SBJ/Jan. 24-30, 2011/In Depth

Nike's action plan

After a rocky start, Nike has gained street cred in action sports, but not everyone believes the swoosh is good for business

Celebrated skateboarder Lance Mountain still remembers the call he made to Nike in 2006.

Mountain, 42 at the time, was more than two decades into a distinguished professional career punctuated by legendary video highlights and the creation of his own skateboard company, The Firm. He'd rarely — if ever — asked anyone for anything. And yet he picked up the phone and asked the team manager at Nike to sign him to their skateboard team.

GETTY IMAGES
Garrett Reynolds performs at the Nike 6.0 BMX Open.
Mountain wasn't desperate, and he didn't think he was selling out. He simply wanted to ride for the most innovative brand pouring money into the sport. In his eyes, Nike was it.

"The thing they were doing was giving back," said Mountain, who joined Nike's skateboard team in the spring of 2007. "They were committed to implementing things I'd dreamed about and were willing to finance stuff because they could see it would pay off in the long term."

Nike's investments in skateboarding and other action sports, which began in earnest a decade ago, have already begun to pay off. Last year, the company announced that its action sports division — Nike 6.0 and Nike SB — was the fastest-growing category within Nike Brand. The company expects to double its current estimated business from that division of $390 million by 2015. Nike declined to make any of its executives available for this story.
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Nike has deepened its ties in the industry by sponsoring events, including the Nike 6.0 Open held in December at Breckenridge Ski Resort in Colorado.

The company's success has been driven by its footwear lines. Since 2007, Nike's action sports footwear sales have increased 120 percent and its share of the action sports footwear segment has increased from 15.5 percent to 27.6 percent, according to SportsOneSource, a sporting goods market researcher.

"It's the magic of Nike," said Kevin Wulff, a former Nike executive. "It will be studied for years and years."
As much as it's a testament to the magic of Nike, it's also a testament to the company's perseverance. The company launched and cast aside a failed skate brand; it designed and abandoned step-in snowboard bindings; and it overcame a host of critics who derided it as a money-hungry corporation with campaigns like "Don't Do It."

Some industry insiders say the company succeeded in spite of itself. Others say it finally figured out the market. Regardless, Nike's success has changed the landscape of action sports and will play a heavy hand in writing the future of the industry.

"They're a leader and they will continue to be," said Circe Wallace, a Wasserman Media Group senior vice president. "The power of the swoosh is undeniable."

The outsider

The commercial begins with a close-up of two runners speaking about their passion for running.

"All we want to do is run, man. Just run," the first runner says.

"Some people swim. Some people ride bikes. We choose to run," the second runner says. "That's just who we are."

As they run down a city sidewalk, a man hoists his briefcase in the air and calls them crazy, a woman shields her stroller and asks if they have to run past her, and a police officer hands them a ticket.

The commercial closes with the words "What if we treated all athletes the way we treat skateboarders?" fading into an orange swoosh.

Nike released the spot in 1997 in support of its initial push into action sports. The company wanted to be in the skate business and action sports for two reasons, Wulff said. First, they were fast-growing sports that were increasingly setting lifestyle and culture trends. Second, Nike was losing the youthful, counterculture edge that had defined it. The rebelliousness and attitude of action sports had the power to reinvigorate the swoosh.

"We saw the vision of what it could become," Wulff said. "Action sports made sense."

Nike released its first skate-specific shoes at the same time the ads debuted, but almost no one bought them. They failed to sell in part because Nike was perceived by many within the insular action sports world as a corporate outsider trying to cash in on the explosion in skateboard participation. They also failed to sell because the shoes didn't meet the technical expectations of skaters.

"The shoes were horrible," said Bryce Kanights, an accomplished skateboard photographer. "They didn't improve on the Jordan 1."

Nike had an accidental history in skateboarding. Skaters had worn the first Air Jordans in the 1980s because no skate shoe existed that provided the same level of ankle support and cushion. It had a chance to build on that history with its first skate-specific shoe, but failed.


Critics of Nike's push into action sports have used campaigns like this to portray Nike as money-hungry corporation.
Nike's brash mass media campaign caught the attention of the entire skate industry and backfired, as well. Consolidated Skateboards, founded by Steve Guisinger, launched an anti-Nike public relations campaign in August 1997 behind the slogan "Don't Do It." Stickers with logos discouraging skaters from supporting Nike and other large sporting goods companies popped up at skate parks nationwide. Guisinger sent a letter to skate shop retailers discouraging them from buying Nike products.

"They were a threat," said Guisinger, who hasn't abandoned his campaign. "My fear was that if we acknowledged they were a skate company they could bypass the industry. But no one bought their products or gave them credibility."
Nike abandoned the skate shoe and tabled efforts to penetrate the skate industry. It tried to make inroads into the snowboarding industry through the All Conditions Gear (ACG) brand, releasing boots, bindings and apparel, but sales were average, and it dialed back the effort. In 2000, ACG also contracted a Southern California company to help it enter the surf business, but it abandoned the surf effort months after striking the deal.

Redefining its approach

The company took another stab at penetrating the skate market in 2001 by launching an independent skate company called Savier. It was independently run so that it could be nimble and deal directly with skate shops and small retailers. Savier attended its first Action Sports Retailers convention in 2001 and quietly grew into a $10 million to $12 million company, Wulff said.

As Savier was taking off, Nike created a skateboard division and named Sandy Bodecker the division's general manager. A respected Nike executive, Bodecker was the architect of the company's entrance into soccer and helped turn the sport into one of the company's top three categories with revenue of more than $1.5 billion.

That experience formed Bodecker's strategy for entering the skate and action sports industry. Rather than release a new skateboard shoe, the company tried to reclaim the brand's history in the sport by releasing a new version of the Air Jordan 1 shoes that skaters wore in the '80s.

"The DNA was there," said Vada Manager, a former Nike executive. "It needed to be retooled and better authenticated for the community."

The company released the retro shoes and renamed them the Nike Dunk SB (for skateboard) at skate shops in limited quantities. The move was a reversal from the big-box-retail approach the company took in the mid-1990s and gave the independent retailers that were the heartbeat of the skate industry an exclusive product that differentiated it from mall shops.

The timing of the strategy was ideal. It was 2002, the economy was still hurting after 9/11, and retail sales were down, but Nike's limited-release strategy helped skate shops secure new customers by creating a level of scarcity and hype that made the shoes popular with sneaker collectors.

"They brought the sneakerheads into the store," said Tommy Barger, owner of Covert Skate Shop in Orlando. "You were selling $120 shoes and a couple of shirts with it to a new customer. Everything was gravy."

The sales success of the Dunks gave Nike leverage with skate shops that it used to expand distribution, requiring skate shops that wanted Dunks to carry other Nike SB shoes, as well, independent retailers say.

Nike supported its SB line by signing respected skateboarders with core credibility such as Paul Rodriguez. It invested marketing dollars in grassroots events and local projects such as the development of Los Angeles-area
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skateparks. Rather than sponsor the X Games, it signed on to sponsor the Tampa Pro in 2006, a skate-only event with a long history and tremendous credibility.

The company also attended the marquee retail trade show for action sports. SportsOneSource analyst Matt Powell said Nike had a reputation for never doing trade shows, so it caught him by surprise in the early 2000s when he first saw a Nike booth on the trade floor at the Action Sports Retailers show.

"I thought it was a joke," Powell said. "I walked up and asked, 'Is this really Nike?' That's how unbelievable it was they were there. I saw Sandy [Bodecker]. That's when I knew they were serious."

Grassroots strategy
PETE DEMOS / SHAZAMM / ESPN IMAGES
Nike has boosted its credibility by signing core athletes such as skateboarder Paul Rodriguez (top) and BMX rider Dennis Enarson.


Nike SB began to grow organically, and as it did, the company pulled the plug on Savier. It replaced the skate brand with a multisport brand, Nike 6.0, which took its name from the six action sports of BMX, surfing, snowboarding, motocross, skiing and wakeboarding.

The creation of 6.0 allowed Nike to segment its action sports product lines, Powell said. It offered Nike SB exclusively to skate shops, initially upholding its promise to give those independent retailers something the malls didn't have. Then it took its 6.0 line to Pac Sun and other mall-based retailers.

At first, 6.0 was seen as a kids brand. Nike supported that perception by signing young athletes to its 6.0 team like 14-year-old BMX rider Garrett Reynolds, 15-year-old BMX rider Dennis Enarson and 16-year-old snowboarder Ellery Hollingsworth.

"They came in through the kids door," said Susan Izzo, the head of Mosaic Management, which represents Hollingsworth. "They grew with the kids. It wasn't a fake out but it was part of a five-year plan to grow from kids to top athletes."

Nike endeared itself to the athletes by treating them like top-flight pros. It built backyard ramps for Reynolds and Enarson, and underwrote a year of travel so its BMX team could film a video that included segments from far-flung locales throughout the world.

Most of those teenagers Nike backed grew up to become today's stars in their respective sports, and even ones like Enarson, who had some indecision about signing with a corporation like Nike that had no history in BMX, stand behind the company.

"All they have done is give to BMX," Enarson said in an e-mail.

Such endorsements from young stars who grew up on the brand team has favorably shaped consumer perception of the brand, said Bob Klein, a snowboard agent at Octagon.

"Even those haters who say, 'Those corporate scum bags,' can't argue with the way they support athletes," Klein said. "The perception is everyone [athlete] is stoked on it, so it's translated well to the consumer."

Just as Nike endeared itself to athletes by building top-notch ramps in their backyards, it did the same for action sports participants. During the 2010 Olympics, the company built a new feature at Vancouver's Mount Seymour resort and brought three members from the U.S. snowboarding team — Louie Vito, Elena Hight and Greg Bretz — and freeskier TJ Schiller to ride and ski with locals.

"The strategy has been grassroots," said Brad Lusky, Wasserman Media Group's executive vice president of action sports. "They didn't want to step in the space and buy their way in — even though they could."

Hitting its stride

Last August, Nike transformed Huntington Beach, Calif., into ground zero for its future in action sports. Its 6.0 brand sponsored a BMX event, its Converse subsidiary presented a skate competition, and its Hurley subsidiary titled the U.S. Open of Surfing.

Over nine days, more than 600,000 people turned out to watch contests, peruse the board shorts, shoes and apparel showcased in the three brands' 2,500-square-foot pavilions, and catch Weezer perform live on the beach.

In the eyes of many, the event was illustrative of Nike's new position as a leader in action sports and indicative of how the brand will approach the future.

"On a product level, they were showing the power of three to build all three brands," said James Leitz, a senior vice president and director of action sports at IMG, which owns the U.S. Open. "Nike challenged us to take our event to another level, and they've done that."

NIKE'S PUSH TO NO.1
Figures from SportsOneSource
show that Nike has quickly
increased its share of the action sports footwear category.

Brand % 2010 dollars* % 2007 dollars
DC Shoes 27.96% 10.32%
Nike 27.60% 15.47%
Vans 24.27% 33.01%
Adidas 5.78% 8.62%
Etnies 3.65% 6.55%
* 2010 is three weeks shy of the full year.Source: SportsOneSource

Nike's focus appears to be on aligning its action sports brands — 6.0, SB, Hurley and Converse — more closely together. It appears to be doing so with an eye toward two things — event ownership and retail expansion.

The company reportedly is looking to create an international competition similar to the U.S. Open of Surfing, according to action sports reporter Tiffany Montgomery. It has been in discussions with the Association of Surfing Professionals about a license for such an event.

Some industry experts believe that if Nike launches another event it could signal a shift of its marketing dollars from sponsoring existing events to owning events in the same way Red Bull has done in recent years.

"They did a fantastic job at the U.S. Open of bringing three brands together in a powerful way," said Issa Sawabini, a partner at Fuse Marketing. "Because they have such a broad breadth of brands, the best way to be efficient is to use that power of one model. It could be a great model for the future."

On the retail front, the company opened its first action sports store in Laguna Beach in 2009. The store, which is called Salvation, features 6.0, Hurley and Converse products. Many local skate shops fear that if Nike expands them nationwide it could hurt their business.

"We're definitely watching what they're doing," said Barger, of Orlando's Covert Skate Shop.

Sources familiar with Nike's action sports structure said the company is making internal changes that reflect the way it's aligning its business externally. The company is breaking down the silos between groups like 6.0 and SB to create a single action sports team.

The company's appetite for expanding its action sports product line has shown no sign of abating. Nike 6.0 launched ski and snowboard outerwear this season and debuted its first women's collection of footwear and apparel.

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Nike signed surfer Julian Wilson to a deal valued at more than $1 million.

It also has expanded its athlete roster, signing deals with established and highly regarded core skaters like Eric Koston and Omar Salazar. It most recently signed surfer Julian Wilson to a deal valued at more than $1 million a year, and it's begun signing head-to-toe agreements with snowboarders like Hollingsworth and Mason Aguirre.

"Nike is very strategic and calculating," said Izzo, who represents Hollingsworth. "Now it has an air of confidence because of the athletes it's acquired. It will be interesting to see if they can tell each of those athletes' stories well and provide the caliber of product they require."

Intimidating presence

At the International Association of Skateboard Companies (IASC) conference last year, former DC Shoes President Nick Adcock told those gathered a cautionary tale of what Nike had done in soccer and golf. Both categories had deep traditions with strong established brands like Diadora and Wilson. But after Nike entered those sports, the other brands faded.

"Nike comes from the traditional mind-set," Adcock told conference attendees. "There's a scoreboard and there's a winner and loser. The action sports community is more lifestyle based and everyone is sort of surfing, skating and hanging out together.

"Now you've got someone who's prepared to hang out with you, but they want to be the best, and that's something that the industry needs to adjust their mind to. That's one of the challenges of them in the space."

Adcock and others believe that Nike's recent athlete signings and moves into events and retail are only the beginning of the company's next phase of action sports growth.

Some, like Adcock, expect Nike to eventually go into hard goods — surfboards, snowboards, skateboards and other products. Others, like Octagon's Klein, believe the company will stick to the apparel and footwear areas it knows well.

Regardless, they say, the world of action sports won't be the same.

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