Comment Updates: Sports Apparel Companies
The MyWallSt analyst team is constantly monitoring the stocks on our shortlist and reassessing our investment theses.Over the past few days, we’ve updated our comments on the following companies:
Sports apparel is a merciless business to be in. Think of the logistics of manufacturing hundreds of styles for a wide variety of segments across different age ranges. That alone is a massive challenge. On top of that, apparel makers have to contend with fickle consumers and their rapidly changing tastes, the demise of brick-and-mortar retail channels, and multi-million dollar sponsorship deals that can, and often do, go wrong.
Few businesses have managed to survive the world of sports apparel, and even fewer have thrived. For decades now the two big players, Nike and Adidas, have maintained a firm grip on the market thanks to their culture of constant innovation and ability to adapt to emerging trends in both fashion and athletic wear.
We cover three sports apparel brands in MyWallSt, the aforementioned Nike and two recent challengers to the dominance of the big two. One of those challengers has managed to carve out a strong position in yoga and the growing athleisure wear market. The other was once a serious contender to Adidas’ number two position, but has been hampered by consistent missteps and an inability to stay ahead of the trends.
Nike is one of the most innovative companies in the world. That may sound foolish when you consider the technological breakthroughs that have emerged from the likes of Apple, Tesla, and Google. However, try to think of a business that has managed to reinvent itself time and time again, and stay relevant after fifty years of business success. Today, they are still the number one brand that teens aspire to own.
From its humble beginnings in Phil Knight’s garage, where he took a waffle iron to the bottom of his trainers in order to increase grip, Nike has become one of the most important and iconic brands in history. That culture of innovation has never ceased at Nike. Whether it's in their product design, their award-winning marketing campaigns, or their incredibly successful partnerships with major athletes. Today, the Jordan brand takes in over $5 billion a year — nearly twenty years after the man himself retired from basketball (the second time).
Nike has seen it all. They’ve weathered many storms on the road to being the worldwide leading sports brand. While they currently face many challenges, Nike’s relentless pursuit of perfection will no doubt see them continue to reach new heights. This may be a great opportunity to pick up a bedrock stock to hold for a lifetime.
I would be lying if I said that Lululemon hasn’t surprised me. When we first started covering it back in 2015, I was highly skeptical that the business would be able to fend off competition from the likes of Nike and Adidas — with all their advantages of scale and brand recognition. What I missed back then was that Lululemon is much more than another apparel brand.
Lululemon, unlike many of its competitors, is totally vertically integrated, controlling every aspect of their operations from the fabrics they use, to how customers buy the final product. This direct-to-consumer approach means the company has built a community of loyal customers that are willing to pay up for the high-quality products that they manufacture.
That control of their value chain also insulated them from the flurry of brick-and-mortar bankruptcies that threatened other brands over the last few years. What’s even more amazing is that they’ve achieved this with frequently changing management teams. I’ve come to terms with the fact that this company is always challenging expectations.
There’s little doubt in my mind that business students will be studying the downfall of Under Armour for decades to come. Once one of the great American success stories, Under Armour is now a shell of its former self — struggling to be the next Puma, when it once aspired to be the next Nike.
At one point, Under Armour was challenging Nike as one of the most popular brands with teens. Today, it’s been completely abandoned by that key demographic, who see it as a “dad brand”. In 2020, founder Kevin Plank finally stepped back from the flailing company and handed the reigns over to turnaround expert Patrik Frisk. That gave us some hope that the company could pull a Chipotle-esque reversal of fortune. However, earlier this year, Frisk unexpectedly resigned.
That’s left Under Armour without a clear path forward. They’ve tried various strategies to reestablish themselves as a serious player in the market. Their direct-to-consumer efforts have made small headways, while a new focus on female performance gear could pay dividends further down the line. Unfortunately, in this business, if people don’t think you’re cool, it’s very difficult to change their minds.