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Nike May Be Up in China, But Homegrown Rivals Narrow the Gap

Nike’s China sales may be up, but it appears the footwear juggernaut is still losing share to its Chinese rivals.

The Oregon athletic giant, which declared itself “a brand of China, and for China,” found itself at the center of a consumer boycott in March when social media users—including accounts connected to the ruling Communist Party—lashed out at a swath of Western brands for previously expressing concerns about the forced labor of Muslim minorities in the Xinjiang Uyghur Autonomous Region.

According to store checks conducted by Shanghai-based China Market Research, traffic fell between 20 and 50 percent at Nike stores after the boycott began. In May, data emerged showing the company’s sales on China’s largest e-commerce platform, the Alibaba-owned Tmall, tumbled 59 percent year-over-year in April.

Nike’s fourth-quarter earnings last month painted a brighter picture. Greater China sales reportedly climbed 17 percent year-over-year to $1.9 billion in the three-month period ended May 31. In currency-neutral terms, sales grew 9 percent. The full 2021 fiscal year represented Nike’s seventh-consecutive year of double-digit growth in the region.

However, analysis released by Bloomberg on Tuesday suggests Nike’s Chinese competitors have seen substantial gains thanks to the spring boycott.

While Nike’s stock price has grown 13.36 percent year-to-date, Anta and Li-Ning, two of its largest Chinese challengers, have seen their stocks climb 41.17 percent and 65.85 percent, respectively, according to MarketWatch data. Since the end of March, Nike stocks have climbed 20 percent versus Li-Ning’s more than 84 percent, Bloomberg said.

Smaller businesses like K-Swiss owner Xtep International Holdings Ltd. and 361 Degrees International Ltd. have posted even larger gains, with the pair’s stocks up 304 percent and 280 percent year-to-date, respectively, according to MarketWatch. In each of the four Chinese companies’ cases, growth has continued well past the boycott’s immediate aftermath.

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What growth Nike has seen since March occurred almost exclusively in the weeks since it smashed experts’ expectations with its record fourth-quarter earnings. Over the three-month period ended May 31, the company pulled in $12.3 billion in revenue, a 96 percent jump versus the prior-year period and $1.3 billion higher than expected. Its net income totaled $1.5 billion, or 93 cents per diluted share—42 cents above what analysts forecasted.

Nike breaks down SNKRS Exclusive Access

Before Nike was facing down a consumer boycott in China, it was responding to a scandal involving an executive’s connection to her son’s sneaker resale business.

In an internal meeting of the brand’s North America team in March, CEO John Donahoe revealed the company would be instituting several changes to restore consumer confidence, including auditing its launch process, doubling down on anti-bot technology and updating its policies to clarify what is and is not appropriate for employees and their immediate family.

Months later, it seems Nike is still working to improve transparency and trust, particularly in its e-commerce platform SNKRS—long a source of frustration for users confused over why they can never nab one of the brand’s hotter drops.

Last month, Nike revealed it would be “evolving” the Exclusive Access release model through which SNKRS drops some of the brand’s most sought-after kicks. The changes, it said, would come before the August debut of what is guaranteed to be one of its most sought-after releases of the year—a collection of 50 unique Dunk sneakers designed by Off-White founder and Louis Vuitton menswear artistic director Virgil Abloh.

Nike plans to send Exclusive Access invitations for its Off-White collaboration starting August 9
Nike plans to send Exclusive Access invitations for its Off-White collaboration starting August 9. Nike

Nike shared further details explaining its Exclusive Access model this week in a blog post published to the SNKRS app.

The post directly addressed some of the popular points of concern, acknowledging the presence of “bad actors” “who try to game the system.” While the system relies on users interacting with the app in specific ways—each release will consider a unique combination of more than 50 factors—Nike said trying to determine what these factors are “or getting a bot to tap on buttons” would not increase users’ chances. Setting up multiple accounts to skirt the rules, it added, could result in blocked launch access.

Rather, Nike said the best way to receive Exclusive Access is to engage with launches on SNKRS using one account, on one device. An “element of luck,” it added, would always be in the mix.

Michael Avenatti sentenced for Nike extortion attempt

A two-year-old case involving attempts to extort Nike came to a close Thursday when Michael Avenatti—the celebrity lawyer who represented porn actress Stormy Daniels in her lawsuits against former President Trump and his former attorney Michael Cohen—was sentenced to two-and-a-half years in prison and three years of supervised release.

Early in the afternoon on March 25, 2019, Avenatti tweeted that he would expose Nike’s involvement in “a major high school/college basketball scandal” at a press conference the following day. “This criminal conduct reaches the highest levels of Nike and involves some of the biggest names in college basketball,” Avenatti claimed.

Instead, the lawyer was arrested 15 minutes later, according to CNBC. Less than an hour after firing off his tweet, the U.S. Attorney’s Office for the Southern District of New York tweeted that it would be charging Avenatti for attempting to extract more than $20 million in payments from Nike. The case proceeded to trial the following January and by mid-February last year a jury had convicted him on three counts, including extortion and honest services wire fraud.

At last year’s trial, prosecutors said Avenatti told Nike he possessed evidence company employees had paid athletes to attend certain colleges. The lawyer then pushed the company to pay him and a colleague between $15 million and $25 million to conduct an internal investigation into the matter. He also requested Nike pay a civil settlement to the client of his who he said had been involved in the alleged illicit payments.

If the company didn’t comply, Avenatti told Nike’s lawyers that would “blow the lid on this scandal” and that he would “hold a press conference the next day,” where “he could and would take billions of dollars off the company’s market cap.”

In a victim impact statement, Nike lawyers attributed a $300 million drop in the company’s stock value to one tweet Avenatti sent, The New York Times reported. Company executives, they added, were also deeply worried the lawyer would damage the Nike brand and children of an executive named in another tweet feared their parent would be arrested.

The sentencing comes a week after the National Collegiate Athletic Association (NCAA) opened the floodgates for college athletes to profit from their name, image and likeness (NIL). The decision provides a path for student-athletes to receive funding and sponsorship via legal avenues. When it announced the decision last week, the NCAA noted that the new policy maintains the rules prohibiting improper recruiting inducements.