Since I heard about Nike's deal to acquire Converse this past Wednesday I've been thinking about why (don't ask me why I spend time thinking about these things, I just do)?
At first my biggest question was why now as, even though Nike is paying a fire sale price for Converse, they almost certainly could have paid even less a couple of years ago. My guess as to why they didn't do it then is that Nike didn't think, at the time, that the soft market for shoes would continue for as long as it has (the average selling price of athletic shoes has actually dropped over the past couple of years). They may have also thought that the "lifestyle/retro" fad would have faded away by now. As for why now, it was almost certainly because Converse was planning to go IPO later this year. As a public company, Converse would have been a much more complicated and much more expensive acquisition.
One of the most popular justifications for the acquisition I've heard propounded by financial analysts is that Nike acquired Converse to shore up their "lifestyle/retro" offering, which is definitely a good rationale given Converse's street cred. But my own opinion is that it has as much if not more to do with Nike wanting to compete more effectively at the low-end of the price spectrum -- particularly in the hoops space, which is the single most important category in athletic footwear.
Over the past couple of years competitors like AND 1, New Balance, and, to a certain extent, adidas, have been slowly eating away at Nike's market share by offering aggressively priced products (meaning products in the $50 - $75 range) that provided decent performance. Nike has always offered at least a few items at those price points, but it's not where they want to be and, given the marketing costs of the company, it's not where they can afford to be.
Aggressively moving that far downmarket would also have a negative impact on the high-tech, high-performance, high-end brand image that the company has spent so much time and money cultivating over the past few decades.
Enter Converse, which lives at the lower end of the price spectrum (the most expensive hoops shoe they currently offer is $70) and has for a good while. Nike could use the Converse brand to wage a battle of attrition against companies attempting to compete and establish an identity based largely on price performance (i.e. AND 1, DaDa, Avia) while keeping the Nike brand clear of the fray.
If this is indeed what they have planned I'd say that the company most immediately in jeopardy is AND 1. I say that because they're a company that's sort of stuck in the middle at the moment. They established themselves on price, but have been pushing upmarket for the past few years and now have a roster of NBA endorsers they need to pay for (in addition to the whole streetball tour). That leaves them in a precarious position, vulnerable to a squeeze by Nike from above and by Converse from below. Companies like adidas, Reebok, and New Balance have enough money, enough of a following, and are diversified enough to weather pretty much any storm, but the smaller outfits like AND 1, DaDa, and Avia may soon find themselves in rough waters. For AND 1 in particular, this next year and a half could very well make or break the company. They have some hot products coming down the pike, but will it be enough?
What do you think? Was it a pure "lifestyle" play, or was it more about acquiring a "budget" brand, or was it something else entirely? Do you care and does the Nike acquisition make you more or less likely to buy a Converse shoe?
