Stocks for running shoe companies are red hot. It’s just not the brands you would expect that are cashing in.
Asics’s stock is up 105% in the past year. On Running’s (ONON) and Hoka’s (DECK) stocks are up 82% and 81%, respectively, far outpacing the S&P 500. Nike’s stock, by contrast, has plummeted 4% during that time.
Nike’s dismal performance is the result of their CEO John Donahoe’s turbulent five-year stint. He resigned last week because the company has lost ground to its competitors. At a time when running shoes have become exceedingly popular, shares for running shoe companies has been a hot, competitive market. Nike, long the gold standard for athletic shoes, hasn’t been able to capitalize on the demand for running shoes. Asics, Hoka (made by the parent company Deckers), and On Running (made by parent company On Holdings) have taken their place.
“The running shoe market is an attractive market, and a lot of companies are putting out quality running shoes at the moment,” said David Swartz, a senior equity analyst who covers Adidas for Morningstar. “Lately Nike has not been as competitive and smaller companies have really stepped up.”
Nike’s stock has plunged in the past three years in large part because the company’s strategy to focus on direct to consumer sales backfired. The company cut ties with retailers like Foot Locker, DSW, and Macy’s. The strategy worked at the beginning of the pandemic when consumers were buying online. When stores opened back up, consumers began going back to stores, and Nike was much less present on the shelves. Nike has also been criticized for abandoning its culture of innovation.
“Nike’s taken their eye off the ball with regard to product innovation, particularly in performance and running,” said Brian Nagel, an analyst who covers Nike for Oppenheimer Holdings. “I think that’s allowed other brands which have stayed more focused on innovation to take market share.”
Brands like Hoka and On Running pounced on Nike’s miscues. When Nike went missing from retail shelves, consumers got a chance to try on Hoka and On shoes. On has the innovative cloud technology in their shoes, and Hoka introduced the new look of max cushioned, clunky shoes. That type of shoe has become popular not just for runners but also as a lifestyle shoe.
The formula for success for running shoe companies recently has been simple: make a shoe that runners like, and it will become popular even for people who don’t run. Asics, Hoka, and On have mastered that recently. Nike hasn’t.
“When a product catches on with runners it often spreads to be more of a lifestyle product”, added Swartz. “There’s a big market for people who buy running shoes who aren’t really runners. They buy them anyway because they like the shoes, they’re comfortable, they look good, and they have that association with running that they like.”
Asics has hit a perfect stride. They have innovated for runners, and their “dad” shoes are currently in style. Their stock has grown more than any other running shoe company in the past year.
Retail investors are catching on to this new order of running shoe companies. Munya Bengesa, 44, trades recreationally from his home in Beaumont, California. He learned On Holdings (ONON) was one of the ten best performing stocks one day last week. He bought it and turned a profit by selling it shortly after. He says he likes the brand, too.
“On shoes are different, they seem unique. It stands out, you can’t miss it”, Bengesa said. “They took what Nike was doing, and they went bigger with it.”
Adidas’s stock has avoided nosediving like Nike’s, but has been lapped by Asics, On and Hoka. Their stock has grown 34% since last year, a notch above the S&P 500. Adidas is hanging on because of the popularity of its terrace style shoes, like Sambas and Gazelles. These shoes have been around for decades and are becoming fashionable again. When that trend subsides, Adidas could be in trouble. Swartz recommends selling the stock because of the fickle nature of this fashion trend, which is momentarily buoying Adidas’s stock.
Nike’s decision to replace John Donahoe with Elliott Hill as CEO was the company’s first step in its attempt to right the ship. Adrienne Yih, a consumer discretionary analyst at Barclays, said in an interview with Yahoo Finance that Hill would rebuild Nike’s relationship with wholesalers and refocus on innovation.
Some investors could look to take advantage of how historically cheap Nike’s stock is right now. Nagel recommends buying the stock.
“You have a cheap stock, low expectations in that stock, in a large dominant brand,” said Nagel. “This brand is quickly correcting itself.”
Nike’s stock spiked when the news of John Donahoe’s resignation broke on Thursday. At 3:55 PM, the stock was valued at $80.98. At 5:10 PM, it jumped up to $89.25. It is currently at $86.37, showing that a changing of the guard at Nike is giving investors newfound hope in the company.