Adidas Could Benefit From Nike’s Innovation Lag, Analyst Says

Nike’s innovation issues might benefit other brands living in the shadow of the Swoosh.

In a Monday note to investors, Morgan Stanley analysts said that Adidas, which is only just starting to emerge from its own series of Yeezy-related challenges, could stand to benefit from Nike’s slowdown in the innovation department.

“We see scope for Adidas to opportunistically benefit from the current lull in Nike’s product innovation, as well as benefiting from a more rational pricing approach as Nike looks set to return to more of a scarcity model with key franchise products,” read the note from analysts, including Edouard Aubin and Grace Smalley.

In recent months, analysts and the Street have criticized Nike’s innovation pipeline as lackluster. In December, Nike announced a new round of layoffs in tandem with a plan to build a “multiyear cycle of innovation” to win over consumers, which in part included streamlining the distribution of some of its key franchises to drive more brand heat. Since then, Nike has touted new products like the Air Max DN, the Pegasus Premium and the Pegasus 41.

Just last week, Nike‘s chief executive officer John Donahoe blamed remote work for its innovation lag, though analysts highlighted other deep-rooted issues — like relying too heavily on best-sellers instead of creating new franchises, a broad loss of talent at the top and prioritizing financial goals over brand equity.

When it comes to Adidas, Morgan Stanley analysts noted “broad-based positive sentiment” around the brand’s product line-up in basketball, football and even in the competitive running category.

“With CEO Bjørn Gulden now in the seat for nearly 18 months, our checks point to improved positive sentiment across both Adidas’ performance and lifestyle product, supported by improved marketing and wholesale service levels, as well as an increasingly favourable market backdrop,” read the note. “We expect this combination to drive a meaningful top-line inflection from [the second half of 2024 and] onwards. We see this building top-line momentum as powerful, and now more than offsetting risks to the story.”

In March, Adidas says it performed better than it expected to in 2023, even with results that disappointed market analysts. In Q4, Adidas‘ sales fell 7.6 percent to 4.81 billion euros. For all of 2023, revenues dropped 4.8 percent to 21.43 billion euros. Gulden said at the time that the company was still recovering from the loss of its very profitable Yeezy line, though improvement was on the horizon.

“Despite losing a lot of Yeezy revenue and a very conservative sell-in strategy, we managed to have flat revenues,” Gulden said in a statement at the time. “We still have a lot of work to do, but I feel very confident we are on the right track. We will bring Adidas back again.”