Just do it – how Nike’s $6bn loss was really its gain
The marketing gurus at sports apparel behemoth Nike recently launched a controversial advertising campaign in the U.S featuring one Colin Kaepernick. For those that don’t follow American Football or gridiron, Colin Kaepernick was once a star quarterback in the National Football League who generated significant controversy and debate following his decision to kneel during the National Anthem before games to protest police brutality. Despite being only 30, he is out of the league and is mired in a legal battle with the NFL on collusion charges that the league does not want him signed on any team.
As expected, the ad generated significant media buzz, some emotional reactions from consumers (including those who burnt their Nike gear on social media) – and unsurprisingly, a few tweets from President Trump – who has been quite involved in the US National Anthem protest debate to date.
Amongst all the publicity, one of the recurring headlines was how Nike’s decision to run the campaign “cost” the company US$3.4 billion. Whilst making for an interesting headline, it is highly misleading – yes, the market’s assessed value of Nike as a firm as reflected in the share price may have fallen by that much (~3 per cent) when the news leaked, but this only reflects the market’s (immediate) negative sentiment in terms of perceived damage to Nike’s future prospects in its implicit support for Kaepernick.
Other groups attempted to assess the value of the media exposure from the campaign, with one estimate putting this figure at US$163 million split with over 70 per cent of this either Positive or Neutral.
While the perceived value impact to the brand is impossible to calculate, the true cost-benefit of the campaign to Nike is likely to be borne out by the impact to its sales figures as consumers vote with their wallets; from this perspective it has been a clear beneficiary, as estimates suggest online sales have surged by 31 per cent in the 3 days surrounding the launch.
Whatever your stance is on the issue – if we are using the share price as a barometer – Nike may have just “won” this calculated gamble with the shares erasing its 1 day losses and now trading comfortably above the share price prior to the ad launch.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
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