Nike’s innovation and introduction of new tech in performance and lifestyle led to a huge resurgence that began in 2017 at the time of their Investor’s Day in October. This is well known among anyone who has been following the company for any amount of time during the push towards DTC. Today the uncertainty around tariffs and a market feeling the issues with the Consumer Direct Offense (Wholesale accounts aren’t selling as many shoes as consumers find alternative options to buy their footwear while Nike continues to pull in more of their fans, Footlocker sales slowed during Q1 and I think that they are going to continue to slow) face an uncertainty that doesn’t have anything to do with the decision of consumers to try smaller brands like Allbirds and Greats.
As President Trump begins what is now being coined as the second Cold War, Nike and other companies are feeling the pressure of what could happen as footwear companies begin to look at how they can shift production from a reliance on China (Matt Kish of the Portland Business Journal recently reported that Nike has been diversifying its production channels. I’ve recognized this in the number of shoes now showing up as made in Vietnam and Indonesia vs China.)
The problem is as Trump makes one bold stand after another the entire ecosystem of trading is affected. In other words, if you tell the cheapest labor in the world that you are charging them more, or preventing the expansion of their tech companies, that country with the cheapest labor and more natural resources will simply apply pressure to other parts of the world and they will utilize their most precious assets. It’s a classic war tactic:
You don’t have to attack a Kingdom, you simply arrive with enough soldiers outside of the gates and cut off supplies and interaction from the surrounding nations. China does enough business around the world that while the U.S. is the biggest economy, countries who are pressured by China could decide against accepting exports. The U.S. will then find itself fighting a battle it can’t really win because beyond footwear, tech is going to be shaped by the war for precious metals used in the building of infrastructure. China will win this game and the irony is while precious metals aren’t used in footwear, the fastest growing segment of footwear is tech. This creates a post hoc, ergo propter hoc, discussion that should be held by footwear brands. If the goal has become to reach the consumer via tech, improving DTC, wouldn’t a trade war that includes precious metals disrupt that growth?
I’m not an expert on these matters, but I’ve seen my investment portfolio take a considerable hit in the last month (down 5.73%). While the sneaker world is looking towards the next big drop of Yeezy and Jordans, there is a war being played out that will affect the entire market and we should be informed.