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Sam Dickie: Fisher Funds expert on Nike's share price dropping · Best of Business

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  Speaker 1: You're listening to a podcast from News Talk sed be
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  Speaker 1: follow this and our wide range of podcasts now on iHeartRadio.
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  Speaker 2: Sam Dickie is with us from Fisher Funds.
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  Speaker 3: Hello, Sam, good eating here.
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  Speaker 2: All right, let's talk about Nike, because, as he points out,
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  Speaker 2: Nike has has had its stock plumb at sixty eight
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  Speaker 2: percent from its peak, which about November twenty twenty one
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  Speaker 2: is a textbook fallen angel. What's gone wrong here?
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  Speaker 3: Well? John Donaho, he was the CEO that came in
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  Speaker 3: about five years ago in twenty twenty, and he pretty
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  Speaker 3: quickly shifted Nike's focus. So, as you probably know, it
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  Speaker 3: used to be all about having sported its course, so
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  Speaker 3: organizing itself around megasports like basketball, running football, plus being
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  Speaker 3: very very visible in retail stores and using its power
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  Speaker 3: its might to elbow out all the wannabe brands off
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  Speaker 3: the best shelves. So he did a few things. He
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  Speaker 3: wanted to make the company more profitable, So he simplified
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  Speaker 3: the company's divisions by memorom and kids rather than by sport.
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  Speaker 3: And he turned his back on the shoe shops and
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  Speaker 3: sports retailer to try and sell more products online, which
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  Speaker 3: on the face of it makes sense because you have
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  Speaker 3: a simpler divisional structure, you reduced a number of expensive
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  Speaker 3: sports specific designers, and instead of paying away profit to
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  Speaker 3: a retailer to sell your product, you keep that extra
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  Speaker 3: profit for yourself and sell directly off your website. But
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  Speaker 3: it backfired and Nike you lost it's sports specific product
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  Speaker 3: innovation advantage. And what's worse, that shelf space it had
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  Speaker 3: freed up by turning its back on retailers was greedily
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  Speaker 3: gobbled up by smaller innovative brands like Hoker and on
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  Speaker 3: Running Ah.
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  Speaker 2: And that's quite key, isn't it, Because because Hoker look
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  Speaker 2: at what's happened to Hoker lately, right, and you've got
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  Speaker 2: all of these because I mean, part of the story,
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  Speaker 2: as you say, is what's going on within the business,
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  Speaker 2: but part of it is also the pressure from the
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  Speaker 2: competitors like Hoker, like Lulu Lemon as well, isn't it?
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  Speaker 3: That's right? And they were able to use their mic
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  Speaker 3: previously to ensure they get all the best shelf space
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  Speaker 3: in it in a shoe shop, for example, and when
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  Speaker 3: they turn their back on those retail is that that
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  Speaker 3: space was that greedy gobbled up. And ironically, here that
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  Speaker 3: Hoker and on running used the same strategy that Nike
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  Speaker 3: did back in the day to take on you know,
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  Speaker 3: the big players back then probably eddied Ass, Converse, Puma
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  Speaker 3: and used that really kind of sports specific product innovation.
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  Speaker 3: So really focusing on running shoes, really focusing on basketball
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  Speaker 3: shoes to beat at its own game.
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  Speaker 2: Now, look, I know retro is back, Sam, but do
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  Speaker 2: you think that maybe overly reliant on their retro styles.
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  Speaker 3: Yeah, well, they have been super reliant on those mega brands,
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  Speaker 3: and look that that's part of that. So that the
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  Speaker 3: changing strategy and that reliance on those mega brands like
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  Speaker 3: Jordan's et cetera, which I guess sort of retro has
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  Speaker 3: punished the stock. So you know, inventory is every consumer
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  Speaker 3: product company's worst nightmare, and Nike's inventory shot up from
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  Speaker 3: five billion dollars to eight billion dollars because it couldn't
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  Speaker 3: sell enough product by its new online strategy. Profit fell,
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  Speaker 3: cash flow almost halved. So it not dire straits, but
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  Speaker 3: the company got itself into a materially worse position than
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  Speaker 3: it was and hence, as you say, it fell sort
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  Speaker 3: of seventy percent in terms of stop price.
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  Speaker 1: Yeah.
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  Speaker 2: Now, the thing that you would refer to as Nike's
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  Speaker 2: competitive moat. Is that still intact or is that gone forever?
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  Speaker 3: Well, that is the number one question. And remember, motor
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  Speaker 3: is a sustainable competitive advantage, like a motor around your
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  Speaker 3: business to ward off the ravages of competition. And Nike's
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  Speaker 3: motor is of course it's incredibly powerful brand. But that
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  Speaker 3: brand is supported by its scale. So it used to
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  Speaker 3: support that brand with its scale by elbowing you know,
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  Speaker 3: the wannabe Hokers and on runnings off the shelves. But
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  Speaker 3: it also spends almost five billion a year on marketing
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  Speaker 3: and sponsoring the best athletes in the world, and that
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  Speaker 3: hasn't changed. So they recently wrapped up Caplan Clark the
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  Speaker 3: WNBA Sensation for about twenty eight million bucks despite Puma
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  Speaker 3: Eddi das under Arma or clamoring through a t I
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  Speaker 3: think it was Lebron James that describes it best. He
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  Speaker 3: could have gone with Rebok for one hundred and fifteen
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  Speaker 3: million dollars, but we were Nike for ninety million dollars
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  Speaker 3: because he went and saw them and was walking the
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  Speaker 3: hallways and saw life sized cutouts of Michael Jordan and
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  Speaker 3: Tiger Woods and realized he had to side with Nike.
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  Speaker 3: And the other thing is that the CEO, John Donna,
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  Speaker 3: who's now gone as well, so he's been replaced by
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  Speaker 3: Elliot Hill, who started at Nike in nineteen ninety eight,
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  Speaker 3: is in the intern and he's changed course. He's steered
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  Speaker 3: the company back towards its course. So I think the
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  Speaker 3: moat is still there, it just needs to be fixed
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  Speaker 3: up a bit.
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  Speaker 2: Interesting, Okay, So what does this mean for investors? What
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  Speaker 2: do they need to consider?
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  Speaker 3: It's a reminder of a few things. So of all
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  Speaker 3: the types of moats, so think about cost advantages, customer
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  Speaker 3: switching costs, or even patents. Brand can be the most
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  Speaker 3: fickle one, So a brand note mote needs to be
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  Speaker 3: well looked after, which it wasn't under John Donahoe. And
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  Speaker 3: it's also a reminder I think for companies that hiring
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  Speaker 3: from the outside can be a risk. So John had
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  Speaker 3: been on the board of Nike, but he'd never kind
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  Speaker 3: of worked for Nike as an employee. He'd never lived
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  Speaker 3: and breathed on a daily basis what makes the place tech?
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  Speaker 3: And a new CEO was hired as an intern. That's
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  Speaker 3: almost thirty years ago. So what is interesting, Heather, is
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  Speaker 3: the proof is going to be in the pudding because
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  Speaker 3: the company's reporting it's fully a result tomorrow, and one
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  Speaker 3: thing for sure is for sure. Sentiment is very bearish, which,
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  Speaker 3: on the one hand, is very helpful because even a
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  Speaker 3: halfway decent result should see the stock price move higher.
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  Speaker 3: But if Nike misses earning the expectations significantly tomorrow and
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  Speaker 3: can't even get over the very low bar set by
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  Speaker 3: a seventy percent full in the stop price, perhaps that
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  Speaker 3: amazing brand mode is even more damage than the market thinks.
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  Speaker 2: Interesting. Okay, Hey, thank you very much. I really appreciated it.
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  Speaker 2: As per usual Sam that Sam Dicky Official funds.
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