Photo: Nike Harajuku
Nike ended its contract with Lance Armstrong after overwhelming evidence that he doped through his Tour de France wins. After the announcement, Wall Street analysts buzzed that this was good news for Nike. The company reported poor earnings last month and getting rid of the Armstrong baggage couldn’t hurt.
But Nike has way bigger issues than Armstrong, Brian Sozzi, chief equities analyst at NBG Productions, said in a note.
While the loss of endorsement is a big deal to Armstrong, it doesn’t really affect the company Sozzi said. Cycling is a niche sport. If Nike dropped a more mainstream athlete like Michael Jordan, LeBron James, or Tiger Woods, it would be a bigger deal.
Nike still has some big problems to worry about:
- The Chinese market has slowed down immensely, and inventory levels are high there. Nike got complacent in China and is consistently losing out to its rival, Adidas.
- The European business is very risky. Europe has a ton of economic uncertainties, and it’s unlikely that consumers there will shell out for cool sneakers.
- Making Nike gear suddenly costs a lot more. Much of the company’s product is made in China, where real estate and employment costs are soaring. Nike won’t be able to raise prices enough to totally offset these costs.
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