Nike's Continued Dominance Requires Innovation, Analyst Suggests

  • 12 February 2024 2:01 AM
Nike's Continued Dominance Requires Innovation, Analyst Suggests

Retro sneakers might enjoy a steady popularity, but the key to a shoe company's growth is hidden within its capacity to innovate. Even with the popularity of classic designs like Nike's Dunk Low "Panda," which topped the sales list for the second straight year, end of 2023 data from GOAT Group, an online shoe marketplace, suggests that many consumers are gravitating toward new releases.

Approximately one third of all sneaker purchases on GOAT and Flight Club platforms in 2023 were of models that became available over the past year. This competition is not limited to established brands. Emerging contenders like Hoka, part of the Deckers portfolio (DECK), are also gaining notable market shares. Consequently, analysts argue that brands such as Nike need to accelerate their innovation strategies.

Among these analysts is Barclays' Adrienne Yih, who argued in a talk with Yahoo Finance that the industry's giants, including Nike and Adidas, are simply recycling their product lines. According to her, this has resulted in a lack of exciting designs which she tags as "The Sole Wars," and this is something consumers are noticing.

The rise of Hoka and its ground-breaking foam platforms epitomizes this need for innovation. The brand reported a sales increase of 22% in the fourth quarter. During an earnings call, Deckers CEO Dave Powers suggested a strategy for Hoka in 2024 focused on both performance as in the case of its Cielo X1 marathon shoe – and lifestyle products. Hoka’s success lies both in the performance of their products and their relevance in consumers’ daily lives.

However, brands like Hoka will face stiff competition from long-time industry leader Nike. Keen to recapture the top spot, Nike has focused its future strategies on optimizing cushioning, innovative materials, and product launches. Even though Nike shows a clear focus on innovation, Yih observes that these innovative new products might not translate into immediate sales. Despite this, she is positive that Nike’s renewed focus on speed and consumer-centric decisions will keep them competitive.

According to Barclays' analysis, Nike potentially holds the strongest innovation pipeline of consumer pick for 2024. Yih highlights Nike's new designs like the Air Max Dn, which simulated a year's worth of wear and tear digitally before creating prototypes, indicating the brand's intense focus on product durability and performance.

Additionally, the necessity for novel designs is paving the way for newer brands to carve a niche for themselves in the market. For example, Lululemon, after entering the women's sneakers category in 2022, started exploring men’s casual and performance shoes.

However, Yih warns that while new market entrants can bring excitement, they must strategize carefully for sustained success. For instance, despite Lululemon's expansion, footwear only accounts for 2% of their five-year plan. Given the competitive nature of the shoe market, constant innovation and strategic planning is fundamental for brands to ensure continued success.