hi, welcome back. In this session, I want to talk about Nike. I have to start with a confession: I don't like Nikes. Not because of any political statement, but because my feet are wide, and Nikes don't work that well for me. But it is a legendary brand, and in fact, as a lead, I have to tell you that I've spent the last couple of weeks reading a book called Shoe Dog. I strongly recommend it. It's Phil Knight's memoir of going from being a runner in the Oregon University track team to building Nike to be one of the great shoe companies of all time. And in addition to the entertainment value—it's a fun book to read—there are two storylines I was looking for. One was the work involved in building a business, and I think Phil shows how much work it took to build Nike up in the days before risk capital was free and accessible, and the business was scaling up as hard. He built a great business. The second thing I was interested in was how did Nike end up

with this legendary brand name, and as I read the book, I saw a collection of accidents starting with the name of the company. Phil's initial name for the company was actually very different than the actual name. The swoosh was accidental. They paid $35 for the swoosh as a company symbol, and even just do it. That no Nike, the Nike slogan, came about by accident. So, we'll come back and talk more about building brand names, but I want you to think about all those accidental choices that led to where Nike is today. Now, as I thought about Nike and the brand name, of course, it broadened the discussion to what is a brand name, what makes a brand name valuable, and why do brand names sometimes deplete and disappear over time. All bigger issues than just Nike. So, let's start with that question: what is a brand name? The loosest definition is if people recognize a name, whether it's a corporate name or a product name, you have a brand name. But that's a pretty loose definition. There are

company names that I recognize that I would not pay a penny extra for their products. I'll give you an example without suggesting anything insulting about the company. Everybody knows, has, will recognize the AT&T corporate name. It's a legendary name. At one point in time, it was a monopoly that provided, you know, phone service to the United States. But today, I'm an AT&T customer. I have their sales service. In fact, I get my internet from them. But I don't do it because of their brand name. It's got to do with other services that I think I can get from them. So for a brand name to have value, it has to show up somewhere. And I'm going to lay the foundations for thinking about brand name value. Show up where your customers, because they recognize your brand name, have to be either more likely to buy a product, which increases revenue and revenue growth, or pay a higher price. Your capital providers, whether they're equity investors or lenders, because of your brand name, might give you lower funding costs. Your equity

investors because they perceive you to be safer because of your brand name, and lenders because they think your brand name makes you a better credit risk. Your employees might stay with you because you have a better-known brand name, and it looks better on their resume. In fact, brand name value can manifest itself in multiple places with different stakeholder groups within a company. So, let's file that away because brand name value clearly has to show up somewhere. Brand name has to show up somewhere for it to have value. Now, before we embark on valuing brand names, it's worth recognizing the different forms that brand names can take. A company can have a brand name for Coca-Cola; there's a corporate brand name, but within that brand name, there are products that carry their own brand name. After all, Coca-Cola owns Fanta, Sprite, and Danani. Each of these has a product brand name. So, you've got corporate brand names, and you've got product brand names. For a company like Coca-Cola, both have value. For a company like Unilever, it's more the

product brand names that drive the power that the company has, and those product brand names extend across the Spectrum. Dove for soap, Axe for deodorant, Hellmann's for mayonnaise, Colgate for toothpaste, and I'm just... those are just four of the dozens of brand names that Unilever owns. But there, it's the product brand name that's first. But there can be personal brand names as well. I mean, in sports, you see this all the time. Shohei Ohtani plays for the Dodgers, has a dramatically high brand name value, partly because he brings in people into games that otherwise wouldn't have come, and it increases the ratings that the Dodgers get when their games are shown on TV. Messi in soccer, Kohli in cricket, they're clearly people with significant brand name in sports and entertainment is, of course, Taylor Swift. But the key is those personal brand name values can sometimes spill over into products or companies. After all, we're talking about Nike, and a big component in building the Nike brand name value.

was a decision, another accidental decision to sign up a then rookie basketball player named Michael Jordan. The rest, as they say, is history. In fact, Nike's brand name and Michael Jordan's brand name, personal brand name, are interlined in a way that they probably cannot be easily separated. So, there are different variants of brand name, but I want to add a caution. Most companies that I talked to claim to have a brand name value. In fact, they're very caught up in convincing you, I have a brand name value. They seem to believe that if they have no brand name value, they have no competitive advantages. If you step back though, brand name is part of a broader spectrum of competitive advantages. There are some companies which have no brand name value but have significant competitive advantages. For instance, you take a company like Walmart. There is no brand name value per se for Walmart, but it has significant cost advantages. The same thing for Aramco. There is no brand name value. Nobody goes to a gas station and says, Give me Aramco or no gas. I won't accept

anything else, but it has the cheapest gas to extract from the ground anywhere in the world and dramatically large reserves. That's where the value comes from. If you look at companies like Google or Facebook, their most significant competitive advantage is not brand name; it's actually the networking benefits they have, which is because you want to advertise where everybody else is. You go to Facebook or Google. There are companies whose biggest competitive advantage is switching cost, which is once you come into their product, it becomes difficult to switch out. It's not brand name; it's a fact that you've created switching cost. For pharmaceutical companies, I know that there are brand-name products, and we'll talk about those, but the bigger competitive advantage is the fact that you have legal protection against competition through your patents. So the first thing to remember is you can be a great company without a brand name advantage. That said, though, if you really want to see out a brand name, you want to see where the value shows up. So I'm going to draw on something you've seen

me do before when in doubt. When I want to think about where value comes from, I go back to a very parsimonious description of the value of a company. In my description, the value of a company comes from five different variables. The first is revenue growth, capturing the growth part of the business. The second is operating margins, capturing the profitability of the business. The third is a measure of how much this business has to reinvest to get its revenues, efficiency growth efficiency. The risk is captured in two inputs: one is an aost to Capital that captures the operating risk of the company, with that Capital coming from equity and debt, and the other is failure risk. I'm going to argue that brand name can show up in all of these variables. I'm going to isolate the one variable where I think it's most likely to show up: a brand name company. Because people recognize the brand name, it might be able to sell more, grow faster, and have higher Revenue growth. A brand name company has pricing power, and I'll come back and isolate this pricing power. What

does that mean that they can charge a higher price for an otherwise similar product? Shows up in margins. A brand name company might even be able to reinvest less to get the growth, especially if that reinvestment is in building up the brand name, like advertising. On the cost of capital front, having a solid brand name, a recognized brand name, might allow you to raise equity at a lower cost. Why? Because equity investors might perceive you as less risky because of your brand name. Lenders might lend you money at a lower rate because they look at your brand name and say, This company is going nowhere; it has less credit risk. A brand name company might also have less failure risk because brand name companies are in the news, and often they can fall back on, Hey, you can't let us fail; we're a legendary company; look at our brand name. So, brand name can show up in pretty much every input, but there's one input more than any other where I think brand name power shows up, which is pricing power and operating margins too.

illustrate this. I took a walk down to my local pharmacy, just a block away, CVS. I don't have any pains to relate, but I walked on the painkiller aisle, and I looked at acetaminophen, which is a generic drug now. I looked at it in its generic form, which you can get through CVS, and through its brand name version, which is Tylenol, the original acetaminophen. The prices for exactly the same drug, so I made sure I controlled for the same number of tablets, 100 tablets, same dosage, 500 mg. The Tylenol sold for $12.99, a $2.50 premium over the CVS, just to make sure. I did check the ingredients, they're absolutely the same. So why would I pay the extra $2.50? That is the power of a brand name. So brand name is most likely to show up in pricing power, and the companies that are easiest to value are the companies where brand name is the only significant competitive advantage. I mean, let's take an example like Coca-Cola. What does it do? It makes sodas.

what does the sodas contain? You know, basically, they're carbonated water with a bunch of flavors, a lot of sugar, sugar, and things that can probably kill you sooner rather than later. There's really nothing, and I might be pushing buttons here, that really sets apart a Coca-Cola from a different cola. But Coca-Cola has a legendary brand name. Same thing with cereal. Cornflakes are cornflakes, but if Kelloggs makes the cornflakes, you're willing to pay a premium over your generic cornflakes. I'm going to argue that in companies like this, it's brand name that is primarily the or entirely the competitive advantage. And there, you can separate out the brand name effect fairly, fairly simply. To illustrate this, I'm going to actually value Coca-Cola, one of the most legendary brand names of all time. And here's what I did. I valued Coca-Cola with its existing operating margin. Now, let's face it. Coca-Cola is a mature company. It's got a legendary brand name, but it's, you know, it's going

at single digits, so I've given it 6% growth for the next 5 years, tailing down to stable growth. So, it's not growth that's driving its value; it's a fact that their operating margin is 29.7%. They saying, How do I know it's high or low? Well, if you compare to the weighted average margin of all soft drink beverage companies, and many of them are brand name companies, Coca-Cola's margins are significantly higher, 29.73%. With that higher margin, if I value Coca-Cola, the value that I get for the company is $281 billion. A big chunk of that value is coming from margins. It does have, you know, Coca-Cola. In fact, the rest of the inputs, it's a slow Growth Company. Its cost to Capital is actually a little higher than the typical US Beverage Company. Almost all of the brand name Power is coming through its margin. Incidentally, the reason Coca-Cola's cost of capital is a little higher is because it's exposure.

to Asia and Latin America for a significant portion of its revenues. So here's how I decide to isolate the brand name in Coca-Cola. You might or might not like what I'm going to do next, but I'm going to do it anyway. I revalued Coca-Cola first with the weighted average operating margin that beverage companies have. That margin is 16.71%. Pretty good, but still lower than the 29.73%. Remember, it's a weighted average operating margin, and many of these pure group companies are themselves brand name companies. So if you think about the premium brand name value for Coca-Cola, you could argue that the difference in value that you get between the value of 21.1 billion that I got for Coca-Cola and the value of 149.75 billion that I would get with the weighted average margin. That difference of 131 billion is the premium brand name value that I'm attaching to Coca-Cola. Then I took a step back. Now, if I truly want to isolate the entire brand

name value. I have to compare Coca-Cola to a generic soda company. There used to be a company called Cod that I used to use until about 15 years ago. That company has been taken over. It's been merged with a... with... it's now called Primo water. It's not quite a generic Beverage Company anymore, so I cheated. Here's what I did to come up with the generic operating margin. I looked at the median operating margin across, I think, of a 101 beverage companies. Most of them you wouldn't recognize their names. I treated them as generic. The median margin, therefore, is the margin of a noname beverage company, and that margin is 6.92%. You revalue Coca-Cola with a 6.92% margin. So, I'm leaving everything else CH the same, just lowering the margin. The value that I get for the company is 50.9 billion, 50.9 billion. 82% of Coca-Cola's value AG to 281 billion comes from its brand name. That's pure brand name play.

now that's an easy case because you can isolate the competitive advantage. It's almost entirely brand name. Valuing brand name becomes more difficult for companies that have multiple competitive advantages. Why? Because they all play out in your margins and your return on capital, and you can value them as a combined factor, but isolating how much is due to each one becomes difficult. Let me give you an example. Let's suppose you wanted to value brand name at Apple. You can argue that Apple has a significantly valuable brand name. The only problem is that's not the only competitive advantage Apple has. It is among the best styling in the market in terms of a company that actually people look at Apple, you know, iPhones and computers, and said that was well-styled. John I was legendary at Apple for the way, for the amount of time and money spent, you know, styling Apple products. It has its own operating system. It has an ecosystem of apps that you can get only with an Apple. So when you pay for an Apple, you're getting all

of those competitive advantages. Breaking them down is going to be difficult to do. That's why I remain skeptical of services like Interbrand that try to rank the most valuable brand names, because the bludgeons they use often capture far more than brand name. In fact, last year, I think Interbrand's top two brand names were Apple and Microsoft. Well, is it a coincidence that they have the highest market cap? My guess is what you're capturing here is a combined competitive advantage effect now. And I'm also skeptical of the accounting attempts to isolate brand name, because I'm not sure I trust accountants to tell me which competitive advantages provide what value. That said though, I did try a few months ago, actually a year ago, when I valued Burkin stock for its IPO, to separate out the different intangibles, different competitive advantages. In the case of Burkin stock, which is after all a sandal, he's saying what are the competitive advantages. There is of course the brand name again, built up accidentally over time with the hippies wearing it in the

70s and Kate Moss introducing it in the '90s as a 16-year-old model and then rediscovering it, you know, with celebrities wearing it to the Oscars. There's a brand name, there's also a superb management team that the family managed to hire just a, you know, a dozen years ago that's managed to find new growth for the company. There's a celebrity clientele, and here's the topper on that: these celebrities wear Birkenstocks without being paid to wear Birkenstocks. So, and finally, to top it all off, in the summer before Birkenstock went public, the Barbie movie came out, and you're saying, Who cares in the Barbie movie? You might remember Marco Robbie, who played Barbie, wore pink Birkenstock. How did that affect Birkenstock that summer? The sales of Birkenstock jumped 30% because of the Barbie movie. So, in the case of Birkenstock, I decided to try to isolate, keyword is try to isolate, each of these intangibles, the

Barbie Buzz effect. I showed as temporary higher revenue growth because I argued it would fail the celebrity clientele. I showed as lower reinvestment. Essentially, I said, you know, Birkenstock gets free advertising, and since that's a big investment they have to make, they can get growth much more efficiently, you know, basically a higher sales-to-capital ratio. The great management I showed with a higher growth rate than they had a dozen years ago. I said left to its own devices, this company would be a mature company. It's found growth because of its management and the brand name. I showed by looking at Birkenstock's margins relative to the margins of other footwear companies. As you can see, the buildup in value comes primarily from the intangibles, but I'm stretching by assuming that each of the intangibles shows up in one place, which brings me to Nike. Does Nike have a brand name? Obviously, but let's test it out, right? Because, in fact, the best way to test whether a company has a brand name is to

check its operating margins. When a company claims to have a brand name and you check its operating margins, they happen to be less than its peer group. You might want to ask whether there's a brand name in the first place. And if you look at Nike's history, the fact that it has a brand name shows up as an operating margin that exceeds the industry average margin. In this case, again, it's a weighted average margin, so think of it as the premium brand name value. For almost every year, except for 2023, Nike has delivered a higher operating margin, pre-tax margin, than the rest of the industry. That margin has jumped around. It was about 1.5% between 2019 and 2023, which was lower than the almost 3% they delivered in the previous 5 years, 2014 through to 2019. But you can see these numbers play out over time. In 2023, for the first time that I've tracked Nike, its pre-tax operating

margin dropped below the average. Incidentally, the industry average here is a weighted average of two businesses: apparel and footwear, 2/3 in footwear, 1/3 in apparel, because those are roughly the weights for revenues that Nike gets from the two businesses. You can see why red flags were going up in Nike. Clearly, something is happening, whether it's temporary or permanent, remains to be seen, but there's something that is clearly brewing under the surface. Growth is lagging, and margins are starting to drop off. In fact, the drop below the industrial average raises questions about, Is my brand name under assault? So, I decided to value Nike, and I decided to value them under three different sets of assumptions. The assumptions were built around revenue growth and operating margin. First, I assumed they could revert back to the 2014 to 18 average, where they delivered a growth rate, a compounded annual growth rate of 8.4% in revenues, and the margins were 13.36%. The value I get is 126 billion.

At the other extreme, if they stuck with the low growth in the margin they had in the last 12 months, the value of equity, the intrinsic value, drops to 94 billion. If they go to the 2019 to 23 average, where their margins were actually under pressure but the growth was okay, the value is 116 billion. Investing in Nike has become a play on what you think that revenue growth and margins would be, which is indirectly also a play on whether you think the brand name is sustainable and it's going to bring them back. So, you can see why Nike changed its CEO, and you got to give them credit for recognizing there's a problem quickly. The stock price was briefly in know, was hitting 7, hit 71 last about 6 weeks ago. That price clearly, the investing odds are in your favor if you're an investor with a new CEO in place. Though price has recovered, it's now up to 88. It's fairly richly valued now. In fact, the market seems to be assuming that Nike would

reverting back to healthier days remains to be seen, but that's a valuation Nike, and you can see the brand name value implicitly built in there. So we can see what a brand name is; we can see where the value of a brand name comes from, which raises an interesting question: how do companies end up with valuable brand names? There are facile answers I can give you. If you last long enough, I could tell you you're going to have a brand name because people will know your name. Or the other answer, and advertising people love this answer, is you spend enough money on advertising; you're going to have a valuable brand name. If only remember earlier we talked about AT&T. What company's been around as long as AT&T? There are relatively few. It's got a long history, and it was one of the 10 biggest spenders on advertising in the last decade. So if you look at the 10 top players, in fact, many of them are companies you look at the name and say, I'm not paying a premium for that.

company's product. It doesn't have a brand name value, so just lasting a long time and spending money on advertising doesn't create a valuable brand name. So, what does? Now, I'm not a marketing person, but from the outside, here are the four things that I think contribute to building a brand name. The first is the brand name starts to get attached to some emotional factor or need, like what Freedom Chevy for a long time Chevrolet, the GM brand. Now, their ads were built around freedom and being patriotic. It could be reliability, remember the Maytag repairman. It could be happiness. In fact, Coca-Cola's brand name was built around, Hey, you drink a Coca-Cola, you're going to be happy. Not true, but you know, you made that connection. Or it could be aspiration, where essentially buying a product is going to bring you into a class, you know, from the middle class to the upper class or whatever, from one group of people to another group of people that you've always aspired to join. So, the starting point for a brand name is

It gets attached to some emotional component. Second, it's true some brand name values are built around connections to celebrities. I talked about Nike building its brand name value through Michael Jordan. Signed him early in the process, and as he rose up the ranks, became the greatest basketball player on the face of the Earth, and basketball itself as a sport rose out of the ashes. Nike benefited. Major League Soccer last year benefited from Lionel Messi towards the tail end of a career, but still a legendary soccer player playing for Inter Miami, and essentially in the process increasing the ratings for Apple TV that carried Major League Soccer and for Major League Soccer overall. But more than anything else, and I think we underestimate this, there are choices that companies make that at the time they make it don't seem consequential but end up being big factors building up their brand name. We talked about Nike, the swoosh that everybody thinks about when they think about Nike. That swoosh was designed by a designer who got paid, I think, $2 an hour.

ended up paying $35 for the entire design. Now, you got to give Phil Knight credit. He did give that designer shares in the company, and that made her a wealthier woman. But the swoosh itself was a $35 symbol. Next time you think about paying millions of dollars to a design and thinking that's going to make your brand name higher, maybe the lower-cost design can catch on. Now, the symbol, the name, in fact, the Nike name itself was accidental. I think Phil Knight's original name for the company was Dimension Six, and think would have made it as far as Nike did. So, almost everything and the slogan Just Do It, you know, it's all if you look at almost all of the things that we associate with Nike were not things that involved two or three years of research and tens of millions of dollars. They cost almost nothing, and they were accidental. And finally, I don't mean to underplay advertising, but I don't want to overplay it either, but there are some

legendary ads that sometimes make brand name. I've been an Apple user since 1981, so this didn't make or break Apple for me. But I remember during the Super Bowl 1984 watching the Apple ad. It was the 1984 ad where essentially Apple stood out as the exceptional company, and Microsoft and the PC business were the status quo. It didn't create any benefits for Apple at that point in time in terms of people switching to a Mac, but it did lay the foundations for what we think of Apple as a company today. And now, in fact, Nike has had some legendary ads over its life. I still remember the 1997 ad with Michael Jordan in it. Notice how Michael Jordan constantly comes up in the Nike story, right? That ad, Michael Jordan from... I mean, I remember that ad, and that tells you something about how great ads can have staying power. So brand name can be created, but it does require that companies think about the trade-offs because in the... to create a great brand name, you might have

to give up on scaling up, which is you might have to settle as a smaller company, at least for the moment, have a higher cost structure because maybe your brand name is built around quality, perhaps even more in reinvestment because your factories might be built in the US if your brand name is built around being a US company and built around being patriotic. Then it makes sense for you to have your plant in the US, and that might require more reinvestment. It's a tradeoff. And why does it surprise us? Almost everything that has value in business requires a tradeoff. And in some cases, when you have a tradeoff, the cost can exceed the benefits. And for a company, when the costs exceed the benefits, and they say, What should I do? My response is, Hey, brand name is not the only competitive advantage out there. Remember the table that we looked at? Perhaps there's a different competitive advantage you can build your company around. So, what is a brand name? How much value does a brand name have? How do you create a brand name? I want to close the session by talking

about why great brand names can dissipate or deplete in value. The first is brand names can age and their customer base can age. So, what used to be a great brand name with a big market can become an aging brand name with a much smaller market. In 2015, I remember when Kraft Heinz was targeted in a buyout by two legendary names. One was Berkshire Hathaway, Warren Buffett, legendary value investor, and the other was 3G Capital, private equity investors that were considered among the shrewdest private equity investors in the world in terms of finding cost-cutting and creating value. So, the pedigree was right, but I was skeptical because implicit in their acquisition of Kraft Heinz, which had dropped in the market, was that it could come back, that there was a great brand name there. But step back and think about the brand name. What does Heinz make? Well, it makes 57 types of ketchup, most of which, in my view, taste like crap. I mean, that's just me. And what about Kraft? Well,

it's most famous product is cheese that is liquid, stays liquid, and has the half-life of nuclear waste. I don't think real cheese ever stays liquid, and real cheese will rot if you leave it out for half a century. But it was a pro in both Heinz and Kraft, provided products that people loved 30, 40, 50 years ago. I don't think too many 25-year-olds are looking for a Heinz ketchup bottle or Kraft cheese actively today. The market for the products has aged, and the products themselves have aged, which effectively means the company's growth is going to drop off, and its margins are going to come under pressure. That's what the market was pricing in in 2015. That's what led Buffett and 3G Capital to buy it, and the market was right, and they were wrong. The second is sometimes brand names lose value because they get neglected. Just because you have a great brand name doesn't mean you can turn your attention away, look away, and not pay attention to that brand name.

neglect can sometimes lead to depletion in brand name value. Again, let's take some examples. Quaker Oats brand name for cereal that's been around forever. Not only did it allow itself to get sidelined by cereal companies, but also did not take advantage of the health benefits of oatmeal and essentially grow with that, those health benefits. It came to that recognition later in the game, but it's a brand name that almost let itself go to seed because nobody was paying attention. It could be cultural changes, products and services that were viewed as great brand names because they appealed to something in human beings 50 years ago. You might look at it and say, really? I'm not talking just, I mean tobacco, for instance, is one example, but there's health issues that might have driven tobacco away from, hey, I want to smoke a cigarette. I mean, you know, if you get a chance, you should watch Mad Men. That's, of course, the TV series built around advertising in the US in the 1960s, and they show you some of

those old product ads, and you look at them and say, Really? That would never fly now. So, sometimes the world changes around you, and a product or service that was a valuable brand name has now lost it because society and people have changed around it. It could also be changing tastes, where the demand for the product is fat-driven, and when the demand shifts, you know the brand names change as well. The apparel business has been one where fads have driven one company out and brought a new company in. The Gap was a great brand name in the 1990s. It appealed to a particular niche market of people, well-to-do people who wanted khakis and shirts in different colors. But it faded. It moved on. Abercrombie & Fitch replaced it. Now Abercrombie & Fitch has gone for lots of different reasons, and H&M, you know, and Uniqlo, that people might go to. I don't even know what the new... So when tastes change, you can have brand name shift. And finally, a brand name can be brought down by having toxic

connections abami and fit in particular. One reason it came down to earth so quickly was because of revelations of, you know, sexism and racism in the company that were so toxic that people were no longer willing to shop there. So, brand names can deplete or destroy over time, and that's got to be something to factor in when you look at a brand name in a company. That said, though, there is some hope, right? When a brand name depletes, loses value, is it going away? Perhaps there are cases where brand names have been reinvented. I mean, took a classic example, Crocs, you know, which was a fat, took off with footwear in the early 2000s, crashed by the end of the decade. By 2009, the company was bankrupt. It's come back again. It repackaged itself around celebrity endorsements and became a successful brand again. How long that'll last, I don't know, but it did find success again. Lego, venerable B brand name in the toy business. I mean, you and I were played

with Legos. And I know about you, but that was decades ago. But it was losing its Mojo. So, what did it do? It sold off its theme parks because it felt that theme parks were kind of, you know, removing its focus, and then refocused attention on its core product, but redesigned it to appeal to adults. Have you seen the Star Wars Legos that you can buy? I mean, they can cost a few hundred dollars and take you, I think, a couple of years to put together. In general, though, reincarnating a brand becomes easier for niche brands than for mass-market brands, for product brands, and for company brands, and for younger brands, and for older ones. So, if you think about reincarnating a brand, I mean, remember the odds are often against you, but sometimes you might find a pathway. So, let's return back to Nike now in the post-COVID years. Nike discovered the benefits of digital sales. In fact, Nike digital accounted for 43% of Nike's revenues in 2022. But there has been a subtle effect.

on brand name because of it. You know, 20 years ago, you walked into a mall, you always saw excitement around a Foot Locker, especially when a new Nike brand arrived, 'cause that's how they appealed to young people. Look at our brand, look at our F. I mean, the Air Jordans essentially took over the world because people saw them in shoe stores, tried them out, and then were willing to pay what was then a premium price for those. So, it might lower cost, it might give you bigger reach to shop online, but you got to think about whether there's a side effect of reducing brand name. And while the Footwear business has been more resistant to fads and the apparel business, Nike is losing market share. It's fighting, it's fighting against, you know, young startups like On and Hoka for the younger customers. Get a chance, you should visit the On and the Hoka sites. I don't own a shoe from either, but they, you can see how they're approaching this phase, and even among runners, it's losing market. It's lost market share to

older companies like New Balance that have rediscovered new ways to appeal to runners. Perhaps Nike's problem is they're trying, they're such a big company appealing to such a diverse audience that they've lost sight of their core markets, and perhaps others are taking advantage of it. Nike's business, as you can see, it's been built around celebrities. Michael Jordan, you know, is a big factor in Nike's brand name being what it is today. But celebrity-driven advertising comes with the downside, which is celebrities are human beings, and when human beings have issues, and you know what I mean by issues, the company suffers. I mean, I think that you're seeing some of this play out with Nike's celebrity-driven advertising campaigns in the last few years because we live in a world where everything is political. You pick a celebrity, and half the world likes you, and half the world hates you because celebrities seem to come as package deals. Something to think about as Nike looks forward, so the new

CEO has his job cut out for him. I hope he succeeds, but there's a lot of work to do. Nike is a great company with a great history, but the question is, what will the future look like? So, I hope you found the session useful, and I thank you very much for listening.

Just do it! Brand Name Lessons from Nike's Troubles!

I teach corporate finance, valuation and investment philosophies at the Stern School of Business at New York University. I have online versions of all three courses here, as well as other finance-related videos. 
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