Last February, the star of the Duke University basketball squad literally blew his Nike sneaker during a game. Zion Williamson, and the rest of America, was astonished by the incident. Even worse, Zion Williamson sprained his knee. This could have been a PR disaster for Nike.
Instead, Nike has capitalized on the incident by signing Zion Williamson to a multiyear endorsement deal under Nike’s Jordan brand. This will do wonders both for Nike and the Zion Williamson brand.
Why exactly is Zion Williamson so important to Nike, and for that matter, why are signing athletes to endorsements so critical to a retail company?
Nike sets up relationships with professional leagues, teams, and athletes to promote, evaluate, and even develop products. These relationships establish product authenticity for consumers. It may sound silly, but it works and it always has worked.
The problem is competition within the retail shoe and sports clothing market has increased. That means that costs associated with establishing and retaining these relationships have increased.
If Nike cannot maintain its associations with these professionals and do it at a reasonable cost, Nike might lose the high visibility and authenticity associated with its products.
That, in turn, could cost Nike excessive amounts on new marketing expenses and investments. That could lead to reduced sales of its brands, reduced revenues, and profitability could decline.
Endorsements actually save Nike and other retailers marketing money in the long run. Having the Nike swoosh on everyone’s uniform in a pro basketball game cannot be substituted for.
Nike is so reliant on these endorsements that if some of them stop using Nike products, its business could be harmed. Yet it’s a double-edged sword, because if any of these professionals that endorse Nike end up doing something stupid, that could bounce back and harm Nike.
What happens if some promising athlete, like Zion Williamson, doesn’t live up to expectations? That’s wasted endorsement money.
Nike has committed to billions of dollars in endorsements: $13.8 billion in 2020, $1.27 billion in 2021, $1.36 billion in 2022, $1.08 billion in 2023, and none of this includes the Zion Williamson deal.
Even more money gets thrown at athletes if they win championships.
This is why one does not bet against Nike stock, which has done exceptionally well over time, and even when a shoe explodes.
The trick with clothing companies and those that also deal in shoes is that the space is essentially commoditized. There’s little distinguishing one product from another, so it all comes down to marketing.
Nike has consistently proven itself to be the savviest marketer in the space, and its “Just Do It” campaigns – and associated earnings – prove it.
Now Zion Williamson is part of the team. I wouldn’t bet against Nike.