Why Nike and Lululemon are struggling: 'A lot of surface area to defend'

The pending removal of retail giant Nike ( NKE ) from the S&P 100 ( ^SP100 ) and Lululemon's ( LULU ) downtrodden earnings report last week have delivered fresh reminders that two of the athletic-wear industry's most powerful brands are no longer in the pole position they once were.

Nike will exit the index — intended for the largest blue-chip companies in the US stock market — before the opening bell on Sept. 21, ending a roughly 18-year run. Though it will remain in the broader S&P 500 ( ^GSPC ), the demotion from the more rarified S&P 100 follows a prolonged decline that has wiped out more than three-quarters of Nike's stock-market value since its 2021 peak.

Lululemon, meanwhile, fell to its lowest level in eight years last week after reporting another quarter of weakening demand and cutting its annual forecast, laying out a tough path ahead for new CEO Heidi O'Neill. The company's second quarter revenue declined 4% from a year earlier to $2.42 billion, while comparable sales fell 9%.

"The problem for both Nike and Lululemon is that they're market leaders in their respective segments," Neil Saunders, managing director at GlobalData Retail, told Yahoo Finance. "That means there is a lot of surface area to defend from competitors."

The two companies face different turnaround challenges.

Nike is a global footwear and apparel conglomerate trying to repair its product pipeline and retailer relationships. Lululemon remains more closely tied to premium women's activewear and has been forced to respond to shifting trends among its core demographic.

Yet both are confronting a similar competitive problem: The brands that once defined their respective categories are losing consumers to smaller, more specialized rivals.

In footwear, Hoka, On, and Salomon have built loyal followings around running and outdoor performance, while New Balance has enjoyed renewed cultural relevance — the "dad shoe." Nike, meanwhile, has spent years leaning into mass-market offerings across a variety of sports and use cases, while competitors have captured significant market share for specialty offerings.

For Lululemon, which once enjoyed a position atop the athleisure food chain, competitors such as Alo and Vuori have expanded rapidly within the premium market.

"Both retailers need to increase product innovation and get back to being on the cutting edge," Saunders said.

Both companies are now betting that new products and more sharply defined brand identities can restore momentum. Lululemon's effort will be led by O'Neill, a former Nike executive who officially took the reins on Tuesday.