Air Jordans Land with a Thud


Nike's (NKE) Air Jordans are usually the top-seller in the basketball sneaker market. But the 17th edition of Michael's shoe, released in February at a price of $200 per pair, hasn't met many dealers' expectations. "This shoe has definitely disappointed both retailers and the company," says John Shanley, an analyst with Wells Fargo bank.

A BusinessWeek Online survey of retailers around the country -- including a half-dozen Foot Locker outlets -- indicates inventories of the new shoe remain high and that it hasn't sold well compared with prior Jordan releases. According to SportScan Info, a West Palm Beach (Fla.) outfit that tracks sporting-goods sales, the shoe is Nike's No. 1 seller year-to-date in terms of sales dollars, as it almost always has been after a new release. But the $200 price tag makes that figure misleading: In unit volume, the Jordan XVII ranks 18th among Nike's product lineup, much lower than past versions, analysts say. "The Jordan XVII has sold poorly," says John Horan, publisher of the trade publication Sporting Goods Intelligence.

Could the slow sales be an early sign that Michael Jordan's popularity with young sneaker buyers has finally peaked? The Air Jordan label thrived during the superstar's earlier retirements and comeback. But Jordan's second NBA comeback hasn't been all that stirring. And, at 39 and plagued by injuries, Jordan may have reached the end of his playing days. Meanwhile, shoes named for the next generation of stars, including Tracy McGrady of the Orlando Magic and Allen Iverson of the Philadelphia 76ers, are selling at a faster clip.

SMART KIDS. But the real reason for the lackluster sales is probably price. At $200, the XVII is the most expensive sneaker ever -- a full 25% more than the previously highest-priced Nike shoe. The company may simply have pushed the price too high on a shoe with a design that hasn't captivated many young, male basketball fans. Nike and its retailers don't release sales figures for specific shoes, but in past years hot Air Jordan releases have sparked buying frenzies nationwide. Stores quickly sold out and spot markets for the shoes emerged overnight on eBay, where they sold for 50% to 100% above retail.

Not so with the Jordan XVII. "Kids know when they're being taken advantage of," Shanley says. Even with a padded metallic carrying case and a CD-ROM that explains the design, the space-age white-and-black Jordan XVIIs haven't generated the same buzz as many previous models in the series. Sneaker World, a local retailer outside of Philadelphia, found it couldn't sell the shoes at $200, so the store put them now on sale for $150, reducing its gross margins by about half. "It was a bomb," says the store's owner, who asked not to be named. "The design was O.K., but the price tag was a problem."

Meanwhile, shoe dealers such as InStyleShoes.com of Key Largo, Fla., have moved their stock only after cutting the price by as much as 40%, virtually eliminating the profit margin. "The Jordan XVII did worse than any other recent Jordan release," says Steve Mullholand, who runs InStyleShoes. In fact, while the shoe's average sale price was $192 in the first week after its launch, it had dropped to $140 by the end of April, according to SportScan.

NIKE STAPLE. While Air Jordan remains a hip brand, midprice sneakers in the $75 to $90 range are the hot market right now, according to both Nike and rival Reebok (RBK). Other, less-expensive Nike and Air Jordan sneakers are selling well. And while Nike says it's pleased with sales of the Jordan XVII, the company also indicates its next Jordan shoe probably won't retail for $200.

"Nike has had success selling basketball sneakers as high as $160, but $200 may be too high," says Ernest Kim, who reviews sneaker performance and design on his Kicksology.com Web site. Nike recently hired a new director of footwear design, and says it is committed to the Air Jordan brand for years to come.

The Air Jordan label doesn't have a major impact on Nike's profits: It accounts for about $300 million in annual sales, or less than 4% of total revenues. Indeed, Nike's financial performance for the quarter ended Feb. 28 was stronger than that of rivals. Revenues were up 4% from a year ago, to $2.3 billion, while net profits jumped 31%, to $126 million, or 46 cents a share. Nike's stock is doing well, too, closing at $55 on May 2, up 42% from the 52-week low of $38.25 in May, 2001.

OLD IS NEW AGAIN. Still, soft demand is very unusual for Air Jordans. Since the mid-1980s, the Jordan label has polished Nike's valuable brand more than any other product line. Vintage Air Jordans from the star's first few years in the NBA sometimes command thousands of dollars per pair from dealers and collectors. In fact, a lucrative niche for Nike has been reissuing Air Jordan models from previous years, which sell briskly.

So, it's far from certain that Michael Jordan's star is starting to wane. More likely, this is a case of Nike getting too ambitious in pricing Air Jordans, perhaps because prior editions have sold so well. Look for future Air Jordans to fly high -- even if their namesake hangs up his shoes for the final time -- but not at the sky-high price of $200. By David Shook in New York


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