Ailing Nike Finding It Tough To Just Do It Changing Tastes, Asia Crisis Halt ‘90s Winning Streak

For most of the 1990s, Nike just did it.

Sales of its athletic shoes and sportswear grew from $2.24 billion in 1990 to $9.2 billion at the end of fiscal 1997. And as the Beaverton, Ore., company became the dominant player in a competitive global market, its stock sprinted to extraordinary heights. By last February, a share of Nike Inc. cost about $74, more than six times the price three years earlier.

But since then, the company’s fortunes have flagged. Sales dropped off sharply, in part because of changing consumer tastes and economic troubles in Asia. As a consequence, the stock plummeted to less than $42. Further unsettling matters, on Jan. 9 the company announced Robert Falcone, its chief financial officer, had resigned.

Now, some analysts are urging investors to be cautious.

“The company has been on an unbelievable run. That has come to an end,” said John Rogers, director of research and the Nike analyst at Jensen Securities Co. in Portland, adding that the company faces myriad challenges in the coming year. “It’s a question of when they can get these issues resolved.”

Nike officials blamed much of their troubles on sales in Asia, where young people had willingly spent money on shoes and apparel with the universally recognized “swoosh” symbol.

The falloff in demand led to rising inventories and the need for a “higher percentage of close-out sales in the USA, Europe and Asia Pacific regions,” according to a company report in December. In recent months, for the first time in at least three years, the company reported that futures orders had dropped 1 percent from the previous year.

“This slowdown in futures orders clearly signals that revenue growth in the second half of fiscal 1998 will be below our previous expectations,” said Philip H. Knight, Nike’s chairman and chief executive. “This is largely a result of the slowdown in the Asia-Pacific market, where we now anticipate more moderate revenue growth.”

But analysts say Nike’s problems are much more complicated.

Michael Shea, director of research for Charter Investment Group, said the company grossly miscalculated how strong demand would be overseas, helping to end 12 straight quarters of strong increases in orders.

The company is struggling with competition from Adidas, Reebok, Converse and others. And all of them face changes in fashion, as many young people switch footwear allegiance from tennis shoes to hiking boots, walking shoes and the like.

Analysts call this the “brown shoe phenomenon.”

Rogers said consumers’ desire for something “different” has hit Nike especially hard because the company is so visible. When its popularity started slipping in the United States, a fashion signal was sent to the rest of the world.

Public relations problems have bedeviled the company recently. A far-flung group of critics have hammered the company for the way it treats workers in Vietnam, Indonesia and elsewhere in Asia. Critics say the company does not pay a living wage.

An internal report prepared for the company last January and leaked to the media in November found a plethora of unhealthy conditions at plants in Vietnam.