Say Goodbye to $200 Sneakers
by Jeff Clark
September 19, 2006
A 6 foot - 2 inch point guard from the New York Knicks is threatening to bring down one of the biggest brand names in America.
Stephon Marbury, the often controversial Knicks all-star, is endorsing a $14.98 pair of basketball shoes. He’s even agreed to wear the shoes, the actual shoes that you and I can buy at 130 Steve & Barry’s University Sportswear Superstores throughout the country, during the entire 2007 NBA season.
“If you took a chainsaw and cut ‘em down the middle,” said Marbury in a recent interview, “they look the same as the $150 basketball shoes.”
Unwilling to take the pruning shears to my own pair of Nike (NIKE) Air Force 1’s I’ll have to take his word for it.
But the real question is whether or not the image conscious teenagers that make-up Nike’s prime basketball shoe demographic will turn in their Air Jordan’s for a pair of Frugal Stephon’s.
According to the Assistant Manager at Steve & Barry’s West Covina Mall location, in West Covina, CA, the shoes are, “flying off the shelves.”
A few more calls to a few more stores generated similar comments. “Kids are coming in looking to buy one pair of sneakers,” said another store manager, “and they’re walking out with a pair of sneakers, a warm-up suit, some shorts, a tank-top and money left over for lunch.”
It’s a David and Goliath story… and it looks like Nike may be in for a margin squeeze of biblical proportions.
Back on June 28th, when Nike announced fiscal fourth quarter earnings, the stock shed 5% when margins came under pressure of rising raw materials costs. How do you suppose the stock will perform during future earnings announcements when margins fall due to competitive pricing pressures?
Marbury’s shoe debuted too late in the quarter to have any real effect on Nike’s upcoming earnings announcement this Thursday. And, realistically, it’s difficult to imagine a $15 shoe offered at only 130 locations having much of an impact on a worldwide brand name.
But it only takes a small pin to pop a balloon.
Nike has enjoyed some of the fattest margins in the retail industry… but with the Marbury shoe starting a trend toward lower sneaker prices, an awful lot of air could come out of Nike’s share price.
I’m hesitant to short sell the stock ahead of Thursday’s earnings announcement. Trading a stock in front of earnings is just too much of a gamble.
But it’s hard to ignore the nagging little voice in the back of my head that keeps saying, “Just do it.”
Best Regards & Good Trading,
Jeff Clark
