Adidas vs Nike: A Case of Divergence
A Sudden Fall
By November 2021, both Adidas and Nike saw significant declines in their stock prices, with each company facing a correction of around 50%. However, a divergence quickly became apparent, with Nike starting to recover while Adidas continued to fall. By September 2022, Adidas had experienced a 72% drop from its peak.
Kanye West Sparks the Break
This decline coincided with a pivotal moment in the history of Adidas, sparked by Kanye West's controversial actions. In an interview with Bloomberg, West declared his intention to part ways with Adidas and take control of Yeezy independently, stating, "No more companies standing in between me and the audience." The catalyst was not a personal decision by Adidas, but rather West's controversial anti-Semitic remarks, illustrating the risks tied to high-profile partnerships.
The Risk Behind the Fame
Both Adidas and Nike's marketing strategies rely heavily on collaborations with prominent athletes, designers, and influencers, shaping their global presence. These partnerships drive brand loyalty and recognition, but they also expose the companies to the risk of sudden and unpredictable fallout.
The Adidas–West situation highlights how such relationships can quickly backfire and result in reputational damage and financial losses. While Nike was not directly impacted by West's actions, it too faced exposure to this kind of risk.
Convergence Over Time
Despite the initial shockwaves caused by the West debacle, both companies ultimately faced similar challenges. In industries of this size, companies with parallel strategies tend to see their performance converge over time.
While Adidas faced a dramatic fall, its strong recovery since September 2022—rising 113% by April 2024—demonstrates the market’s focus on long-term performance and resilience. In contrast, Nike remained relatively flat with a modest 1% gain.
A Long-Short Strategy
The broader takeaway for investors is that companies in the same sector, particularly those of this scale, will inevitably converge in performance, especially when they share similar business models and face comparable risks.
Adidas took the risk of partnering with Kanye West, but Nike was also exposed to that risk. The anti-Semitic remarks made by West triggered Adidas to sever ties, yet the vulnerability was shared.
Despite the setback, Adidas has demonstrated resilience and recovered, while Nike's performance remained stagnant. This shows that in the long run, companies with similar strategies and facing the same risks tend to align, as investors focus on long-term growth.
A Long-Short strategy thus presents an excellent opportunity to capitalize on the divergence between Adidas and Nike.