Nike Inc. (NYSE: NKE) holds the spot of the world’s premier maker of athletic shoes. As part of that position, and the universal nature of its brand, it has a great deal of price leverage. A prime example of that is its $310 soccer shoe.
Some of the largest athletic shoe companies in the United States do not sell soccer shoes at all. Reebok is an example. While it does not have the marketing power, or money, to attack every part of the sports shoe market, Nike does. On the other hand, German shoe maker Adidas has soccer shoes, with cost as much as $240, about 75% of the most expensive Nike.
Is the Nike soccer shoe better than the one made by Adidas? Adidas has a huge footprint in the soccer world. Like any other company, it would use that presence for price leverage. That leverage caps at $240.
Nike’s brand power is most evident in its line of Air Jordan basketball shoes, as well as Kobe shoes and LeBron shoes. Nike invests tens of millions of dollars, if not more, in endorsement deals with two of the best NBA stars, and Michael Jordan, probably the sport’s greatest player, though he has been retired for two decades. Nike still sells a $175 Jordan basketball shoe. Presumably it is not just a marketing tool. People actually buy them.
Nike markets itself as a growth company, despite its size and market share in the athletic shoe market. The claim may be an exaggeration. Nike’s revenue rose 5% in the most recently reported quarter to $8.4 billion. Yet net income rose 23% to $1.18 billion. It is a growth company, if measured by the bottom line.
It is absurd to think that, in a market in which good soccer shoes sell for $150, Nike could offer one for double that price. But the high pricing is a sign of brand power. It is brand power that allows Nike to outrun its most direct competitors.
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