By Elizabeth Winkler 

Does a boys-club culture where women struggled with pay inequity, inappropriate behavior, and poor representation in the company's top ranks make Nike a more valuable company?

Will women, who have powered the company's growth in recent years, buy more Nike gear after hearing these revelations? Stock investors seem to think so.

Nike shares rose 10% from their low last week after The Wall Street Journal reported about Nike's culture. Shares kept rising after a memo surfaced from the company's top human-resources executive saying Nike "has failed to gain traction" in hiring and promoting women and minorities. The stock fell 3% in Friday's big selloff.

Nike, a brand built on empowerment and inclusion, has focused some of its most high-profile campaigns specifically on empowering women and girls -- from its 1995 ad "If You Let Me Play" to last year's "Equality" campaign. Now it looks increasingly like Nike has broken its promise.

Nike's troubles started last month, when two top executives resigned after an internal review sparked by the concerns of women. That and the subsequent revelations about the company's culture may make consumers, especially women, rethink their allegiance to Nike, says Trevor Wade, Global Marketing Director at Landor, a brand-consulting firm.

This is important because Nike is the No. 1 sports brand for women and girls globally. Last year Nike's women's business brought in over $6.6 billion in revenue, and it has been growing at a faster rate than the company overall -- about 12% a year since 2013.

If sales to women flag, the company will struggle to meet the targets it has set, especially in its domestic business. Yet as Ms. Wade points out, "there is no shortage of athletic brands to choose from, especially when it comes to women-focused brands like Athleta, Lululemon, Lucy, Lorna Jane, Fabletics, and Title Nine."

Meanwhile, rival Adidas is growing faster than Nike, especially in North America, where Nike's business has declined recently. Adidas's constant currency sales surged 27% in the region last year as the German sportswear group stole market share from Nike.

Nike's leaders clearly understand the risks they face: They have acknowledged the company's shortcomings and appear to be taking steps to address them. That response may keep consumers from drifting away. And it's worth remembering that much of Nike's genius lies in its marketing. If it can tell the right story about the brand's desire to do better by women, consumers may be willing to forgive.

Investors, though, are acting as if the company has been forgiven already. Even if one in 10 women customers reaches for another brand for just a few months, Nike's earnings and its stock will take a hit. Nike is all about going faster, but in this case investors should take it slow.

Write to Elizabeth Winkler at elizabeth.winkler@wsj.com

 

(END) Dow Jones Newswires

April 07, 2018 10:44 ET (14:44 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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