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Will Betsy Ross flag shoe controversy hurt Nike or help it?

Nike defends pulling Betsy Ross flag shoes
  • Nike's decision to yank a sneaker with a Betsy Ross American flag on its heel has spurred a conservative backlash against the shoe company as the nation celebrates the July 4th holiday.
  • Industry analysts say Nike is unlikely to regret its decision to heed the advice of Colin Kaepernick, the former NFL quarterback who starred in the company's "Just Do It" ads last year.
  • Since bringing Kaepernick aboard, Nike's sales and stock have risen, with the controversial activist athlete helping to inspire "record engagement with the brand," according to the company's CEO.

If history repeats itself, Nike may well ride its latest politically charged marketing controversy all the way to the bank. The famed sneaker brand found itself taking heat this week -- just ahead of the July 4th holiday -- for its decision to pull a shoe outfitted with the Betsy Ross American flag. But it wasn't that long ago that another public argument over perceptions of patriotism ended up boosting Nike's appeal to investors and many customers.

Nike pulls "Betsy Ross flag" sneakers amid controversy

Nike's decision not to release its Air Max 1 Quick Strike Fourth of July shoe reportedly came in response to objections from Colin Kaepernick, a former NFL star and company endorser, who made headlines during his football career for kneeling during the national anthem to protest police brutality. 

Kaepernick reached out to Nike to explain that the Revolutionary-era U.S. flag with 13 white stars and a circle heralded back to a time when black people were enslaved and that it has been appropriated by white nationalist groups, a person familiar with the conversation told the Associated Press.

Negative feedback loop

The shoe manufacturer's decision prompted a rush to condemn Nike as unpatriotic by right-leaning lawmakers including Senators Ted Cruz of Texas and Mitch McConnell of Kentucky. It also immediately provoked the wrath of Arizona's Republican governor, Doug Darcey: He snatched back a state grant to help lure a $185 million Nike Air plant to the Phoenix suburb of Goodyear the day after the local city council had approved the deal promising 500 new jobs, which the city's mayor says Goodyear is sticking to.

Nike said in statement "it pulled the shoe based on concerns that it could unintentionally offend and detract from the nation's patriotic holiday." It also dismissed criticism its decision was "anti-American." The company is "proud of its American heritage and our continuing engagement supporting thousands of American athletes including the U.S. Olympic team and U.S. Soccer teams," it said in its statement.

Colin Kaepernick Nike ad sparks support and outrage

The uproar would likely prompt many companies to do an about-face. But that's far from likely in the case of a Nike, industry experts say. The company faced similar turmoil some 10 months ago, when it unveiled its "Just Do It" advertising campaign starring Kaepernick. While sparking outrage in some quarters -- with public burnings of Nike shoes and vows of a boycott -- Nike stock ran up to an all-time high just weeks later, adding nearly $6 billion to the company's market value.

Yet another Nike boycott?

"Every one that was outraged by that PR disaster seems to be jumping on the outrage train again. Can't you only boycott a company once?" asked Art Hogan, chief market strategist at National Securities. "Most of the boycott bandwagon seems to be in the New Balance sneaker and cargo-short-wearing cohort."

Nike is showing consistency by listening to Kaepernick, said Chris Allieri, founder of New York public relations firm Mulberry & Astor. "Listening to somebody that has helped the brand in so many countless ways, it makes sense. It would be completely hypocritical for them not to listen to him," Allieri said.

Nike has spun public relations disasters into PR gold in the past, and its sales have only grown since Kaepernick signed on, as the company knows its core customer base of younger consumers, who did not abandon the brand last year and is unlikely to flee now, according to Hogan, Allieri and others. 

"Today's consumers really want brands to be vocal on social issues, especially the younger consumers. This very much aligns with the social position of their core consumers," said Matt Powell, a sports industry analyst at NPD Group Inc.

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Indeed, two-thirds of consumers worldwide recently identified themselves as "belief-driven buyers," indicating that they expect brands "can make change and not just talk about it and do advertising," advertising and marketing guru Richard Edelman, president and CEO of Edelman, told CBSN in an interview last month on how top global brands serve today's consumers.

"It's a new day," Edelman said of all businesses. "You can't just advertise and expect people to believe you. You have to do something. You have to live your mission and you have to actually take the risk of doing it." 

Still trying to form a more perfect union

Nike's annual sales have jumped 7% to more than $39 billion, according to its last quarterly report. Its stock is up 12% since the start of the year, and Nike CEO Mark Parker has said the Kaepernick campaign inspired "record engagement with the brand," important for a company looking to bolster its direct-to-consumer business.

Still some less-partisan observers were taken off-guard by the latest furor.

Lisa Moulder, director of the Betsy Ross House in Philadelphia, said she has never heard of the 13-star flag being used as a hate symbol. "Personally, I've always seen it as a representation of early America. The young nation was not perfect, and it is still not perfect," she said.

"Unfortunately we live in a time where it is hard to keep up with what traditional American symbols have been misappropriated by hate groups. Nike found that out late in the process and adjusted. They have been right before, they will likely be right again," predicted Hogan.

-- The Associated Press contributed to this report.