Will Generation Y Put Nike in Its Place?

Executives from Nike (NKE) told Business Week in a recent interview that eco-conscious and "do-good, feel-good" marketing doesn’t fit the ethos of the Nike brand, according to a June 30 story posted on Retail Wire. The irony of that statement may run deeper for Nike than you would imagine. Nike in fact has been cleverly avoiding, in many people’s minds, substantiated accusations of human rights and child labor violations for over 12 years. The central theme of these allegations are that Nike puts profit above human dignity, and, in some cases, human life.

Nike’s gross sales are well above $18 billion worldwide. Its marketing budget exceeds $500 million and is probably closer to $1 billion. Nike has cornered the market on celebrity endorsement and is said to pay Tiger Woods a whopping $22 million per year to wear the Nike swoosh. Yes, $22 million. And Tiger Woods is only the first tee in the bag. It is very hard to miss the Nike logo as it just happens to find itself in the center of photos in publications covering amateur and professional sports. It might be the most prolific sports logo of all time.

Despite these human rights concerns, Nike’s trend of stock market outperformance over the last three years has continued to be impressive. Since last October there have been some signs of consolidation, which may take the shares higher especially if spurred on by earnings growth surprises. If it breaks lower due to disappointing growth, we will be looking for signs to see if Generation Y’s distaste for Nike’s business model is gaining traction, because Gen. Y (79.5 million of them born 1985-2004) as the largest generation in U.S. history has the critical mass to make or break a company.

Nike has over 30,000 employees at their Beaverton, Oregon headquarters and at other facilities around the world. As companies go, Nike is well respected, well run and extraordinarily successful. Not bad for a start-up that manufactured the soles of its first products using a waffle iron. Nike could be the poster child for the entrepreneurial American dream except for one thing; their dubious self serving business model.

Nike’s manufacturing is done by a cottage industry in third world countries. What exactly does that mean? It means that Nike’s assembly is primarily accomplished by individuals in their homes, in many cases homes without running water, bathrooms or sometimes even floors. Try to imagine the contradiction of a $150 pair of basketball shoes being assembled in this environment. Nike is said to employ over 500,000 assemblers in cottage and sweatshop factory environments worldwide. Nike is actually proud of the “opportunity” they offer these workers. The average wages are believed to range under $3 a day, or, right at subsistence level. This could be considered a notch above slavery.

Is this what the Nike executives were referring to when they stated that “do good-feel good” marketing wouldn’t fit the Nike brand? Nike is a public relations power house that has repeatedly dodged the activists’ bullets even when confronted with glaring and overwhelming proof. Their public statements and official positions always seem to satisfy the media. It is a Teflon brand as nothing bad ever seems to stick. It is hard to imagine that Nike has not developed an arrogant attitude regarding the humanitarian issues. After all why should they fix a problem that no one seems to care about? The answer is, because it will cost them their company.

There are several market issues that will work contrary to Nike’s future success. The biggest is the aforementioned Gen. Y, bigger than the Baby Boomer Generation and consuming at record levels. Nike's cool veneer could be in serious jeopardy with this younger generation because it is the largest and most consuming generation ever born in the U.S. and the only emerging/growing market. Gen. Y is purportedly green and humanitarian to a fault. Word could get out about Nike's abysmal work conditions in the developing countries, and Gen. Y could virally shut Nike down within a year or two.

Nike has been very effective in dancing around the real issues with the Baby Boomers and Gen. X, but Gen. Y’s penchant for transparent social networking could easily find them out and expose them. We also believe that Gen. Y will eventually reject the mandatory display of the Nike logo on amateur team uniforms mandated by multimillion dollar exploitive contracts with coaches and colleges.

In short, the majority of opinion polls show Gen. Y as the most ‘Eco’ aware of all the generations. Over the coming years it will be interesting to see if Nike’s clever and very effective marketing “covers over” their critics claims or whether Gen. Y stands firm in the context of what would be a significant test of its reported humanitarian and eco-sensitive leanings. We suspect the share price will prove to be a good barometer of the eventual outcome.

Disclosure: No Positions

Comments

[WHGM:]

If you donot take an effort to look into the actual apparel business, what collective actions are taken and taken by Nike specifically it's easy to take a stab at the most well-known brand. Research first before claiming such things.

Jul 17 04:09 AM

[Whathehelle:]

Nike are just cool... It's difficult to look past that when you're kid, it's sad but true. I know all about the bad CSR stuff in the past but I can't help but not remember it when it comes to buying their product...

Jul 17 10:38 AM