Category Archives: Finance

Adidas vs. Nike: The Real World Cup Battle

As the world convened on the country of Brazil to passionately watch thirty-two countries compete for immortality on the FIFA World Cup stage, another epic battle unfolded between the sportswear giants, Nike and Adidas.

Much of how consumers interact with businesses is based on perception and taste, which is why so many resources are devoted to marketing and advertising.  Through sponsoring the countries’ football teams and famous players and countless commercials and marketing ploys, the two brands geared up for a month long sporting festival that was sure to entice the consumers and bring in large chunks of revenue.  Let’s take a look and see which industry leader came away with the upper hand.

Adidas

Overall, you probably saw the Adidas logo more prevalent in the World Cup competition because of the official partnership the company has with FIFA.  At around $70 million per four year cycle, Adidas has the rights to manufacture and sell the World Cup Brazuca game balls as well as the referee kit.   Such a deal aligns Adidas with the FIFA logo on pretty much any advertisement, as we saw on ESPN’s virtual scoreboard.  Needless to say, this deal, for any sportswear brand, is extremely lucrative since the brand was quite visible.  Expenditures for the German company did not stop there, though.  According to reports, Adidas spent $2.3 billion in advertising and marketing for the World Cup.  High numbers, yes, but the ratio between the marketing budget and revenues in 2014 has held steady with the ratio during 2010’s World Cup in South Africa (10.1% and 10.7% respectively).  The target revenue with this year’s World Cup was $21.2 billion.

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Another indicator of Adidas’ exposure at the World Cup was their share price throughout the entire tournament.  Starting on June 12th, Adidas was selling at $52.99 per share and ended the tournament at $50.22 per share.  Initially, I had thought both corporations would see increased stock prices during the tournament, seeing as they would have extreme visibility and favorable marketing, but this $2.77 decline may actually be completely unrelated to the Cup.  Just yesterday, Adidas agreed to a ten year, $1.3 billion kit deal with English football club, Manchester United.  Despite the fact that this deal severs the thirteen year partnership Nike had with the football club, concerns were raised (and consequently stock prices lowered) due to the staggering price of such a deal.  Thus, it is not certain whether the World Cup had a positive affect on Adidas’ share prices.

Lastly, and maybe foremost, Adidas’ triumph at the World Cup could’ve been cemented on the final day.  Out of the thirty-two teams, Adidas sponsored nine with two of those nine making it to the World Cup Final (Brazil and Argentina).  Furthermore, out of the 166 World Cup goals, 78 were scored with Adidas soccer cleats, which belonged to some of the tournament’s top performers including Lionel Messi (Golden Ball winner), James Rodriguez (Golden Boot winner), Thomas Mueller and Andre Schuerrle of Germany.

Nike

Although Nike did not have the official FIFA World Cup sponsorship, the Oregon-based company played as big of a role as its counterpart.  As usual, Nike had the most aggressive, yet artistic marketing campaign for the event.  You probably noticed their ‘Risk Everything’ campaign, which featured the cartoon versions of Brazil’s Neymar Jr., USA’s Tim Howard and Portugal’s Cristiano Ronaldo–all Nike sponsored athletes.  Prior to the World Cup, Nike introduced their first ever football-only store in Rio de Janeiro which boasted Brazil’s World Cup kits and the boots Nike athletes would wear during the games.  With such an extensive advertising scheme, its no wonder the company’s marketing expenses jumped 36% to $876 million in the quarter to end May.

Contrastingly, Nike saw share prices increase for the month of the World Cup, opening at $74.77 and closing at $77.95.   This could have occurred for several reasons:  Nike’s forecasted 21% growth in the global football business, its share of 80% of a $5 billion industry with Adidas or because of the potential the game of soccer has in the United States.

On field success for Nike was expected, as it out-kit Adidas with 10 sponsored countries including host nation, Brazil.  Furthermore, 53% more players wore Nike boots than any other brand.  However, a series of unfortunate events on the pitch, like Neymar’s back injury, Ronaldo and Portugal’s lackluster performance and Brazil failing to make it to the final hampered Nike’s exposure as the World Cup waned.

Conclusion

Adidas was the much more visible brand during the 2014 World Cup. In competition, their teams triumphed and it seemed like all the individual awards were also given to Adidas athletes.  Beyond this, Adidas’ YouTube viewership during the World Cup eclipsed Nike’s by six million.

The future is bright for Nike, though.  The buzz around the World Cup and for the Men’s National Team in the United States was created because of Nike’s marketing.  The brand understands that while Adidas may hold a stronger foothold around the globe, it is in control of the largest consumer market in the world.  With Major League Soccer growing in popularity, Nike is primed to capitalize on soccer equipment, apparel and footwear in the US.  As far as I am concerned, Nike is well positioned to make a run at Adidas again in 2018.

Maxwell

Why Lululemon is The Perfect Buy For Nike

Lululemon is an athletic-wear brand with a primary focus on yoga apparel.  Having captured the attention of young women, Lulu has become quite popular across the globe.  Lulu has been apparent in my own life because of my active mother and because of the [unfortunate] leggings trend that has nestled its way into the hearts of seemingly every woman.  Lulu has been so successful because of the balance it has struck, making it’s clothing sensible and stylish while still maintaining it’s athletic roots.

Over the past year, however, Lulu has seen a slight fall from grace.  In 2013, the company was under fire due to a recall for a line of yoga pants that were too sheer.  In response, the founder of Lululemon Athletica, Chip Wilson, stated that customer’s fat thighs were to blame for the yoga pants being see-through.  As a result, Wilson relinquished his chairman’s seat and Lulu’s CEO, Christine Day, stepped down.  The company has since wilted.  Considering Lululemon’s status in pop-culture and their current lack of direction, it is primed for acquisition by none other than the world’s leading athletic-wear brand, Nike.

Nike is no stranger to acquiring other brands, as it owns Converse and skateboarding company, Hurley (Nike also purchased Cole Haan in 1998 for $95 million and sold it in 2012 for $570 million).  Right now, Lulu lacks a sense of direction.  New CEO, Laurent Potdevin, has filled the holes with empty remarks on reclaiming the company’s creative destruction in the market, but the truth is Lulu is floundering.  Through Nike’s experience in operations and marketing, it would be able to right this ship.  Lulu would gain access to some of the best manufacturing plants and Nike’s rebranding of the company would bring back the positive image it lost hold of.

Financially, this purchase would make sense as well.  Lululemon is a direct competitor of Nike.  Buying the company would give The Swoosh increased market control and better pricing power.  Moreover, Lulu is trading at a relatively inexpensive share price.  In 2013, before the company ran into turmoil, Lulu was trading as high as $82 per share.  If Nike attempted to buy the brand at this time, it would not have been feasible, as Lulu’s valuation would have been way too high.  Since the debacle, though, Lulu is trading around $44 per share, making their valuation much more affordable.

As bad as Lululemon’s situation may seem, their immediate value to Nike would be tremendous.  In terms of revenue, Lulu has gone from annual sales of about $453 million in 2010 to $1.6 billion for 2014.  This indicates that Lulu is still growing and that it is still relatively popular.  Lastly, while Nike does a fantastic job of marketing their clothes for both athletic an street-wear use, there are just certain styles that other clothing company’s manufacture or market more effectively.  For example, on campus I never see girls wearing Nike leggings, but I always see them rocking Lululemon’s, recall or not.  Its not that Nike’s yoga pants are poor quality, its that Lulu’s ability to be trendy and different has made their yoga pants more attractive.  Adding their product to Nike’s line would only make Nike that much more profitable.

Maxwell

J. Crew Going Public Once Again?

J. Crew, a brand that is one of Michelle Obama’s favorites, a brand that is defined by utility; contemporary style and an essence of preppiness has been rumored to be in talks with financial giants, such as Bank of America and Goldman Sachs, to refinance their debt and possibly become a publicly traded company, once again.  Just several years ago, J. Crew went private in a $3 billion deal with investment partners, TPG Capital and Leonard Green & Partners.  The reason being for such a departure from the trading floor was a decrease in sales.  During that year’s third quarter, net income had fallen by 14% due to weaker women’s clothing sales (J. Crew must certainly be grateful for our First Lady’s endorsement).  Moreover, stores that were open for at least one year saw their revenue fall by 1%.  In terms of the financial sector of the retail industry, J. Crew has been inconsistent; perhaps this is due to the constant shuffling of chairs in the New York based offices.

However, with the revitalization of J. Crew by CEO Millard Drexler and President Jenna Lyons, we are seeing an increase in sales and popularity.  Sales last year rose 9%, which was more than publicly traded brands, like Gap and Ralph Lauren.  I believe more time is necessary to see the true growth of J. Crew, but if it were to go public, the company would look to mirror the successes of similar brands that are ruling pop culture, such as Michael Kors (trading at $98) and Vince, a newcomer to the public market in 2013 seeing its stock rise 43% in its debut.

Further indicators of a public offering shall be debated with news surfacing about Japan based Fast Retailing Company’s Tadashi Yanai (chairman, president and CEO) wanting to acquire the J. Crew brand.  This would align Uniqlo, one of Japan’s largest clothing purveyors and one of my personal favorite shops, and J. Crew under one umbrella, making it an immediate giant in the fashion industry.  The $5 billion deal would enable the ambitious Yanai to attract more customers in the U.S. market to the rapidly expanding Uniqlo stores.  As J. Crew weighs the option of an IPO, stay tuned for more news on this potential acquisition.

As a prospective investor, pay attention to companies such as these, as their audience is global and quickly growing.  I’m certainly a novice when it comes to the financial sector, but I would suggest to invest in what you know.  Why would you financially concern yourself with corporations that you yourself are not personally involved with?  I love clothing.  J. Crew is a staple in my wardrobe and when I walk around my campus I can see its increased popularity.  If I were to invest in such a company, I wouldn’t just monitor its daily position in the market.  Since J. Crew is a part of my wardrobe, because I like to shop there and because the college style is very much catered to the J. Crew look, I would be able to observe my investment in a much more profound way.  Much like the clothing brands I mentioned above, J. Crew is a chic, urban brand while remaining relatively affordable for their followers.  I find this especially important for the college crowd, which is why J. Crew’s audience has room to expand.  Whether J. Crew is actually seeking to release an initial public offering remains to be seen.  The company may not even be a suitable long-term investment option, but for new, young investors and short-term stock options, J. Crew may be viable.

Maxwell

Lammily: Challenging the Perception of Beauty

Societies’ perception of beauty is completely based on a false reality that is perpetuated by television, the fashion industry, and even the dolls our children play with today.  The debate over this issue, this craze, has long been discussed; however, little has changed.  Each year we can count on watching “Angels” seductively walk down a runway which promotes borderline unhealthy physiques that women all across the world painstakingly try to achieve.  Every time we walk into a toy store we can count on seeing the iconic Barbie doll, an idealized, yet implausibly, shaped blonde figurine which millions of girls and boys have grown up with. Nickolay Lamm, creator of Lammily , has finally challenged these surreal desires.

Lamm, a Pittsburgh based artist and researcher, has begged the question: What if fashion dolls were made using standard human body proportions?  Provided by the CDC, Lamm has used the average body measurements of a nineteen year old women to generate a 3D digital prototype of a doll he hopes to produce.

Just two days ago, Lamm used Crowdtilt to garner crowd-sourced funding for his venture.  His target amount to cover the costs of manufacturing was $95,000.  Today, he has succeeded this goal by over $100,000 with twenty-nine days left in the first round of financing.

Lamm has been lauded for his previous work by Buzzfeed, Business Insider, Huffington Post, and many more news outlets.  The USA Today featured Lammily just yesterday.  Lamm’s ability to ask the unthought of questions and then visualize the answers in artistic renderings is the reason why Lammily is so innovative.  In our terms, Lamm is an entrepreneur.  A clear void in the fashion doll market was apparent and he has created a way to effectively exploit it.

I would also like to comment on his use of crowd-funding, a brilliant idea in my opinion.  Rather than trying to meet with investors to back his project, which we know can often lead to failure, he opened Lammily up to the public for support.  This suggests (A) his confidence and the market potential for the fashion doll, and (B) his understanding of the intended retail audience.  I do not think crowd-sourcing works for every entrepreneur, as it is necessary that your product receives the proper amount of attention for such a decision to pay off.  With that being said though, I believe this way of financing is an under-utilized option within the entrepreneurial community.

Nickolay Lamm and Lammily are prime examples of why entrepreneurs and innovation are integral parts of our society.  Lammily challenges a convention that, frankly, is unattainable while creating a new socially progressive alternative.  This is what pushes boundaries.  This is how new paradigms are created.  Congratulations on a wonderfully thought out product.

Maxwell

The College Budget: Tips to a Healthy Wallet

High school seniors (I, too, came down with the self-diagnosed ‘senioritis’) and you college freshmen who think you’ve got a grip on the whole college experience after several months of your new found freedom, keep reading.  This is the Young Economics guide to making sure you don’t break the bank (or mommy and daddy’s) buying booze for the lovely sorority ladies down the hall from your dorm room.

I go to The George Washington University, a city school, so its no secret that the temptations for me to spend money everyday on shopping at the local Nike store, eating at delicious restaurants, and traveling by cab  are all too real.  When I first arrived on campus, I gave in to these temptations.  I had a new found freedom, a fat wallet due to my summer job, and an irresistible impulse to walk just a few short blocks to one of America’s most luxurious shopping centers, Georgetown.  I controlled myself, a little bit, but if I knew what I know now, my urges would have definitely been tamed.  Trust me, I know how you college students in New York City feel, although I’m sure your wallet might be hurting a bit more than mine considering how expensive the costs of living are in the Concrete Jungle.  Like me, I bet you could’ve used some tips to help combat the lust of the city.

1. At the beginning of the year, suffer through it, ACCOUNT for all of your SPENDING BIG and SMALL.  After a couple of months, you’ll be able to know exactly how much you spend per month.  Also, depending on this and your level of discretionary income, you’ll be able to craft a budget and refine it as necessary.

2. If you feel as though you want/need more money, GET A JOB!  Other than making that one and only call home to mom and dad, this is honestly the fastest and most reliable way to acquire the cream.  I feel like people dread the process of actually finding a job, but in actuality colleges are creating much easier ways to help you find one.  Check your college’s career website, they most likely have a job postings tab.  If you received a Federal Work Study grant, all the less stressful and time consuming.  If both of these options are a no-go, ask around.  I’m sure the local coffee shops, restaurants or retail stores are hiring…they usually do at the beginning of the school year.

3. SIDE HUSTLING is a thing!  Find a way to make your childhood hobby into a money-maker.  I’ve seen people take their love of graphic design to designing posters for certain events and organizations around campus, I’ve heard of students offering to take other students’ trash out after late Friday and Saturday nights (you’ll know what I’m talking about), and I personally cut hair.  This was easily one of the best decisions I’ve made my first year here.  I charge $5 a cut (I’m not a professional, why charge like one?), I’m 50+ haircuts into the venture and it funded my Christmas purchases.

4. GET A CREDIT CARD.  This tip may seem unrealistic for folks, but its really not and it can help your prosperity ten-fold in the future.  Plenty of credit card companies offer special deals to new prospective students (if you received financial aid, you’re probably receiving mail from these companies now) and since you don’t have a credit score, it is quite easy to apply for one.  You may pay the bill each month or your lovely parents may take care of it, but discretion is a must.  You do not want to get carried away with your spending right off the bat.  Having a credit card and paying the bills ON TIME establishes a good credit score, so when you graduate and its time to buy a car or maybe even a house, your bank will be able to see you have a long standing history of paying off your debt in a timely fashion.

5. SAVE.  Maybe you don’t go out to eat tonight or maybe you choose to go shopping when your parents come to visit in the spring, decisions like these could be the difference between having $500 in your bank account or $1000.  Which would you rather have?

I understand, college is a time where you have all the freedom in the world and no responsibilities, but if you become disciplined with your finances now, you’ll be rewarded in the long-run.

Maxwell

WTF is a Bitcoin?

Over the past several months, following the discovery of Silk Road, I’ve been hearing a lot about Bitcoins, the online currency.  For those of you who don’t know what Silk Road is, long story short, an inconspicuous man named, Ross William Ulbricht, was arrested by the FBI in early October for allegedly running an illegal online marketplace which housed everything from hitmen to illegal drugs.  According to reports, the market place is responsible for over $28 million in consumer transactions, the catch though, its all anonymous.  If you are interested about this former underground cyber network, I encourage you to check out this synopsis by USA Today .

Having been a pretty obscure and widespread news story, I feel as though a lot of people, including myself, don’t exactly know what a Bitcoin is.  I did some research so I could make this digestible post for you all.

A Bitcoin is not physical currency.  It was created in 2009 by pseudonymous developer Satoshi Nakamoto, as an online and anonymous currency.  It is not monitored or controlled by any federal entities, like the US Federal Reserve or the Federal Deposit Insurance Corporation, which means money invested in Bitcoin is at risk of being lost pending any major crashes in the volatile market.

Since Bitcoins are only online, they are created, or found, through a process called “mining” in which computer users attempt to solve mathematical algorithms related to the current number of Bitcoins.  The actual number of Bitcoins to be in circulation is fixed.  The Bitcoin Foundation claims that there can only be 21 million Bitcoins at a time; in circulation right now are about 12.3 million.  Don’t take this post and run with this whole idea of mining for Bitcoins, though.  The process takes up a large amount of space on a computer and special programs are utilized to complete the mining.

Currently, Bitcoin is a legal monetary system. It is a viable alternative for some because of its privacy, much like cash, and because it is unregulated by the government, those cynics and independent ‘stick-it-to-the-man’ hipster types can truly be autonomous with their finances.

CoinYe
Kanye West inspired Bitcoin

Right now, Bitcoin is hot.  Just last month a new Bitcoin company created their form of crypto-currency around rapper, Kanye West, calling it CoinYe.  Unfortunately, due to an ensuing legal battle with the rapper, Coinye has abandoned their project.  As a young investor or as someone who is looking for a ‘get rich quick’ scheme, I can see the allure of Bitcoin.  According to BlockChain , the market for Bitcoins was soaring over $900 USD until it took a tumble to a little over $500 earlier this month.  These fluctuations are not unfamiliar in this market.  You can see on the graph how many spikes and dips occurred over the past couple of months.  For now, Bitcoin is a mysterious novelty that continues to grow in popularity and infamy each and everyday.  As a young and prospective investor myself, I am wary of its volatility.  Perhaps one day it can become a stable and consistently profitable market.

Maxwell