What ails Nike?

Saad (0:01)

Hello folks, you're tuned in to Finshots Daily. I'm Saad, if you're new here, welcome. If you're returning, welcome back.

In today's episode, we explain why everyone's talking about Nike, kind of losing their Swoosh.

Before we head to the story, here's a quick word from Team Ditto. We're hosting a free two-day insurance masterclass that helps you build real financial security by understanding health and life insurance the right way. Right from understanding how to protect your family, choosing the right cover amount, and knowing what truly matters during a claim, to how hospitals process claims, the mistakes bios usually make, and how to choose a policy that won't disappoint you when you need it the most. We will explain it all in plain language. Head to the link in the description and save your spot. Now to the story.

Some very unpleasant things have been happening at Nike over the past few years.

Things haven't looked good since the stock peaked in 2021 A few days ago, Nike was dropped from the S&P 100, an index of the 100 biggest US companies. It was the first time in 20 years. And over the last 5 years, it has lost about $200 billion, or nearly 80% of its market value. Then came its latest quarterly results. Nike reported $11.21 billion in revenue for the first quarter of its financial year, June to August 2026 That was not only slightly below what analysts and investors expected, but also 4% lower than the same quarter last year. And this isn't a temporary blip. Nike has already warned that revenue could fall this financial year. As you can imagine, the stock fell even further. But wait, wasn't Nike one of the world's most iconic sportswear brand? The kind of brand everyone wanted because it was supposed to be the best. So how did a company like Nike fall from there? Well, let's take a quick trip back to where it all began. Nike started out as Blue Ribbon Sports in 1964, and back then, it didn't make shoes at all.

Its co-founder Phil Knight had a plan to challenge Adidas' dominance in running shoes by importing Japanese copies of Adidas shoes made by Onitsuga Tiger and selling them in the US. But turning that idea into a business needed money. Knight got some from his university coach, Bill Bowerman, before showing him the samples he planned to sell. Bowerman liked what he saw and eventually he became his business partner. Sales took off, reaching $3 million in 1972 That's when Knight and Bowerman decided that it was time to stop reselling other people's shoes and start making their own. And that decision is what eventually gave birth to Nike. Then, call it luck or destiny, but that same year, Bowerman became the coach of the American Olympic team, and that gave them the perfect opportunity to get Nike on athletes' feet. Bowerman simply encouraged athletes to wear the new shoes, turning them into a walking advertisement for the brand. And it worked. When one of the greatest tennis players, John McEnroe, hurt his ankle and started wearing Nike's 3-quarter top shoes, sales of that style jumped from 10,000 pairs to more than 1 million. Suddenly, everybody wanted a pair of Nikes. Besides, athlete endorsements became such a powerful sales engine that within a decade and a half, Nike had actually turned its ambition into reality. It overtook adidas to become the world's top shoemaker. But there was a problem. Running shoes could only take Nike so far. But if it wanted to stay at the top, it needed to win over the fans of other sports too. Football, America's favorite sport, seemed like an obvious choice. But that market was already dominated by adidas and Puma. Taking them on would have been expensive. So Nike looked elsewhere. Basketball was exploding in popularity through the NBA, the National Basketball Association, and Nike saw an opportunity. But it wasn't the only brand looking to expand. When you become the strongest player in the field, someone eventually comes along wanting to knock you off the top. And for Nike, that challenger was Reebok. In the 1980s, Reebok rode the growing aerobics craze and overtook Nike, while Nike had largely missed the trend. So to fight back, it doubled down on technology and innovation and moving beyond running shoes. And this is where it made one of its biggest bets yet.

In 1984, it offered Michael Jordan a 5-year, $2.5 million contract, along with a royalty on every pair of Air Jordans sold. The shoe was designed specifically for him. But Nike had bigger plans. It wanted to make an entire shoe range around Jordan. It was a risky bet because Jordan wasn't yet the basketball superstar that we know today. But Nike struck gold. Jordan was already on the verge of stardom, and then the NBA banned his shoes for violating its color guidelines. But Nike cleverly turned the controversy into a marketing opportunity. It paid Jordan's $5,000 fine for every game and ran a commercial saying the NBA could ban the shoes, but it couldn't stop people from wearing them. And just like that, a ban turned Air Jordan into a symbol of rebellion and being cool. The end result was $126 million in sales in its first year, against Nike's modest $3 million expectation. Now, from all of this, you have probably noticed one thing. Nike's business strategy was built around two simple ideas. First, source cheaply.