn) annual sales through its own website and network of more than 1,100 stores, fattening its profit margins along the way.
For years, Nike and Adidas have segmented and carefully controlled the distribution of their hottest products, leaving smaller shops to take whatever bog-standard lines are offered to them. Now Nike is not even giving them those.
It’s not unusual for desirable brands to limit the retailing of their goods, but the duopoly enjoyed by Nike and Adidas in trainers and tracksuits means the impact on small businesses will be severe.
These practices come at an uncomfortable time for Nike, whose chief executive, Mark Parker, was forced this month to shut down the Oregon Project, its elite running training group, after the US Anti-Doping Agency banned its founder and head coach Alberto Salazar.
The scandal showed the company in a very different light from that cast by its slick marketing campaigns, in which Nike aligns itself with outsiders such as the American football player turned political activist Colin Kaepernick. “Nike have been absolute masters at reading the zeitgeist and exploiting it in big and bold ways,” said Rita Clifton, chairwoman of the branding agency BrandCap. “They have built a brand that is so desirable, but they have to be careful — if you get too big and too nasty, that stuff gets out.”
Nike is no stranger to scandals, but the demise of the Oregon Project cuts to the core of its empire. Originally known as Blue Ribbon, it was co-founded by middle-distance runner Phil Knight and the legendary coach Bill Bowerman in 1964.
Observing the success that Japanese cameras had enjoyed in America, Knight reckoned they could accomplish the same feat with trainers, so he flew out to Tokyo and secured a meeting with executives from Onitsuka, the company behind Tiger trainers. Knight became its American distributor and began selling Tigers from the boot of his Plymouth Valiant.
Blue Ribbon became the young upstart hell-bent on dethroning Adidas. When the German giant threatened to sue for copyright infringement over Knight’s new Aztec trainers, Knight renamed them Cortez after Hernan Cortes, conquerer of the Aztec empire in 1521.
Knight and Bowerman began producing Nike trainers with the now iconic Swoosh logo in the early 1970s, and by the end of the decade were responsible for about half of all the running shoes sold in America. A pair of the 1972 vintage Waffle Racing Flat Moon shoes sold for $437,500 this year at an auction in New York.
Nike’s growth was supercharged by its canny tie-up with rising basketball star Michael Jordan in the mid-1980s, but such high-profile deals can go both ways. In 2012, the company ditched Lance Armstrong after he admitted cheating to win seven Tour de France titles. Tennis star Maria Sharapova and sprinter Marion Jones were dropped for failing drugs tests.
Nike was also forced to clean up its supply chain after an investigation found that its trainers were being made by children in Cambodian sweatshops. In 2017, leaked documents from the Paradise Papers showed Nike was using legal loopholes to reduce its tax bills aggressively.
More recently, at least six senior male executives left Nike last year after some female staff, disillusioned with what they deemed to be institutional sexism, surveyed other female colleagues for their views and handed the results to Parker.
Nike said it opposes discrimination of any type and has a long-standing commitment to diversity and inclusion.
Despite the reputational hits, Nike jogs on. Amid a dismal clothing and footwear market, sales rose 7.5% to $39bn and gross profits advanced 9.5% to $18bn last year. Its shares have risen more than sixfold over the past decade.
“Nike weathers the scandals because of its scale. They have such a big marketing budget to plough into the brand every year . . . it would take something massive to really hurt them,” said Berenberg Bank analyst Graham Renwick.
Nike spent billions on marketing last year, and the advent of social media means it can get more bang for its buck by pushing marketing messages through the Instagram accounts of company ambassadors such as Cristiano Ronaldo.
However, as Matt Powell of the research firm NPD pointed out: “The biggest threat to Nike is Nike themselves. They really missed the shift to athleisure, and if they miss trends, they lose share.”
Of the tens of thousands of retailers it supplies, Parker is focusing on only 40 chains. Nike is said to have stopped making product samples for trade shows, expecting retailers to place orders on the strength of rendered images alone.
After Ace Sports lost access to Nike’s products, Mavrides had to buy £8,000 worth of polo shirts and training tops from another retailer to fulfil a pre-existing order. It cost him £4,000 in lost earnings. He raised the issue with his MP, Sir Keir Starmer, whose office took his complaint to the Competition & Markets Authority.
The CMA’s response was that minimum-purchase requirements are not unlawful unless they restrict or distort competition. It declined to intervene but kept the door open.
Mavrides doesn’t want to wait and is steeling himself for a David v Goliath court showdown. He said: “I’ve supported them for 30 years and for them to just kick me in the face like this . . . I just won’t sit down and take it.”
Ashley’s empire kicks back
It is not only the little guys suffering at Nike’s hands.
Mike Ashley, Sports Direct’s belligerent boss, issued a statement last Monday calling on regulators to open a wide-ranging review into Nike and Adidas, after The Sunday Times reported that Nike was cutting supply to dozens of independent retailers.
It seems fair to suggest that Ashley is more motivated by the impact on his own business than a deep empathy for smaller chains, squeezed over the years by his savage discounting. With more than £2bn in annual sales, Sports Direct is a big client for Nike and Adidas, but its boxy stores are not the pristine environments they want for their top products. Failure to land the best trainers has spurred Ashley to renovate some shops — but Nike and Adidas have yet to be wowed. Industry sources say the two do not trust the burly billionaire, who built his business by buying sports brands, then used higher margins made on those sales to fund price cuts on Nike and Adidas products — often after promising he wouldn’t.
From a shop in Kentish Town, Nick Mavrides has been kitting out north London’s amateur footballers for 30 years. But now a letter from Nike has left him wondering how long he will be able to continue.
In July last year, Nike closed his account because his business, Ace Sports, had fallen €1,550 short of meeting its €10,000 (£8,600) minimum annual-purchase obligation. After three decades, Nike gave Mavrides just two days’ notice.
For years, the behemoth of the sporting goods industry had steadily restricted Mavrides’s access to its more desirable products, making sales harder to achieve. By the end, he couldn’t even get his hands on shin pads or goalies’ gloves.
“They’re behaving like big bully boys,” the 68-year-old said. “The majority of teams who visit my store insist on having the Nike brand. If I show them an alternative from another brand, they turn their noses up. The implications are massive.”
Ace Sports is one of dozens of independent retailers being dumped by Nike as part of a global initiative to funnel more of its $39bn (£30bn) annual sales through its own website and network of more than 1,100 stores, fattening its profit margins along the way.
For years, Nike and Adidas have segmented and carefully controlled the distribution of their hottest products, leaving smaller shops to take whatever bog-standard lines are offered to them. Now Nike is not even giving them those.
It’s not unusual for desirable brands to limit the retailing of their goods, but the duopoly enjoyed by Nike and Adidas in trainers and tracksuits means the impact on small businesses will be severe.
These practices come at an uncomfortable time for Nike, whose chief executive, Mark Parker, was forced this month to shut down the Oregon Project, its elite running training group, after the US Anti-Doping Agency banned its founder and head coach Alberto Salazar.
The scandal showed the company in a very different light from that cast by its slick marketing campaigns, in which Nike aligns itself with outsiders such as the American football player turned political activist Colin Kaepernick. “Nike have been absolute masters at reading the zeitgeist and exploiting it in big and bold ways,” said Rita Clifton, chairwoman of the branding agency BrandCap. “They have built a brand that is so desirable, but they have to be careful — if you get too big and too nasty, that stuff gets out.”
Nike is no stranger to scandals, but the demise of the Oregon Project cuts to the core of its empire. Originally known as Blue Ribbon, it was co-founded by middle-distance runner Phil Knight and the legendary coach Bill Bowerman in 1964.
Observing the success that Japanese cameras had enjoyed in America, Knight reckoned they could accomplish the same feat with trainers, so he flew out to Tokyo and secured a meeting with executives from Onitsuka, the company behind Tiger trainers. Knight became its American distributor and began selling Tigers from the boot of his Plymouth Valiant.
Blue Ribbon became the young upstart hell-bent on dethroning Adidas. When the German giant threatened to sue for copyright infringement over Knight’s new Aztec trainers, Knight renamed them Cortez after Hernan Cortes, conquerer of the Aztec empire in 1521.
Knight and Bowerman began producing Nike trainers with the now iconic Swoosh logo in the early 1970s, and by the end of the decade were responsible for about half of all the running shoes sold in America. A pair of the 1972 vintage Waffle Racing Flat Moon shoes sold for $437,500 this year at an auction in New York.
Nike’s growth was supercharged by its canny tie-up with rising basketball star Michael Jordan in the mid-1980s, but such high-profile deals can go both ways. In 2012, the company ditched Lance Armstrong after he admitted cheating to win seven Tour de France titles. Tennis star Maria Sharapova and sprinter Marion Jones were dropped for failing drugs tests.
Nike was also forced to clean up its supply chain after an investigation found that its trainers were being made by children in Cambodian sweatshops. In 2017, leaked documents from the Paradise Papers showed Nike was using legal loopholes to reduce its tax bills aggressively.
More recently, at least six senior male executives left Nike last year after some female staff, disillusioned with what they deemed to be institutional sexism, surveyed other female colleagues for their views and handed the results to Parker.
Nike said it opposes discrimination of any type and has a long-standing commitment to diversity and inclusion.
Despite the reputational hits, Nike jogs on. Amid a dismal clothing and footwear market, sales rose 7.5% to $39bn and gross profits advanced 9.5% to $18bn last year. Its shares have risen more than sixfold over the past decade.
“Nike weathers the scandals because of its scale. They have such a big marketing budget to plough into the brand every year . . . it would take something massive to really hurt them,” said Berenberg Bank analyst Graham Renwick.
Nike spent billions on marketing last year, and the advent of social media means it can get more bang for its buck by pushing marketing messages through the Instagram accounts of company ambassadors such as Cristiano Ronaldo.
However, as Matt Powell of the research firm NPD pointed out: “The biggest threat to Nike is Nike themselves. They really missed the shift to athleisure, and if they miss trends, they lose share.”
Of the tens of thousands of retailers it supplies, Parker is focusing on only 40 chains. Nike is said to have stopped making product samples for trade shows, expecting retailers to place orders on the strength of rendered images alone.
After Ace Sports lost access to Nike’s products, Mavrides had to buy £8,000 worth of polo shirts and training tops from another retailer to fulfil a pre-existing order. It cost him £4,000 in lost earnings. He raised the issue with his MP, Sir Keir Starmer, whose office took his complaint to the Competition & Markets Authority.
The CMA’s response was that minimum-purchase requirements are not unlawful unless they restrict or distort competition. It declined to intervene but kept the door open.
Mavrides doesn’t want to wait and is steeling himself for a David v Goliath court showdown. He said: “I’ve supported them for 30 years and for them to just kick me in the face like this . . . I just won’t sit down and take it.”
Ashley’s empire kicks back
It is not only the little guys suffering at Nike’s hands.
Mike Ashley, Sports Direct’s belligerent boss, issued a statement last Monday calling on regulators to open a wide-ranging review into Nike and Adidas, after The Sunday Times reported that Nike was cutting supply to dozens of independent retailers.
It seems fair to suggest that Ashley is more motivated by the impact on his own business than a deep empathy for smaller chains, squeezed over the years by his savage discounting. With more than £2bn in annual sales, Sports Direct is a big client for Nike and Adidas, but its boxy stores are not the pristine environments they want for their top products. Failure to land the best trainers has spurred Ashley to renovate some shops — but Nike and Adidas have yet to be wowed. Industry sources say the two do not trust the burly billionaire, who built his business by buying sports brands, then used higher margins made on those sales to fund price cuts on Nike and Adidas products — often after promising he wouldn’t.
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