The biggest brands often draw in investors who believe these giants of industry are surefire winners on the stock market. Nike (NKE:NYSE) has shown that brand achievements do not always equate to strong earnings and this is a lesson worth remembering if brand strength has ever influenced investment decisions.

Nike has taken its eye off the ball in the sporting shoes market. Two sets of rivals have eaten its lunch – one is a group of upstarts with fresh ideas, the other is playing the nostalgia ticket. Both of these factors are worth exploring individually as they tell us about broader market trends.

OVERTAKEN BY YOUNGER BRANDS

There is a danger for big brands in becoming too complacent, believing their strong market position guarantees them sales indefinitely.

Schweppes is an example of this situation whereby it became a giant in mixers for spirits and took its foot off the gas, becoming a sleepy business. Management did not react quickly enough to the appearance of Fevertree Drinks (FEVR:AIM) which pitched its products as the high-quality alternative.

Fevertree’s marketing strategy was to ask drinkers why they would want to spoil an expensive spirit with a cheap mixer. Fevertree argued its products might be more expensive than the ones people had been buying for years (i.e., Schweppes), but they ensure drinkers were getting quality throughout their gin and tonic, or spirit-based drink of choice. It was a clever move and paid off, with the company quickly grabbing market share and damaging the Schweppes empire.

Nike has now stepped into Schweppes’ shoes where sales growth is becoming harder to achieve. Running shoe brands On and Hoka have successfully branched out from a niche market into the mainstream and they are taking share from Nike. It has become fashionable to wear running shoes for everyday use and their brands are front of mind for shoppers.

Greater choice of products means consumers are no longer gravitating to the core brands which used to be the classic go-to names such as Nike. Normal business behaviour would see the threatened brands produce something new to fight back, but in Nike’s case it has suffered from a lack of innovation.

Making matters worse is a shift in fashion trends and consumers also flocking to brands which had previously been gathering dust, but their moment in the sun has come again. In the trainers market, we have seen a revival for the likes of Asics and New Balance, Adidas’ (ADS:ETR) Samba and Gazelle ranges, and much more. The nostalgia effect extends to other parts of the footwear market such as Ugg boots and the eponymous products from Crocs (CROCS:NASDAQ).

THE POWER OF NOSTALGIA

Nostalgia is a powerful force and it is common for things that are two decades old to make a resurgence. This spans beyond fashion – think how many musicians and celebrities from the 2000s are in the spotlight today as people retain a fondness for what they have done and now appreciate them with more respect.

We have also seen the ‘vintage’ tag becoming a powerful way to market products. The phrase ‘second hand’ has morphed into ‘pre-loved’ and ‘vintage’ and these often make something more desirable.

What looks tired and outdated to one person is highly desirable to another, particularly as a new generation discovers the products. Certain people consider modern items to be cringey – they want the classics. In this context, the resurgence in popularity for early-noughties fashion brands makes sense.

A cynic might dismiss Crocs footwear as nothing more than a lump of plastic with holes in it. However, these products are big business. The consensus forecast for Crocs’ 2024 revenue is $4.1 billion.

Having celebrities like Justin Bieber and Kendall Jenner wear Crocs has clearly helped to shift more products, so too has the trend for people to customise their footwear. Crocs’ plethora of holes embedded in its design means individuals can easily add items to their shoes and the company is laughing all the way to the bank. 

A 148% share price gain over the past two years also shows how investors have benefited from its success.

Deckers Outdoors (DECK:NYSE) is another company on the stock market generating strong returns for shareholders. Having products which straddle both the young upstart and nostalgia territories, namely Hoka running shoes and Ugg boots, respectively, is a key driver of its success.

Having a bunch of celebrities snapped wearing Hoka shoes has helped, but so has the public’s desire for comfort which is at the heart of the product design. They have gone from being the footwear of choice for grandad to embraced by fashionistas. Hoka is now one of the most envied footwear brands in the industry and has significant growth potential as clever marketing techniques have increased its appeal to a wider range of people.

The share price performance of Abercrombie & Fitch (ANF:NYSE) might shock investors, a brand certain people associate more with the history books than a current staple of global fashion. A 944% share price rise over the past 24 months tells a different story.

Driving this performance has been a significant improvement in the business and a broadening of its product categories to appeal to a wider age group. It helped that its teen target market in the 1990s is now in their 40s and 50s, an age range where they might have money to spend and a nostalgic fondness of the brand.

EVOLUTION IS NECESSARY

Businesses must keep evolving and it feels as if Nike has failed on this count. The shoemaker is now looking for solutions including the launch of lower-priced shoes around the £70 mark. Quite whether that is enough to revive sales is unknown.

It is not the only one feeling the pressure. Big food brand owners like Unilever (ULVR) have battled competition from supermarket own-label products over the past few years as consumers look for cheaper options. They have resorted to shrinkflation – keeping prices stable but reducing the size of the product – to try to stay competitive but it feels like popular products like ice creams and chocolate bars cannot get any smaller.

Even companies already operating at the value end of the market are having to keep one eye over their shoulder at all times. Just look at Shoe Zone (SHOE:AIM) which has historically mopped up the market for people looking for cheap shoes. Now it faces growing competition from the likes of Temu and other Chinese retailers flooding the West with goods.

One could argue this is just the normal course of doing business. But what you need to ensure is that any company in which you have an investment – either directly through shares or indirectly through funds – is alert to the competition and doing something about it. If they are shrugging it off and coming across as either overly confident or simply ignorant to the threat, then it might be time to reappraise that investment.

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