Nike's Blowout Underscores How Perception of Safety and Quality Can Affect Reputation

By Mengqi Sun

The blowout of a college basketball star's shoe Wednesday underscored how consumer perception of safety and quality can weigh heavily on a company's reputation.

Duke University forward Zion Williamson's Nike basketball shoe appeared to rip apart in the first minute of a rivalry game against the University of North Carolina.

Mr. Williamson tried to change direction to shake a Tar Heel defender, but his left foot broke through the side of the shoe. Mr. Williamson, considered one of best collegiate players, fell to the ground holding his right knee before limping off the court. He didn't return to the game.

The prime-time spectacle, which played out on national television, highlighted a delicate dance between customer expectations and quality assurance, risk consultants said. Shoes take a beating, and few customers would expect a pair to last forever. But shoes tend to degrade over time, not in an instant.

"Stakeholders are not expecting the shoes to have a failure; they would be surprised and disappointed," said Nir Kossovsky, chief executive of corporate reputation insurance company Steel City Re.

Nike uses sports icons as a means to convey the quality of the products, he said. The implied message: If it's good enough for the athletes, it's good enough for average consumers. But the failure of the shoe under Mr. Williamson -- a high-profile player who has been projected by some as a likely future star on the professional level -- challenged that premise. "It didn't hold up," Mr. Kossovsky said.

How a company responds in moments after an event like this can help determine the extent of the damage to its reputation. That often includes some form of acknowledging the issue and reassuring customers that it is an anomaly, and that the company has controls in place to ensure that this isn't a failure in its governance or the company's mission.

Nike attempted that in a statement Thursday. "We are obviously concerned and want to wish Zion a speedy recovery," the company said. "The quality and performance of our products are of utmost importance. While this is an isolated occurrence, we are working to identify the issue."

The lasting effect on Nike will be determined by consumers and investors. Some of the indicators for the scale of the impact could be the extent of movement in equity value, credit default swap prices and bond prices over time, Mr. Kossovsky said. Nike shares fell 1% to $83.95 on Thursday.

"The bond guys, they are the most sensitive to risks," he said. "Their risk assessment is the most accurate." Bonds are a measure that could suggest material cash flow damage, he said.

"Cash flow risk is the end of state of reputation risk," Mr. Kossovsky said.

Write to Mengqi Sun at mengqi.sun@wsj.com

(END) Dow Jones Newswires

February 21, 2019 20:01 ET (01:01 GMT)

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