Sportswear giant NIKE Inc. (NYSE:NKE) is about to sign a deal to become official kit (aka uniform) provider of the English soccer team. According to a recent news by British tabloid Daily Mail, Nike has reached an agreement with English Football Association (The FA) to dress English soccer team, starting as early as next spring, replacing its own brand Umbro. 
If true, the move is expected to cement Nike’s positioning in the soccer market against arch rival Adidas (FRA:ADS), which currently leads the soccer market in terms of market share. However, the timing of the move, especially when Nike plans to sell Umbro by the end of this year, has raised questions over the essence of it.
- Nike Q4 2016 Earnings: Share Price Dips Despite A Strong Quarter
- Is the Nike Stock Price Driven By Current Earnings or Sentiment?
- What Percentage of Nike’s Stock Price Can Be Attributed To Growth?
- Here’s How Nike Is Innovating To Scale Up Its Manufacturing
- By What Percentage Did Nike’s Revenue & Gross Profits Grow In The Last 5 Years?
- What is Nike’s Fundamental Value Based On Expected 2016 Results?
Nike-Umbro story so far, and why the latest move is perplexing!
Nike acquired Manchester based Umbro in 2007 for $565 million in order to scale its growing business in the European soccer market.  The decision was based on the fact that Umbro has maintained close ties with English national soccer team for decades, alongside dressing up certain high profile clubs such as Manchester City F.C., the current champion of English premier league.
However, after five years, Umbro has failed to provide the returns of the scale as expected by Nike when it acquired the company. While Nike has launched several new businesses in between, and grown them into billion dollar entities, Umbro still had $224 million revenues in CY 2011. Nike’s management also seem to have understood the same, and in May came the announcement that Nike is planning to sell Umbro along with its casual footwear brand Cole Haan so as to focus on its core brands. The announcement to sell Umbro had come on the heels of another significant news, that Nike was replacing Umbro as the official kit sponsor of Manchester City F.C., starting from 2013-14 season. So, this in essence left Umbro’s partnership with English soccer team as the only important reason for any one to be interested in buying Umbro from Nike.
With the rumors of Nike replacing Umbro as the official kit provider for English soccer team, we believe Nike will have a tough time persuading potential buyers for Umbro, if these rumors turn out true. Not to forget, that this would also imply a significant loss in the net value of Umbro, in case the brand is bought. While one can still argue that Nike can make up the losses on one front with the gains from potential new deal with The FA, but that isn’t going to be easy either.
Umbro has had a long relationship with English soccer, with the company deep rooted among millions of English soccer fans. Additionally, replacing England based Umbro with Nike for the national team might even raise nationalistic issues among the soccer fans. Recently, another apparel retailer Ralph Lauren (NYSE:RL) drew a lot of criticism in the US after the company dressed US Olympics athletes with the uniforms made in China.Notes:
- Nike on the verge of signing deal to become official kit provider of English soccer team, Source: Daily Mail [↩]
- Nike acquires Umbro, Source: Nike’s IR [↩]