Forget the NBA; it’s the playoffs for athletics brands, and top labels are going toe-to-toe for bragging rights on their home turf.
And it’s not even close: Athletic behemoth Nike has been the clear frontrunner in the space for years, with a market capitalization that sits at $110 billion and scale that remains largely unmatched. (By comparison, Adidas’ market cap is $55 billion, and Under Armour’s is $10 billion.)
Nevertheless, in the hard-to-win North America market, Adidas has been riding the waves of a megaresurgence that started around 2016. Since then, the Germany-based company has been eking out double-digit gains in the region amid softening growth at Nike — so much so that investor sentiment around the Swoosh waned last year.
As expected, Nike isn’t giving up market share without a fight and has initiated a series of initiatives — including Consumer Direct Offense in 2017 — aimed at accelerating its innovation, speed and direct connection to consumers.
Still, its efforts to maintain a foothold in the U.S., have seen some uneven results. The fourth quarter of fiscal 2018, reported last June, marked Nike’s return to more impressive growth in the region after a short-lived slowdown. But when it reported third quarter results in March, investors appeared unimpressed with Nike’s 7% gains to $3.8 billion in the U.S. — sending its shares tumbling on the heels of the results. (Nike’s Q3 comprises the 13-week period ended Feb. 28.)
After a nearly two-year period of blockbuster gains, Adidas appears to be having its own “what goes up must come down” moment. Compared with gains of 23% in the Q1 2018, the brand today reported Q1 North America growth of 5% — although CEO Kasper Rørsted blamed some of the weaker performance on supply chain shortages. (Adidas’s Q1 covers the period from January through March 2019.)
According to B. Riley FBR analyst Jeff Van Sinderen, Adidas’ supply issues and resulting softer sales are actually indicative of its strength — as opposed to a slowdown.
“I would argue that Adidas has more brand momentum in the U.S. than the numbers reflect, since they are constrained by supply chain,” Van Sinderen said. “Adidas has substantially grown its U.S. penetration in recent years, and demand appears to be outstripping supply.”
Under Armour, meanwhile, is knee-deep in a turnaround plan after losing its stride around 2017 following a sharp ascension to the No. 3 slot among athletic brands in the U.S.
Perhaps its biggest challenge, according to experts, is resuscitating its U.S. business. It reported a return to growth there last July, when it revealed Q2 gains of 2 percent to $843 million. But this week, Under Armour said its Q1 sales in the States dipped 3% as it continued to work toward more consistent gains — experiencing excitement around its HOVR franchise and in the run category. (Under Armour’s Q1 comprises the 13-week period ended March 31.)
All three brands have the potential to drive gains, according to market watchers. Adidas, for example, just announced a headline-grabbing partnership with superstar Beyoncé.
Meanwhile, analysts are becoming more optimistic about Under Armour’s revamped go-to-market strategy: “UA’s restructuring efforts and brand positioning around the ‘focused performer’ is paying dividends in the form of improving gross margin trend and expense management,” wrote Cowen & Co. analyst John Kernan on Thursday. (Kernan also raised his price target to $23 noting improving innovation in footwear and apparel along with improved full price selling.)
For its part, Nike continues to impress with edgy marketing and a heightened focus on DTC.
“Nike and Adidas are terrific brands, and while their relative strengths will ebb and flow with product content, brand positioning, marketing and overall brand popularity, they are likely to remain major forces in N. America for the foreseeable future,” said Van Sinderen, noting he sees growing momentum at other red-hot athletic labels such as Champion and Vans, both of which he believes are taking market share.
On Vans, Matt Powell, VP and senior industry adviser at The NPD Group Inc., cast it as the only brand of scale doing “great” — although he sees Nike leading the pack among the top three athletic footwear labels in the U.S.
Watch FN’s video of top shoe players offering advice to their younger selves.