Industry Expert: Abandoning The Scarcity Model Has Hurt Nike

As markets continue toward all-time highs, Nike Inc NKE has registered just a 2-percent gain on the year.

Despite turning in a first-quarter earnings beat amid low expectations, Nike had its slowest revenue growth in six years. The earnings beat failed to move the needle, and one industry expert predicts challenging times ahead for the world’s biggest sportswear company.

“Nike’s U.S. business will be challenged again next quarter. Analysts expectations could be worse next quarter than last quarter and they still have a lot more to do in the U.S.,” NPD’s sports industry analyst Matt Powell told Benzinga.

Nike’s weakness is hurting its biggest retail partners badly, prompting potential merger activity in the retail footwear space to stop the bleeding.

“Nike needs to get well. The biggest issues are that the retailers have a significant reliance on the brand,” said Powell.

Related Link: Here's Why Nike Has 'Lost A Bit Of Its Magic'

It gets worse for Nike, as they have been embroiled in one of the biggest sports scandals this decade.

A key reason for Nike’s downfall is that the company’s given up its unrequited demand strategy in favor of short-term profits. This house of cards is starting to collapse, leaving too much product in the marketplace, prompting heavy discounting and tarnishing brand reputation — albeit perhaps only temporarily.

The Scarcity Model, Explored

In the sneaker community, the quicker a shoe sells out, the cooler it is deemed. Nike isn't benefitting from the quick sellouts that competitor adidas AG (ADR) ADDYY is seeing.

“There is collateral damage in abandoning the scarcity model. Tangential styles that served as a substitute for sold out release product have also slowed,” said Powell.

Abandoning the scarcity model is a key reason why Adidas passed up Jordan as the No. 2 sneaker brand in the U.S.

Previously hard to obtain retro Jordan shoes are now widely available, hurting the brand. Consequently, the Jordan models consumers had to settle for when they couldn’t get their hands on the once-rare retro models are not selling like they used to.

Nike must get back to the basics if it wants to get back in Wall Street and consumers' good graces.