When cool goes cold

Abstract:

Nike Inc is facing difficult times. Its stock prices have declined from the $70s to the $40s as the company’s labor policies in Asia have attracted widespread criticism. Furthermore, Asia’s economic crisis has reduced sales by 17%, and Nike’s image as the maker of the coolest athletic shoes is beginning to erode.

Full Text:

Nike was marketing MVP. But with its image, brand and business under fire, a company and a CEO with a sense of mission are suddenly reeling.

Phil Knight doesn’t speak in public very often. And when you hear from him these days, he doesn’t sound happy. Talking to Wall Street analysts from his Oregon headquarters last week, the founder and head of Nike Inc. didn’t mince words: “This is a dark day around these halls.”

Knight’s problems would worry any CEO: a stock price that has slid to the $40s from the $70s, a plunge in profits and warehouses full of shoes that aren’t selling. Nike’s two-year-long battle with critics of its labor policies in Asia is heating up again: filmmaker Michael Moore features Nike in his new movie (sidebar) and, in an event stage-managed by Nike but sure to generate some unwelcome imagery, the company’s pre-eminent spokesman, Michael Jordan, plans to visit Far East factories this spring. The region is the source of more woe: Asia’s economic slump has cut sales by 17 percent in recent months. But most critical is a price war that has sliced U.S. sales and is a sign that Nike’s lock as the champion of “cool” may be weakening. Although Nike prides itself on technical innovation, losing its cool would be tantamount to losing the game.

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Last week was particularly glum at Nike’s headquarters in suburban Portland. Managers had warned of layoffs but hadn’t revealed any names. On Wednesday, 250 employees were told to pack up their desks, while stunned colleagues looked on.

At most corporate offices, that scene, though painful, wouldn’t be cataclysmic. But for Knight and his employees, even a sethack bears the agony of defeat. After stumbling badly against Reebok in the ’80s, Nike rose about as high and fast in the ’90s as any company can. It took on a new religion of brand consciousness and broke advertising sound barriers with its indelible Swoosh, “Just Do It” slogan and deified sports figures. Nike managed the deftest of marketing tricks: to be both anti-establishment and mass market, to the tune of $9.2 trillion in sales last year.

But Nike sees itself as part of a grander mission. Knight, 60, wouldn’t be interviewed for this story. But he has often talked of sports as a force for good, and of Nike–named for a Greek goddess–as a force behind that good. “`Swooshification of the world’ should [really be] `Sportsification of the world’,” he said last year. “We will mature with the inexorable penetration of sports into the global psyche.”

The sense of destiny is manifest on Nike’s campus. Built in 1990, it combines Northwest utopiana (a wetland, complete with great blue herons) with the manic, rah-rah flavor of a Big Ten school on Homecoming Day. Employees in sweats chugging Powerade are everywhere on the bark-chip running trail, in sports-bar-style eateries and in buildings named for stars (the “McEnroe,” the “Benoit”). Bronze busts, posters and videos of sports heroes are everywhere. So is the real thing. Olympic skier Picabo Street did most of the rehab work on her knee at “Bo,” the campus fitness center, and the day after handicapped golfer Casey Martin won his court victory, he rode down the Walk-of Fame past crowds of cheering employees. Nike staffers see themselves as “protagonists for the human spirit overcoming adversity,” says a former executive.

Employees are recruited to share that mission. They work and play hard, leaving a sizable population of “Nike widows” and, presumably, widowers. Some young sales people initiate themselves with Swoosh tattoos. And besides the ubiquitous sports metaphors, Nike people talk about the “heart” and “soul” of Nike. “You didn’t even talk about the stock price inside those halls,” says a former employee. “That’s not why you were there.”

For such believers, the harsh criticism of Nike’s labor practices has been a shock. When activists spurred new interest in foreign labor conditions in 1996, Nike was the perfect foil. Critics such as author Alice Walker attacked with the no-mercy language of polities. Leftist commentator Jim Hightower talked about “Swooshtikas,” and ads for political magazine Counter-Punch, citing 12-year-old laborers, blared, Meet Phil Knight: Child Abuser. (Nike denies employing anyone under 16.)

Nike employees were stunned to find themselves vilified in the press and quizzed in local bars. Nike has set up a Web site on worker issues, held brown-bag lunches and invited heavyweights onto campus to explain global economics. But Knight the visionary may have a blind spot here. “I’m … personally tired of the overblown and ill-used comparison between the salaries of factory workers and Michael Jordan,” he told employees in an e-mail last spring. A few months ago, Knight still seemed “confused” by the criticism, says Earl Blumenauer, a friend and Portland congressman.

Nike’s bigger problem is a 1990s marketing conundrum: can you be big and cool? When Teenage Research Unlimited did its latest survey, 40 percent of kids named Nike as one of the “coolest” brands, down from 52 percent just six months ago. Kim Hastreiter of Paper, a New York magazine, says that the coolest things around now are brilliantly colored suede sneakers by New Balance. Even Adidas, torpedoed by Nike and Reebok in the ’80s, is staging a comeback; for young kids, it’s “new.” Nike rivals, of course, are trying to make Nike look, like, so five-minutes-ago. Candie’s, a small maker of women’s shoes, is running ads featuring former MTV star Jenny McCarthy with the slogan “Just Screw It.”

Knight acknowledges the challenge. “We have to be beautiful as well as big,” he said last week. It’s no mean feat, says Starbucks brandmeister Scott Bedbury, former global ad chief for Nike. But, he adds, “people said no way [Nike] would be cool at $1 billion, and they said no way we’d be cool at $3 billion.” The “worst-ease scenario would be to become Microsoft,” says Kevin Keller, a marketing professor at Duke. Best ease: be like Coca-Cola. “They’re everywhere, but no one seems to resent them for it.”

One answer is to play down the Swoosh, and some Nike watchers say it will do just that. (One of Nike’s hottest sellers, the new Jordan line, has no Swoosh.) Nike is marketing new products, including its ACG (All Condition Gear) line that capitalizes–a little late in the game–on the “brown shoe” craze for hiking and outdoor styles like Timberland’s. Nike’s new baseball bat, part of a growing line of sports equipment, just hit stores, although its high-tech baseball glove has been indefinitely delayed.

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Nike’s genius has been its “strong, intuitive sense” of the brand, says Keller. But with the loss of some of Nike’s top marketers in the last few years, he wonders if the newer people can “tap into” that understanding, “almost a genetic code.”

Nike’s ace in the hole is Knight himself. Charismatic and down to earth, Knight still lives in the house he bought 25 years ago. “He’s the kind of guy who leans in when you talk,” says Blumenauer. Knight’s deep passion for Nike means he will fight hard for it. “I’ve always thought that Phil has three children–two sons and a brand,” says Bedbury. “Never underestimate a father’s love of a child.”

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