Why Tennis Star Roger Federer Leaving Nike Matters to Investors

When tennis star Roger Federer stepped onto the courts at Wimbledon in late June, it was without the Nike (NYSE: NKE) swoosh he has donned for so long. Instead, Federer wore a get-up by Japanese clothier Uniqlo, which scooped up the elite athlete after his Nike contract expired earlier in 2018.

The news may seem less significant than other recent sports headlines, like LeBron James finding a new basketball home in Los Angeles. Federer's decision, however, could be significant for apparel investors.

The battle for athletic talent

Federer already is one of the highest-paid athletes, and his latest agreement to sport the Uniqlo name will pay him a whopping $300 million over the next decade. That's one of the largest athlete endorsement deals ever. This also likely means the 36-year-old still will make a paycheck from his outfits even after he's retired from professional sports.

Uniqlo has been steadily building a presence in the U.S. over the years, but it still is relatively unknown compared to Nike. The Japanese company currently has 53 stores in the States and was a relatively insignificant participant in the pro sponsorship department before Federer. The company's strategy is obvious, however. Even though Uniqlo doesn't make shoes, the megadeal could help capture the spotlight and drive consumer interest in Uniqlo's clothing.

That isn't a new strategy. Nike supplanted Adidas many years ago by getting athletic talent to exclusively wear its logo. Under Armour has copied that strategy as it tries to play catch-up to the sports king of today. Casual-shoe maker Skechers has taken a more eccentric approach, inking deals with pop icons and retired superstars along with a handful of pro golfers and runners.

Thus, Uniqlo is just the latest apparel brand to aggressively go after big endorsements. However, the move highlights that the broader apparel industry has begun to target a demographic of shoppers that used to belong exclusively to athletic companies.

Nike has a lot to lose

Success never goes unnoticed, and Nike is no exception. However, this is more than a battle over what brand jocks and other sports hobbyists wear. Athletic and athletic-inspired apparel has reached a broader audience, gaining such popularity that it has earned its own fashion moniker: athleisure. In other words, wearing workout clothes for all occasions has gone mainstream and looks like it's here to stay.

That shows up in Nike's numbers. The reigning champ in sportswear and equipment -- a title Nike has successfully used to turn itself into a premium clothing brand -- has seen sales nearly double in the last 10 years. In Nike's last-reported quarter, sales were up 13% year over year on the back of ever-growing popularity in Asia and other emerging markets.

To capture shifting clothing trends, many apparel brands have started incorporating athleisure into their lineups or launching new brands altogether. Uniqlo is one of them, even though it's traditionally a casual-wear company.

All of that new competition has also shown up in Nike's numbers, most notably in its home North American market. For the company's full 2018 fiscal year, shoe revenue fell 4% and apparel revenue increased a mere 1% in North America -- even after sales growth accelerated in the fourth quarter.

Upheaval in the athletic-wear industry has given Nike stock fits. The company has fought back by continuously improving its products, launching a new direct-to-consumer digital selling platform, and taking advantage of newfound wealth in emerging economies. Losing Roger Federer likely won't be a symbolic turning point we look back on as marking the peak of Nike's popularity. However, now that athletic-inspired clothing is no longer for athletes only, Nike could have the most to lose as other apparel companies try to move in on its turf.

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Nicholas Rossolillo and his clients own shares of Skechers. The Motley Fool owns shares of and recommends Nike, Skechers, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has a disclosure policy.