February 5, 2008
With Hockey Market Stagnant, Nike Seeks to Sell Equipment Unit
By IAN AUSTEN

OTTAWA — It was just a little swoosh. But when Nike added its logo to gear by Bauer, a longtime Canadian maker of hockey equipment, “there was resistance,” said Terry Bovair, owner of the Fontaine Source for Sports in Peterborough, Ontario. “Some people did not buy the product.”

Apparently, that kind of reaction was not confined to Peterborough, a small city northeast of Toronto that is something of a hockey hot spot. Thirteen years after acquiring Bauer, and making bold promises that it would transform the business of hockey, Nike has put its Nike Bauer unit up for sale, a rare bit of comeuppance for one of the world’s powerful brands. Though Nike Bauer remains a market leader, many analysts predict that the company will find it hard to recover even half the $395 million it paid for Canstar Sports, Bauer’s Montreal-based parent, in December 1994. “It was one of Phil Knight’s ideas,” said Brady Lemos, an analyst with Morningstar, referring to Nike’s chairman. “Perhaps they were too optimistic.”

The shedding of Nike Bauer, with annual sales around $160 million, is not expected to affect Nike’s financial reports significantly. The company posted revenue of $16.3 billion last year; it does not break out profit by unit. But Nike’s decision to step away from hockey at the same time it is increasing its presence in soccer shows that financial muscle and marketing power do not always give it the ability to dominate the field, or the ice. “Nike has been a good competitor,” said Denis Drolet, president of Groupe Drolet, which owns Sher-Wood, a hockey-stick maker in Sherbrooke, Quebec. “Bauer is a great name, they have a great line of skates. But the hockey market is not growing.”

Mr. Drolet’s pessimism about the potential for his industry is widely shared. But that was not the case when Nike entered the hockey business. Hockey participation in the United States, the world’s second-largest market, after Canada, was then rising. An expansion by the National Hockey League into several American cities had fueled expectations.

Perhaps most attractive to Nike was the popularity of in-line skating in the mid-1990s. The company hoped that by promoting hockey played on rollerblades rather than skates, it could overcome a significant obstacle to the sport’s development in the United States: a lack of ice rinks.

After buying Canstar, Nike followed a pattern that had brought it success in other sports. It sponsored prominent players and became the official jersey supplier to the N.H.L. It closed Bauer factories in Ontario and moved their production to Asia, while the unit’s head office left Canada for New Hampshire.

While the Bauer name was retained, Nike used its own for the unit’s premium products. In a sport where skates come in pretty much any color provided they were predominantly black, Nike introduced models with white boots and bold graphics.

The vivid styling that had worked for Nike in basketball did not score on the ice. Players, other than those sponsored by Nike, shunned the white boots, a color associated with women’s figure skates. And unlike sneakers, Mr. Lemos of Morningstar said, boldly styled hockey skates were never purchased by the fashion-conscious as casual footwear.

Critics also say that Nike’s attention to product design did not extend to the performance of the skates, which were priced at a premium of several hundred dollars, and were unusually sized for North American feet.
“Their high-end skate was cutting people’s heels and causing blisters,” said Mr. Bovair, a former professional player. “It was a bad, bad launch.”
Even Nike competitors acknowledge that the company eventually sorted out the performance issues, and toned down its styling. “They brought in new materials and new processes for manufacturing,” said John Pagotto, president of TPS Hockey, a Canadian maker of sticks and protective gear.

But it came too late to save Nike as a stand-alone hockey brand, forcing the compromise that resulted in a logo with Nike’s swoosh but Bauer’s name.
Not all American newcomers to hockey have been humbled in such ways. Easton, a maker of aluminum baseball bats, came to dominate the hockey stick market by introducing models made from carbon fiber-reinforced plastic rather than wood.

With their emphasis on exotic materials, Nike Bauer and Easton succeeded in raising prices for hockey equipment. While $400 had once seemed the limit for skates, Nike Bauer managed to find a market for $750 pairs by using lightweight, high-performance material. Spokesmen for Nike declined to make anyone available to speak about the company’s decision to sell the hockey unit, which it calls profitable. In a quarterly conference call with analysts in September, Nike’s chief executive, Mark Parker, said, “We felt that there’s other entities within the portfolio that need yet more focus and can deliver more longer-term growth potential.”

Indeed, some analysts look toward a decline in equipment sales. Player registrations for USA Hockey, the governing body, rose last season by 3.3 percent over the previous period. But the increase was largely caused by previously unregistered adult players who joined for insurance reasons. Youth memberships, the indicator of the sport’s future, fell 0.5 percent. Mr. Drolet, the stick maker, traces the lack of growth largely to the premium prices Nike and others achieved. “The price of equipment keeps going up, making it hard for families,” he said. Yet most analysts expect Nike to find a buyer, if at a fire sale price, before its self-imposed deadline of the end of May. Reebok, which is owned by the rival Adidas, has been mentioned. But such a deal might raise antitrust issues because its Reebok-CCM Hockey unit is a major force in the market. A spokeswoman for Reebok declined to comment.

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