Nike Rediscovers Advertising

The sneaker giant will boost ad spending to combat sagging sales.
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Marketing is driving sales at retail and apparel companies like never before.

Gap's

(GPS) - Get Report

catchy television commercials for khakis are credited with goosing sales. An advertising

blitz helped

Intimate Brands

(IBI)

lure 2 million potential shoppers to its

Victoria's Secret

Web site last Wednesday, the day of its annual fashion show.

The tie between advertising and sales is even more striking at

Nike

(NKE) - Get Report

, which has been a pioneer in building consumer demand with clever, compelling ad campaigns. In the year ended May 1998 -- one of the toughest in Nike's history as sales growth slowed to 4% and earnings dropped 40%, excluding a restructuring charge -- the company spent $314 million on advertising airtime.

In the current fiscal year, Nike is spending just $240 million on advertising airtime, says spokesman Lee Weinstein, who suggests that there's a potential link in the decline in ad spending and sales.

Even though the effect of advertising is notoriously difficult to measure, Nike isn't taking any chances. Even as it's cutting costs in other areas -- by consolidating 32 warehouses in Europe to a single facility in Belgium, for instance -- Nike considers marketing so vital that it's boosting ad spending. In the year ending in May 2000, it expects to spend $350 million on ad airtime, an all-time high, Weinstein says.

Nike executives discussed these and other issues Tuesday during an analyst meeting held in New York. The company also said it has begun selling sneakers, apparel and athletic equipment on the Internet at

Nike.com

.

Tuesday the stock closed at 50 3/4, just below its 52-week-high of 52 11/16 and a long way from its 52-week low of 31.

Faye Landes, an analyst with

Thomas Weisel Partners

who attended the Tuesday meeting, says Nike already is saving millions by dealing with fewer suppliers. Landes has yet to initiate coverage of Nike at Weisel, but she rated it a buy at her old firm,

Salomon Smith Barney

, which she

left yesterday. Weisel Partners hasn't done any underwriting for Nike.

Weinstein says centralized procurement will allow Nike to eliminate some of the 120 companies that supply it with everything from fabric to printing supplies.

Other areas targeted for cuts include selling, general and administrative expenses (mainly personnel), which should come in at $2.4 billion for the year ending in May, down from $2.6 billion last fiscal year.

It's odd to hear a company that happily paid sports stars millions to endorse products talk about cost-cutting, but owing to continued softness in the U.S. athletic-goods industry, Nike has been forced to count its pennies for the first time in years.

There are hints that the worst may be over. Nike said orders that retailers placed for shipment in June and July showed increases in all three of its major markets, the U.S., Asia-Pacific and Europe.

All told, the company expects to grow sales over the next three to five years by about 5% in the U.S., 10% in Europe and 15% to 20% in the Asia-Pacific region. While that suggests faster growth than Wall Street had been expecting, sales gains will still lag their breakneck pace of the early '90s.

"Nike is better than anyone at generating demand," Landes says. But the athletic industry "is still a bit of a zero-sum game."

Even so, a shot of advertising adrenaline may well boost Nike's stamina.

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