01:46:34

Ben Gilbert: On one end, there's making the absolute maximum margin. And on the other end, there's creating labor conditions that customers would totally be fine with if they learned every single little detail. And in the 90s, Nike chose to sit too far on maximizing the margin side of things, and they intentionally turned a blind eye to what was going on in the factories, and they were in the wrong, because it led to exploiting people.

01:46:56

David Rosenthal: One of the things that Nike folks were really surprised by at the time when the controversy came up is they were like, all the other shoe companies do it this way, all the clothing companies do it this way, why are we being picked on?

01:47:09

Ben Gilbert: Yeah, but Nike started it, and they're the biggest. But I think it's even more than that.

01:47:14

David Rosenthal: people had come to love Nike so much and the brand represented so much that it was like a huge betrayal. It was a disappointment. It was like, oh, I thought you were better than that. You are about inspiring greatness and this is not greatness. And I think that's really interesting that like, yeah, this was part of Nike from the beginning, but because of everything else that made Nike successful, It's super ironic that they didn't hold themselves to the high standard that the whole company was all about. And then their customers were like, yo, this doesn't compute.

01:47:52

Ben Gilbert: Yeah, they sort of discovered they couldn't have their cake and eat it too of saying, we are the brand that inspires you. Oh, but by the way, anytime there's an issue, oh, that's one of our suppliers problems. We simply don't make shoes.

02:52:53

David Rosenthal: That was the origin of plus.

02:52:56

Ben Gilbert: It was interesting because it was this little thing that you would put in the insole of certain shoes, and it would measure your stride length and all the metrics about running, and it would report it to your iPod because it had a little 30-pin connector thing you could put into your iPod. It was the most clunky, kludgy thing ever. But as that evolved into the FuelBand, and then as the FuelBand evolved into apps on your iPhone, Nike started really building a way to have a relationship with their customers directly and not just through their products, but with this sort of suite of services. And 2006 and then again in like 2013, 14, they had a sort of a new strategy start. is really these clear moments in time where the company changed its DNA. And I go all the way back to 2006 on the technology one. It also completely changed their acquisition strategy, because up until then, they had been acquiring brands. They bought Converse. They had bought Starter. Starter was going to kind of be their like Walmart brand. Oh, that's right. Cole Haan. Cole Haan. Yeah. And I think this sort of aha moment happened where they realized, actually, what we want to be doing is pouring everything into the flywheel of the Nike brand. So they divested a bunch of stuff, but they started acquiring capabilities from a bunch of these other companies to help them make this tech migration. It's like a two decade thing where they have these two different strategies that are happening at the same time. One is the digitization.

02:47:29

David Rosenthal: And that was so important. In the early days, like when Steve Prefontaine was on the cover of Sports Illustrated or some of the tennis players, it was like, there was a Nike line of, oh, we could spend X million dollars in advertising, but if we get our shoes on the cover of Sports Illustrated, that's worth $20 million. With ESPN and SportsCenter, those athletes and Michael Jordan being all over that 24-7 every night, that was $20 million a night of free advertising.

02:47:57

Ben Gilbert: That's a great point. So off the back of the rise of the Jordan brand, in 1988, they launched the Just Do It campaign with the very first, I think this is the first Wyden and Kennedy ad, right?

02:48:09

David Rosenthal: Second real big one. The first was the Revolution ad with the Beatles that they did for the Air Max.

02:48:14

Ben Gilbert: Okay.

02:48:14

David Rosenthal: Another Ticker Hatfield and Mark Parker joint.

02:48:17

Ben Gilbert: And so they're kind of finding their footing again. They're realizing that, okay, we can diversify outside of running. We can find a lot of places to sell the dream. We can make different products to monetize the dream, to let people participate. Their market cap hits a billion dollars at this point in 1988. So investors are starting to wake up to like, huh, they're building something really special here. They opened their first Nike town in Portland. The early 90s, late 80s, early 90s are just all good for Nike. I think by 91, their market cap hit 5 billion. By 96, their market cap hit 10 billion.

02:46:07

David Rosenthal: With all the operations and distribution and marketing of Nike.

02:46:12

Ben Gilbert: It is unfathomable. So he did active work for many years in order to build the brand equity, but he does passive work now to keep it alive. Of course, he has sort of input on who they're signing to the Jordan brands. He is sort of a vote in that. But in Michael staying out of trouble and Michael staying the dream, He builds a tremendous amount of brand equity, and Nike reaps 95% of that. So, like, they're perfectly happy with this arrangement. They're happy to cut him $300 million checks. I would be, too, if I was earning the other side of the $6.6 billion. But Jordan totally has had to shape his life in order to be the dream Michael and continue to be that. He is so synonymous with the brand that he has to be perfect to keep the brand doing what it's doing.

02:47:05

David Rosenthal: Yes. And that's the dark side for Michael. One more really critical thing I want to say about all this and Jordan and the building of the dream and the changing of culture, before we move on to all the rest of Nike history, which we will cover here. You can't ignore, too, again, the timing in this. All of this coincided with the rise of ESPN and SportsCenter. And that was so important. In the early days, like when Steve Prefontaine was on the cover of Sports Illustrated or some of the tennis players, it was like, there was a Nike line of, oh, we could spend X million dollars in advertising, but if we get our shoes on the cover of Sports Illustrated, that's worth $20 million.

02:54:17

Ben Gilbert: It's like a two decade thing where they have these two different strategies that are happening at the same time. One is the digitization. And to give you a stat on how impressive that is, across the four mobile apps that Nike operates today, they have 500 million users a quarter who are now using Nike digital apps from their e-commerce app to their running app. Run club, training club, sneakers. and the Nike mobile store. Huge user base, all sort of started at this moment in time where they realized, A, we should be in technology, and B, we should be making acquisitions not of other brands, but of technologies that we can integrate to help us extend our brand and participate more in the lives of our customers. The other thing, and this is a little bit later, this is more of the 2013-14 era, they pull the trigger on this big strategy shift away from what Phil Knight had sort of pioneered with the retail relationships to go direct. And Nike started to realize in this new era, this internet era, this global era where you have to be at scale to execute certain strategies, they're going to be the player at scale that can execute a direct strategy, that can operate Nike.com to sell shoes directly to customers, that can operate retail stores and all these different places to go directly to customers. They're not all the way there. And I think there's a lot of like, we'll talk in their sort of bare bull case about where they are in that transition and how successful it will be. But there is this tipping point where a brand becomes the scale player, like think about Disney in media, they've become the scale player, they can run a different playbook and go directly to customers in a way where other places that make content need to integrate with the existing distribution channels. Disney can make a 10, 15 year transition, especially with the right technology to go direct.

01:57:53

Ben Gilbert: They crossed a thousand employees, so it's going to be a real beefy organization.

01:57:57

David Rosenthal: Two other things. They bring one former NASA engineer and true mad scientist, Frank Rudy, into the fold, the inventor of AirSol technology.

01:58:14

Ben Gilbert: which Phil Knight is not a fan of when he hears about the idea.

01:58:17

David Rosenthal: Well, he thinks it's a crazy idea at first. Phil's meeting with Rudy. He's like, I don't even know how Rudy got into my office. Who is this crazy dude? He's about to kick him out, and then Rudy's like, yeah, Adidas didn't want it either. And Phil's like, oh, you said the A word. All right, let me try it. So supposedly, Phil goes for a run in the prototypes of the Air Soles, and he's like, yeah, actually, these are pretty great.

01:58:39

Ben Gilbert: And we should say, for anybody who doesn't know, everything that you hear of now, the Air Max, the Air Jordan, the Air Force One, it is a literal air bag. Actually, it's a nitrogen bag that sits in the midsole. So think about the thing between the lower sole, the rubber on the bottom, and inside of the insole, basically the part of the shoe that you can't get to, that's underneath your heel. and sometimes that runs all the way across, all the way up to the toe, that replaces foam cushioning instead using a little airbag that magically doesn't pop.

01:59:12

David Rosenthal: Yeah, I mean, Rudy really was a genius.

02:11:00

Ben Gilbert: Yes, at well over a billion dollars. And it's not like Nike fell out of favor in running, and it's not like people who were running stopped running, but Nike had ridden the running boom at this insane growth rate of running. And even if running continued, its growth rate was going to massively taper off and they were going to stop growing their market share. So, like, they really did need to look elsewhere. And I think it was pure hubris that blinded them from finding ending their next market.

02:11:27

David Rosenthal: So, Reebok, funny, originally a British company, started as Foster & Sons. They were the company that made the track shoes for the 1924 British Olympic team that was the basis for the movie Chariots of Fire. The Reebok we all know, well, not today, but back then, is a completely different animal. It's a marketing driven company started by a guy named Paul Fireman who is American and pretty quickly they developed a business plan to cash in on the aerobics fad and they made a shoe that in Nike's principled opinion sucked But it went really great with leg warmers. You know, it was all white. It had soft leather that wrinkled. It looked good. Women loved it. It was everything that Nike was not. And their rise, like you said, Ben, was even steeper and faster than Nike's. Ironically, Reebok would end up much later getting acquired by Adidas and then spun back out to private equity recently.

02:12:24

Ben Gilbert: Wow. So financially, they're sitting pretty pretty.

03:24:35

Ben Gilbert: Footwear is almost 3x the apparel business on a revenue basis. So at least by revenue, footwear is still their bread and butter. And in part, it's just selling sneakers to people that go wear sneakers every day and wear them out once or twice a year, then need to go buy some more sneakers. And that's like most people in the world. It's a pretty incredible market that they now get to address, you know, $150 billion athletic footwear markets. Crazy. when you look at this pretty interesting thing that they list, which is their wholesale equivalent revenue breakdown, which is basically saying, yeah, we sell some of this direct, but we want to put apples to apples and make these unit sales sort of adjusted as if they were all sold through our wholesale channel. Men's is 51%, women's is 21%, kids is 12%, and the Jordan brand broken out separately, like all of this excludes Jordan. The Jordan brand is the $6.6 billion business that makes up the other 16% of that pie chart. Holy God. Yeah. Men's inclusive of Jordan, if you just assume Jordan is three quarters men, that means that they're selling 64% of their product to men. So remember when I said at IPO they sell sneakers to men? It's like kind of the same business as it was, but a super different business than it was at the same time. Yes. In some sports specifically, like just to dive into one example, they have a near monopoly in basketball shoes. Nike and the Air Jordan brand's share of performance basketball was 86%. And the stats a few years old, it was right before the pandemic. But the dominance was even more prevalent in the lifestyle basketball category where they have 96% share.

02:55:47

Ben Gilbert: But there is this tipping point where a brand becomes the scale player, like think about Disney in media, they've become the scale player, they can run a different playbook and go directly to customers in a way where other places that make content need to integrate with the existing distribution channels. Disney can make a 10, 15 year transition, especially with the right technology to go direct. Nike's basically betting that they're also one of these hero brands that can run that playbook.

02:56:16

David Rosenthal: For context, today, Nike is, what, more than twice the size of Adidas, who is more than three times, I think, the size of the number three player, which is Skechers, maybe?

02:56:27

Ben Gilbert: Yep, it's super power law distributed.

02:56:29

David Rosenthal: The other aspect of that is personalization. Nike, I actually think, is really at the forefront of apparel personalization with what started as Nike ID and now is, I think, called Nike by Me. But anybody can make their own Nike shoes. in their own colors with their own designs on them, to be able to do that at scale with their customer base and produce the standard lines, that requires a level of scale economies that nobody else can really match.

02:57:00

Ben Gilbert: Okay, so that's like the 2014 era where they really start to execute this digital and direct migration. Around this time, you have this very old idea of sneaker heads starting to take root in a big way, this huge growth category where the secondary market for shoes, in most situations, you would think like used shoes are worthless. And like I'm being tongue in cheek here because most, you know, secondary market shoes are not used.

02:57:28

David Rosenthal: Well, until recently, Any mainstream person would have said, of course, to that statement.

02:57:34

Ben Gilbert: Right.

01:31:44

David Rosenthal: And Outback is up in the mountains. Like, they didn't have real trash service, so they threw the trash in like a garbage pile in the back and they're doing some renovations of the house or something somehow they discover out in the trash heap the glued shut waffle iron and it is in Nike's possession to this day. That is awesome. Isn't that awesome? So where of course this is leading is the waffle trainer which is another one of Bowerman's genius inventions and becomes the first big hit shoe for the new Nike brand. He would eventually after gluing the first waffle iron shut then create a mold out of plaster in the waffle iron pour polyurethane into that and then make the waffle soles for the shoes they work incredibly well on artificial surfaces not just tracks but also astroturf which is becoming a thing at this point in time so the university of oregon football team wears them that year on their new astroturf field It's like a huge thing. They beat Oregon State wearing their waffle trainers. This is incredible publicity for Nike.

01:32:56

Ben Gilbert: And I think the waffle trainer is starting to be worn outside of track situations. Like, this is the first hint of a lifestyle sneaker. Yes.

01:33:06

David Rosenthal: I forget what the first colorway that they do it in is.

01:33:09

Ben Gilbert: Look at you, you sneakerhead over there. Colorway. Yeah, colorway.

01:33:14

David Rosenthal: Eventually, I think it's Phil who's like, oh, we should do this in a blue that'll go well with blue jeans.

02:09:30

Ben Gilbert: But like the whole company, there was a lot of hubris going on. They're on top. We own the running shoe market. We've been in this magical secular growing trend forever. And it's just surely going to continue. Right. And the fitness boom continues. But running is not exactly the thing that keeps carrying. I mean, they have 50 percent market share in running shoes at this point in America. And yet their growth in the future is going to be dictated by where they go from there, because it's really hard to have more than, you know, 50 percent market share in an industry like this.

02:10:05

David Rosenthal: Early Nike did so many things right, but they made one critical mistake. They mistook the running and the jogging boom for the broader fitness boom. The broader fitness boom was a massive secular trend that continues through to this day. The running boom was a cyclical trend that was part of the fad-driven fitness cycle. And by the early 80s, as we're heading into everything that the 80s was and that the 70s were not, Running and jogging is out and aerobics are in and Nike absolutely refused to see that and refused to do aerobics like on principle.

02:10:50

Ben Gilbert: It's fascinating. I mean in 1980, Reebok USA is founded and by 1988, Reebok eclipses Nike in sales. Yes, at well over a billion dollars. And it's not like Nike fell out of favor in running, and it's not like people who were running stopped running, but Nike had ridden the running boom at this insane growth rate of running.

03:15:53

Ben Gilbert: What the entity is is a brand because they don't make sneakers, which we'll talk about in a second here. They don't seem to charge more than their competitors. I'm literally looking at Adidas gross profit margins are on average higher than Nike's. Nike's current rolling last four quarter gross profit margin is 44%. Adidas is 46% and Adidas every single quarter for the last 10 years. has had a higher gross margin. What is going on here? Why isn't Nike, with a better brand than anyone else in their space and one of the hero brands in the entire world, they don't seem to be getting a special Nike markup?

03:16:31

David Rosenthal: This is again, and this is purely conjecture, I do think this is an intentional decision on Nike's part. I think they absolutely could sell 500, 1,000, 5,000, $10,000 Nike items. They absolutely could. And they choose not to, I think because if they did that, Well, one thing we didn't talk about. So Nike announced a few years ago that their whole marketing strategy was going to be reoriented around, I think, 12 cities in the world. And they were going to focus everything they did from a marketing standpoint on thinking about what it would mean to be interesting in those cities. So what's behind that? And the cities are like New York, Los Angeles, Tokyo, Shanghai, Rio, Paris, etc. And I think what's behind that is Nike needs to be accessible to the tastemakers in those cities. And that doesn't mean wealthy people. That means people on the streets.

02:46:07

David Rosenthal: With all the operations and distribution and marketing of Nike.

02:46:12

Ben Gilbert: It is unfathomable. So he did active work for many years in order to build the brand equity, but he does passive work now to keep it alive. Of course, he has sort of input on who they're signing to the Jordan brands. He is sort of a vote in that. But in Michael staying out of trouble and Michael staying the dream, He builds a tremendous amount of brand equity, and Nike reaps 95% of that. So, like, they're perfectly happy with this arrangement. They're happy to cut him $300 million checks. I would be, too, if I was earning the other side of the $6.6 billion. But Jordan totally has had to shape his life in order to be the dream Michael and continue to be that. He is so synonymous with the brand that he has to be perfect to keep the brand doing what it's doing.

02:47:05

David Rosenthal: Yes. And that's the dark side for Michael. One more really critical thing I want to say about all this and Jordan and the building of the dream and the changing of culture, before we move on to all the rest of Nike history, which we will cover here. You can't ignore, too, again, the timing in this. All of this coincided with the rise of ESPN and SportsCenter. And that was so important. In the early days, like when Steve Prefontaine was on the cover of Sports Illustrated or some of the tennis players, it was like, there was a Nike line of, oh, we could spend X million dollars in advertising, but if we get our shoes on the cover of Sports Illustrated, that's worth $20 million.

02:40:47

David Rosenthal: Phil hands the meeting over to Tinker, and he's like, Michael, I took notes on our conversation. Here is the Jordan 3. And he pulls the shroud off and hands the shoe to Jordan. And he's like, it's the shoe you asked for. He goes right down the checklist. Soft leather that doesn't need to be broken in. You can wear a new pair in every single game. Mid-cut height. Not a high top, not a low top. The support you need without the weight of a high top. elephant print leather for style off the court that won't detract from performance on the court. And then, the pièce de résistance, no swoosh. There's a little swoosh on the back tab. The main logo is the Jordan Jumpman logo on the tongue. The Jumpman logo did exist beforehand. Peter Moore had actually designed it. But it was never in the prime position. It was always the swoosh, and then the Jumpman.

02:41:46

Ben Gilbert: It's, like, heretical at Nike at this point, to not have the swoosh be the main character. But Michael Jordan didn't really want to be at Nike, so the only way to keep him is to kind of hide the swoosh.

02:41:56

David Rosenthal: It's kind of like hearkening back to the beginning of, like, Phil Knight could have had 100% of Blue Ribbon Sports, or he could have had 51% of Bill Bowerman's Blue Ribbon Sports.

01:46:34

Ben Gilbert: On one end, there's making the absolute maximum margin. And on the other end, there's creating labor conditions that customers would totally be fine with if they learned every single little detail. And in the 90s, Nike chose to sit too far on maximizing the margin side of things, and they intentionally turned a blind eye to what was going on in the factories, and they were in the wrong, because it led to exploiting people.

01:46:56

David Rosenthal: One of the things that Nike folks were really surprised by at the time when the controversy came up is they were like, all the other shoe companies do it this way, all the clothing companies do it this way, why are we being picked on?

01:47:09

Ben Gilbert: Yeah, but Nike started it, and they're the biggest. But I think it's even more than that.

01:47:14

David Rosenthal: people had come to love Nike so much and the brand represented so much that it was like a huge betrayal. It was a disappointment. It was like, oh, I thought you were better than that. You are about inspiring greatness and this is not greatness. And I think that's really interesting that like, yeah, this was part of Nike from the beginning, but because of everything else that made Nike successful, It's super ironic that they didn't hold themselves to the high standard that the whole company was all about. And then their customers were like, yo, this doesn't compute.

01:47:52

Ben Gilbert: Yeah, they sort of discovered they couldn't have their cake and eat it too of saying, we are the brand that inspires you. Oh, but by the way, anytime there's an issue, oh, that's one of our suppliers problems. We simply don't make shoes.

02:47:29

David Rosenthal: And that was so important. In the early days, like when Steve Prefontaine was on the cover of Sports Illustrated or some of the tennis players, it was like, there was a Nike line of, oh, we could spend X million dollars in advertising, but if we get our shoes on the cover of Sports Illustrated, that's worth $20 million. With ESPN and SportsCenter, those athletes and Michael Jordan being all over that 24-7 every night, that was $20 million a night of free advertising.

02:47:57

Ben Gilbert: That's a great point. So off the back of the rise of the Jordan brand, in 1988, they launched the Just Do It campaign with the very first, I think this is the first Wyden and Kennedy ad, right?

02:48:09

David Rosenthal: Second real big one. The first was the Revolution ad with the Beatles that they did for the Air Max.

02:48:14

Ben Gilbert: Okay.

02:48:14

David Rosenthal: Another Ticker Hatfield and Mark Parker joint.

02:48:17

Ben Gilbert: And so they're kind of finding their footing again. They're realizing that, okay, we can diversify outside of running. We can find a lot of places to sell the dream. We can make different products to monetize the dream, to let people participate. Their market cap hits a billion dollars at this point in 1988. So investors are starting to wake up to like, huh, they're building something really special here. They opened their first Nike town in Portland. The early 90s, late 80s, early 90s are just all good for Nike. I think by 91, their market cap hit 5 billion. By 96, their market cap hit 10 billion.

01:38:30

David Rosenthal: This is the perfect encapsulation. I'm going to foreshadow just a little bit here of the later number three in the later Nike document of the 10 principles of Nike that we will talk about in a bit. Number three is so great. Perfect results count, not a perfect process. Break the rules, fight the law. That's exactly what Phil and Nike are doing here. Yep, you bet. So that's on the sort of proto-marketing front that this early Nike playbook is getting going. You know, $5,000 for the best publicity you could possibly ever get.

01:39:07

Ben Gilbert: It's Phil Knight basically inventing sports marketing. I mean, there was a sort of nascent idea of athlete sponsorship at the time, but it really, this is the invention of it as we know it today. And all athletic brands are defined by athletes, and this is really the first instance.

01:39:22

David Rosenthal: Yes, that's part one of just the brilliant kind of restart up of the Nike startup playbook that Phil puts together here. Part two, equally brilliant and innovative. He comes up with an idea for what he calls the Futures Program. So, the way retailing worked back then, and Nike had their own stores always, but they also sold through retailers, of course. The retailers would place orders with Nike to buy the shoes, and then they would resell them at retail, and then they would pay after they got the inventory. This is how retail works. This is like the law of the land. Not the official law, but the way it all works.

00:46:41

David Rosenthal: But like you were saying a minute ago, Ben, his real motivation is he wants R&D access. He wants to be able to make shoes. And in 1967, ahead of the 1968 Mexico City Olympics, he comes up with a new idea for an entirely new type of shoe, one that he probably can't really manufacture on his own, but now he has this relationship with Tiger, with Onitsuka, and his idea is that rather than leather on the upper parts of these track shoes, what if we instead use a breathable material like nylon so that my runner's feet aren't sweating throughout the whole race? On the one hand, I guess nobody likes sweaty feet. On the other hand, if your feet sweat a lot in leather shoes over the course of several miles, well, they're going to get heavier and weighed down. And so maybe this might help the shoes stay lighter. And Bowerman is obsessed with lightweight in his shoes. So Onitsuka is very receptive to this. They think, great, we love this. We'll make the shoe. We can do that. We can source the nylon. We'll make the shoe. So Bowerman and Phil get together. They're like, this is amazing. We're going to have our own model, you know, that we've designed, that Bowerman's designed.

00:47:57

Ben Gilbert: Which you should already start to get a little bit nervous here because it's like, well, okay, who? Who owns this shoe?

00:48:02

David Rosenthal: Exactly.

03:47:27

Ben Gilbert: No, we don't know what to celebrate about him and so I don't think they had too much foresight knew exactly what was gonna happen, but I Think they've clarified their strategy that they're athlete focused and for anyone who hasn't been paying attention He blew up Adidas' year. Adidas' net income has basically evaporated and gone to zero. They used to make over $2 billion a year in profit, and the last four quarters, on a rolling basis, they've made less than $100 million. So $2 billion down to $100 million. And they claim around 500 million dollars of this is the Yeezy write down. They posted an actual net loss last quarter. It is a pretty disastrous situation over there. And there's a full out slide in their deck where they admit we think we're better than this and we're not. Oh, I didn't realize it was that bad. It's bad. It's really bad. They're in a complete reset year.

03:48:21

David Rosenthal: When I think maybe part of this, what has happened is Nike can participate in getting their billboards in these other aspects of popular culture, music being the biggest example of it, without having to have rappers be sponsors, because how much Nike placement is there in music? A ton. How many songs are there about Michael Jordan to this day? Or LeBron, or Zion, or Ja Morant, or what have you?

03:48:55

Ben Gilbert: Yeah. There's a lot of different ways to play it, and Nike seems to have played the chessboard quite intelligently. Quite intelligently, yeah.

02:54:17

Ben Gilbert: It's like a two decade thing where they have these two different strategies that are happening at the same time. One is the digitization. And to give you a stat on how impressive that is, across the four mobile apps that Nike operates today, they have 500 million users a quarter who are now using Nike digital apps from their e-commerce app to their running app. Run club, training club, sneakers. and the Nike mobile store. Huge user base, all sort of started at this moment in time where they realized, A, we should be in technology, and B, we should be making acquisitions not of other brands, but of technologies that we can integrate to help us extend our brand and participate more in the lives of our customers. The other thing, and this is a little bit later, this is more of the 2013-14 era, they pull the trigger on this big strategy shift away from what Phil Knight had sort of pioneered with the retail relationships to go direct. And Nike started to realize in this new era, this internet era, this global era where you have to be at scale to execute certain strategies, they're going to be the player at scale that can execute a direct strategy, that can operate Nike.com to sell shoes directly to customers, that can operate retail stores and all these different places to go directly to customers. They're not all the way there. And I think there's a lot of like, we'll talk in their sort of bare bull case about where they are in that transition and how successful it will be. But there is this tipping point where a brand becomes the scale player, like think about Disney in media, they've become the scale player, they can run a different playbook and go directly to customers in a way where other places that make content need to integrate with the existing distribution channels. Disney can make a 10, 15 year transition, especially with the right technology to go direct.

02:11:00

Ben Gilbert: Yes, at well over a billion dollars. And it's not like Nike fell out of favor in running, and it's not like people who were running stopped running, but Nike had ridden the running boom at this insane growth rate of running. And even if running continued, its growth rate was going to massively taper off and they were going to stop growing their market share. So, like, they really did need to look elsewhere. And I think it was pure hubris that blinded them from finding ending their next market.

02:11:27

David Rosenthal: So, Reebok, funny, originally a British company, started as Foster & Sons. They were the company that made the track shoes for the 1924 British Olympic team that was the basis for the movie Chariots of Fire. The Reebok we all know, well, not today, but back then, is a completely different animal. It's a marketing driven company started by a guy named Paul Fireman who is American and pretty quickly they developed a business plan to cash in on the aerobics fad and they made a shoe that in Nike's principled opinion sucked But it went really great with leg warmers. You know, it was all white. It had soft leather that wrinkled. It looked good. Women loved it. It was everything that Nike was not. And their rise, like you said, Ben, was even steeper and faster than Nike's. Ironically, Reebok would end up much later getting acquired by Adidas and then spun back out to private equity recently.

02:12:24

Ben Gilbert: Wow. So financially, they're sitting pretty pretty.

03:24:35

Ben Gilbert: Footwear is almost 3x the apparel business on a revenue basis. So at least by revenue, footwear is still their bread and butter. And in part, it's just selling sneakers to people that go wear sneakers every day and wear them out once or twice a year, then need to go buy some more sneakers. And that's like most people in the world. It's a pretty incredible market that they now get to address, you know, $150 billion athletic footwear markets. Crazy. when you look at this pretty interesting thing that they list, which is their wholesale equivalent revenue breakdown, which is basically saying, yeah, we sell some of this direct, but we want to put apples to apples and make these unit sales sort of adjusted as if they were all sold through our wholesale channel. Men's is 51%, women's is 21%, kids is 12%, and the Jordan brand broken out separately, like all of this excludes Jordan. The Jordan brand is the $6.6 billion business that makes up the other 16% of that pie chart. Holy God. Yeah. Men's inclusive of Jordan, if you just assume Jordan is three quarters men, that means that they're selling 64% of their product to men. So remember when I said at IPO they sell sneakers to men? It's like kind of the same business as it was, but a super different business than it was at the same time. Yes. In some sports specifically, like just to dive into one example, they have a near monopoly in basketball shoes. Nike and the Air Jordan brand's share of performance basketball was 86%. And the stats a few years old, it was right before the pandemic. But the dominance was even more prevalent in the lifestyle basketball category where they have 96% share.