Why Nike Stock Just Crashed

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What happened

Shares of sportswear giant Nike (NYSE:NKE) took a hit in Thursday morning trading, falling 4.7% through 11:30 a.m. EDT, after Chinese state media seemed to encourage consumers to boycott foreign brands that have, in the past, criticized its use of forced labor by Muslim Uyghurs in the country’s Xinjiang region.  

So what

Online, this sparked a series of criticism of companies ranging from Hennes & Mauritz to adidas to Nike, all of which have at one time or another stated that they do not source their products or raw materials from Xinjiang. All three companies are part of the “Better Cotton Initiative” trade group, which Reuters describes as promoting “sustainable cotton production” and says has avoided buying cotton from Xinjiang, “citing human rights concerns.”

Chinese consumers have posted online comments such as, “if you boycott Xinjiang cotton, we’ll boycott you.” The Communist Youth League accused Nike and its peers of wanting “to make money in China while spreading false rumors and boycotting Xinjiang cotton.” The People’s Liberation Army called the companies “ignorant and arrogant,” and China’s Foreign Ministry accused the companies of spreading “malicious lies.”  

Now what

Clearly, the rhetoric is getting heated, and that makes investors understandably nervous — perhaps for good reason. Beyond mere words on the internet, China’s government-sanctioned attack has apparently convinced Alibaba to remove H&M products, for example, from its Tmall shopping platform.

The risk that Nike will be next cannot be ignored. And when you consider that Nike depends on China for 18% of its annual sales currently (according to data from S&P Global Market Intelligence), this is a situation that could get even worse before it gets better.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.



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