Nike: Shoe Dog

"You are remembered for the rules you break"

– Phil Knight, Founder of Nike

arvy's teaser: It all started with a $35 logo. The story behind Nike's iconic swoosh and the genius of "Shoe Dog" Phil Knight. Looking at the present, however, the market leader's problem is still the same.

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The Swoosh.

It has become one of the most recognizable brand logos in the world.

It was designed by Carolyn Davidson in 1971 (chart 1). For her services, the company paid her $35 (equivalent to $263 today) and stated that she had spent 17.5 hours developing the logo. In addition, the company gave her 500 shares when it went public. After several stock splits, she now owns 64,000 shares and, according to founder Phil Knight, she has never sold a single share. They are now worth over $6 million. Not a bad income for a freelance job during her bachelor's degree in graphic design.

The Swoosh has appeared together with the "Just Do It" trademark since 1988. The two together form the core of the brand.

The company behind it that honors great athletes and great athletics?

Nike.

Chart 1: The original Swoosh by Carolyn Davidson for Nike

Source: Nike

Mystery

Nike is named after the Greek goddess of victory.

In 1962, fresh out of business school, Phil Knight borrowed $500 from his father and had a simple mission: to import high-quality, low-cost sports shoes from Japan. In his first year, he made $8,000 in sales.

Today?

Nike's annual revenue exceeds $51 billion.

Despite all these achievements, the creator of Nike has always remained a mystery. Or have you ever heard of him?

But such a success story, which has so many facets, found its way into the ink through a biography and recently to Hollywood through the movie "Air" starring Ben Affleck and Matt Damon. It shows the incredible story of Nike and basketball star Michael Jordan as the personification and ambassador of the "Air Jordan" shoe line - a completely new and very risky business model at the time.

This movie is highly recommended! Very much so from a business perspective.

But as book lovers, I must also share with you the memoir "Shoe Dog", which is packed with insight, humor and hard-won wisdom and lessons (chart 2). Shoe dogs were people who devoted themselves wholly to the making, selling, buying, or designing of shoes. The biography offers ten powerful lessons.

After all, you are remembered for the rules you break (principle #3).

A page-turner in a class of its own.

Chart 2: Shoe Dog, Phil Knight, a memoir by the creator of Nike

Source: arvy

Role Model for Many

Ever wondered why Nike is so successful?

Steve Jobs, Apple’s founder, asked himself the same.

Jobs cited Nike as the source of inspiration for his “Think Different” campaign, which is now regarded as one of the finest advertising initiatives in history. We wrote about this in a previous arvy's Weekly.

A big part of this is the way Nike approaches its customers, with the best-in-class and decades-old slogan "Just Do It", which speaks directly to you and motivates you at the same time.

Adidas has tried to take a similar approach for many years and has only now replaced the catchy but impersonal slogan "Nothing is impossible" with "You got this".

It seems that Nike was not only a role model for Steve Jobs 😉.

However, apart from storytelling, all sportswear companies have felt the pressure from consumers and rivals, which has not stopped growth expectations, but has dampened them (chart 3). As we know, Swiss competitor On Holding AG is making a strong push into footwear (with Roger Federer) as well as into the "lifestyle" segment (with Zendaya, the star of Dune, another great movie), which Nike has neglected so far. Upcoming yoga and pilates trends? Watch out for the premium market leader Lululemon here.

The pressure is on, but Nike can build on its greatest asset.

Chart 3: Nike’s revenue and EBIT since the 1970’s

Source: Quartr

Preferred Sportswear Brand

When it comes to sportswear, we at arvy like either a best-in-class product portfolio underpinned by a broad assortment and strong brand and marketing spend, or niche players. Either market leaders like Nike or figureheads like Lululemon in fast-growing smaller markets such as the yoga segment.

As business pickers, we can pick the best in these areas and neglect the rest.

Nike has been the world's favorite sportswear brand since the 1980s and will remain so. A "Good Story" is a given. This is also underscored by its near cheapest valuation in the last decade in terms of free cash flow yield.

But why?

As always with sports brands, all eyes are on the most important growth market. Yesterday's after-hours earnings announcement from Nike and the question of whether the "Good Chart" will improve again due to the recovery in this region will move the needle.

The problem remains the same as in the last twelve months.

It is all about China.

And Guochao.

Chart 4: Nike over ten years

Source: TradingView