It has been awhile since I’ve written about Nike (NYSE:NKE) and Nike stock. The last time I wrote about the company was in May, not too long after Nike’s work culture came under attack.
At the time, I took a very negative view of Nike’s marginalization of women at the company and suggested the misconduct would hurt Nike stock for a long time to come.
Then came the Colin Kaepernick ad in which the out-of-work QB proclaimed, “Believe in something, even if it means sacrificing everything,” and the media stopped discussing the reprehensible behavior of upper management toward its female employees.
The Kaepernick Buzz
Conservatives have a problem with Kaepernick’s ad because they feel he was disrespecting the flag by taking a knee during the national anthem.
They even carried out a boycott of Nike products that only galvanized his supporters, leading to a 31% increase in Nike’s online sales in the three days following the release of the ad.
“Yes, the former quarterback still arouses anger among conservatives. This led to the markets initially penalizing Nike stock,” wrote my InvestorPlace colleague Josh Enomoto in late September. “But eventually, shares recovered. And moving forward, I expect further gains.”
The reality is that conservatives are on the wrong side of this issue. That was shown by the fact that interim USA Gymnastics chief Mary Bono was forced to resign less than a week into the job after she tweeted a photo of her covering up the Nike logo on her golf shoes to protest against Colin Kaepernick.
Old white men are not Nike’s target audience, so Nike stock price won’t be negatively impacted if some of them are upset at the company.
But Women Are Nike’s Target Audience
In February, Nike released a statement about the four ways it’s thinking differently about women’s sneakers. That was before the company’s workplace problems were publicized.
Nike believes that selling more sneakers that fit women, creating unique retail experiences geared to women, offering exclusive services “designed to increase connectivity and access to sneakers for women,” and collaborating more with women will challenge the status quo, hopefully leading to higher demand for Nike’s sneakers among women.
Currently, Nike generates approximately 29% of its wholesale revenue from women, with men accounting for 71%. It’s important to note that I’m using the 2017 wholesale figure of $22.6 billion, which excludes young athletes (boys and girls) and unisex products, as well as the $9 billion of revenue from its online and brick-and-mortar stores.
Assuming revenue from women also accounts for 29% of the revenue from the excluded parts of Nike’s business mentioned above, women’s footwear and apparel sales would have added up to just less than $10 billion out of a total top line of $34 billion in 2017.
So the revenue that Nike obtains from women is quite significant and would constitute a reasonably large business on its own.
For Nike to really become the leader of the women’s market, it’s going to have to continue to show that it actually cares about women, starting with its own employees.
It’s not enough for Nike to fire a bunch of male executives or settle a few lawsuits. Instead, the company has to completely change how it hires and pays its employees, whether they work in stores or in the company’s executive offices in Beaverton.
Last October, I suggested that Nike should buy Lululemon (NASDAQ:LULU) because the combined companies would have a business that would be more balanced between men and women and could more effectively compete on a global scale, boosting Nike stock price.
Since then, Lululemon’s market cap has virtually doubled to $19 billion, making it much more expensive to acquire.
While I still think that Nike should buy lululemon, I’m going to assume the deal won’t happen, which means Nike has to capture the women’s market the old-fashioned way: by earning it.
Nike has to start by continuing to repent for its sins. If I were Nike CEO Mark Parker, I’d be on the phone with former Starbucks (NASDAQ:SBUX) Executive Chairman Howard Schultz to get a crash course on how to treat employees right.
Evidence suggests that Nike is trying to atone for its past sins which is very good news for owners of Nike stock.
As long as NKE doesn’t fall off the wagon, I wouldn’t have a problem owning Nike stock at this point. But make sure to keep an eye on Nike’s progress in this area because nothing kills business success like a poor corporate culture.
As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.