John Hempton has a Substack and he recently published a stock note on Hibbett Sports (Ticker HIBB), a sneaker retailer in the US. His observations are very good and it is a useful primer of sorts into sports retailing in general
You might want to read it if you are interested in how the industry works or are interested in these stocks:
Nike (NKE US listed)
Adidas (ADS German listed)
Puma (PUM German listed)
Short summary (in my words)
- sports products are dependent on influencers to sell
- illustrated using Lionel Messi vs Usain Bolt. Messi's visibility helps sells Adidas products
- in Europe, football is very important for shoe sales, especially with the right football stars paired with a good ad campaign.
- Nike is beating Adidas in the US because American basketball is core to them. The path of travel is African-American kids to white American kids to Chinese kids
-Adidas tried alternative tactic via music but through the same path of travel as the point above. This proved successful, as seen from shoes without laces (a successful Adidas product) being worn by kids in Beijing
- Nike had a change of strategy and decided to capture the online retail margin by getting customers to buy directly online. They began cutting down wholesale arrangements
- this led to small shoe retailers failing
- City Gear (owned by Hibbett) is in a unique position because they sell in low rent locations in US strip malls, mostly to African-Americans
- this put them in the unique position of being strengthen by Nike's crackdown on retailers, as they are selling to a very important demographic for Nike
Some risks he highlighted:
- Hibbett (through City Gear) is sneaker dependent. If sneakers become unpopular, they will be in trouble
- Nike and Adidas somehow manage to kill retailers
-Nike squeezes their margin
-management quality deteriorates. They noted that middle management is mostly non-white but senior management is white. This is a problem if middle management doesn't see opportunities for them and they lose good managers
One of the takeaways from this is the amount of due diligence they conduct. Going to meet Adidas in Germany, going to stores to understand the business. This will be something very difficult for retail investors to do. Pair this with an excellent mind, and we get write-ups like this that are very informative.
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