Jordan Brand not likely to profit from Zion deal
Zion Williamson made national headlines earlier this year for breaking through his Nike shoes during one of college basketball’s biggest games of the year. Now the company is hoping that its newest NBA endorser will break the slide of its inability to sell performance sneakers in a struggling market. Industry experts, however, are skeptical that Nike’s Jordan Brand will be able to generate a positive return on its investment in Williamson, who signed a reported five-year, $75 million deal with the division last month.
That is the richest annual contract value for a rookie footwear pact in NBA history, topping the seven-year, $90 million deal LeBron James signed with Nike in 2003. Williamson, whom the New Orleans Pelicans took with the No. 1 pick in the NBA draft after an electrifying season at Duke, is considered the most marketable player to enter the league since James. Jordan Brand is betting on Williamson to revive its performance line, but strong headwinds will make that difficult.
Basketball shoe sales have declined for four years running and they’re down 15-20% through the first six months of 2019, according to a recent report by NPD Group vice president Matt Powell, who has 40 years of experience in retail and research.
While Jordan Brand has not announced plans for a signature shoe line, Powell said that it would take the company 18 months to bring that kind of product from concept to retail. In addition, he said, it typically takes several years before the consumer market responds even to the best players in the league.
Most notably, the math makes it almost impossible for a player on a $15 million-per-year endorsement deal to sell enough shoes to generate a positive return, even if the player is a star, in his prime and playing in New York or Los Angeles.
“I don’t see how the brand can earn this investment out in terms of merchandise sales,” Powell said. “Brands typically spend about 11% of sales on marketing. So in order to justify $15 million a year, his shoes would have to sell $136 million at wholesale.”
Because Nike hasn’t announced if Williamson will get his own shoe, it also isn’t known how much each pair would cost. At a typical, estimated price point of $68 wholesale per pair, that would mean 2 million pairs sold, a highly ambitious number.
Stacey Widlitz, president of SW Retail Advisors, suggests that Nike had little choice but to sign Williamson after footage of him breaking through his shoe at the start of the highly anticipated game against North Carolina back in February went viral. “Could you imagine if he went to the competition after the shoe incident?” she said.
On a global basis, basketball has never been more popular, so the depressed U.S. performance shoe market must be attributed to “the power of fashion,” according to Powell. “We’re very much in an athleisure cycle. People are wearing athletically inspired shoes without the intent of participating in sport in them.”
That dynamic, along with an influx of brands and styles over the last two years, has created what Widlitz called “wandering loyalty” within the target demographic. She says that in the end the most “technical brands” will win, but the crowded marketplace helps to explain the short-term decline within the performance sector.
“Nike is going more direct and moving away from the promotional wholesale channel,” Widlitz said. “They are going to increasingly control their destiny and therefore their margins. This shift alone creates value to the bottom line.”
Powell added that there are opportunities in China where the market remains strong. He also believes Jordan Brand can “leverage Williamson for sportswear and introduce an athleisure shoe along with a performance shoe” to maximize its investment.
Corey Leff is a writer in New York.