As a result of the sportswear giant cutting NIke its annual sales prediction and sending shares plunging 11%, according to analysts, Nike is beginning to lose market share to upstart shoe labels like On and Hoka and will need to invest in more fashionable models.

The creator of the Air Jordan 1 sneaker mostly attributed the negative outlook on Thursday to cautious consumer spending and unveiled a $2 billion cost-cutting plan, indicating a change in policy to prioritise profitability above sales growth.

While shares of Lululemon and Under Armour dropped by roughly 1% and 4%, respectively, European competitors Adidas and Puma closed 5% and 7% lower.

“Nike needs increased and improved marketing investments while HOKA, On and Lululemon are scaling further with increased customer acquisition and retention,” TD Cowen analysts said after downgrading the stock to “market perform” from “outperform”.

In addition, Nike stated that it will spend between $400 million and $450 million on employee severance during the current quarter, while it did not disclose the precise number of positions it would eliminate.

When asked about the job layoffs, the corporation, which employed 83,700 people as of the end of May this year, could not immediately provide a response. Nike employed 79,100 people in 2022.

In the women’s and Jordan categories, as well as on products under $100, especially in the running category, the business revealed ambitions to streamline its product range, boost automation, and expand product innovation.

“I think it makes sense for them to focus on fewer number of products that can resonate stronger with consumers. And doing so will help them not only manage their inventory, but also their profitability,” Raymond James analyst Rick Patel said.

At least six brokerage firms lowered their price targets for Nike stock, and two even downgraded it.

“While we think this (cost-saving plan) is a positive shift, it will take time to scale newness and innovation, and a soft macro will further pressure results in the meantime,” Abbie Zvejnieks, a partner at Piper The brokerage lowered its $112 price target to $107.

Nike’s stock was trading at $109.35, up around 5% on the year. In comparison to Adidas, which has a forward price-to-earnings ratio of 44.48 for stock valuation, itss was 30.01 for the next year.

(Adapted from MarketScreener.com)