The iconic sportswear brand has moved away from third-party sellers to focus on its own stores and away from divisions covering individual sports, weakening its ties to and understanding of those sports.
These should be good times for Nike.
This year being an Olympic year, she provides a global showcase for her products, while the sports pages are filled daily with any number of stars – Jude Bellingham, Emma Raducanu among them, and next week Scottie Scheffler and Rory McIlroy – pictured in her clothing.
And yet business is in the doldrums.
“It looks like a hopeless situation”
Nike shares, which have fallen 59% from their late-2021 highs, are currently languishing at levels last seen when the world went into lockdown in March 2020.
The latest results, released less than a fortnight ago on June 27, were a huge disappointment and prompted a sharp downgrade from Wall Street analysts. The next day, Nike shares lost a fifth of their value in their worst one-day performance since going public in 1980.
As Jim Cramer, an influential investment expert, told his CNBC audience on Monday, “Can Nike still be saved? It looks like a hopeless situation.”
Nike dramatic problem recognition
Today, in a dramatic acknowledgment that the business is in trouble, Nike came up with an answer.
Bloomberg reports that the company has rehired Tom Peddie, a 30-year Nike veteran who retired in 2020.
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It said Mr. Peddie, who most recently served as vice president and general manager of Nike’s North America division, had been brought back to oversee retail partnerships as the company seeks to rebuild relationships with retailers such as Foot Locker after it took over some of its products. away from it to focus on its own stores and digital channels.
It quoted an internal memo to colleagues from Craig Williams, Nike’s president of geographies and markets, saying: “As we continue to focus and improve capabilities in our wholesale business, I am confident that Tom will bring vision and bold leadership to accelerate market strategy.” “
Huge mistakes – which helped the opponents
The move acknowledges that Nike made a huge mistake in moving its products from third-party retailers to its own stores and websites, a key strategy of John Donahoe, Nike’s CEO since January 2020.
Mr Donahue, a former chief executive of e-commerce website eBay and cloud computing group ServiceNow, predicted consumers would make a permanent shift to online shopping after the COVID-enforced lockdown.
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But the move simply freed up shelf space and floor space for third-party retailers to stock products made by younger rivals, including trendy British sportswear brand Castore, French running shoe brand Hoka and Swiss brand On Running, as well as more established rivals such as New Balance .
Previously, competitors such as these would not have been able to gain ground in the market due to the superior advertising and marketing firepower of Nike and its German rival Adidas. Now, thanks to social media, start-ups like Castore – which was valued at nearly £1 billion in its last fundraising in November last year – have been able to make a bigger splash.
The direct-to-consumer strategy didn’t work either. Nike’s latest results, covering the three months to the end of May, revealed that sales in its direct sales division fell 8% to $5.1 billion.
Another expensive mistake
Shifting production away from third-party vendors wasn’t the only mistake Nike made under Mr. Donahoe.
Restructuring to save costs, moving away from divisions that covered individual sports such as basketball to men’s, women’s and children’s sales categories, weakened its ties to and understanding of those sports.
There was also a feeling that Nike had become too dependent on a handful of products – a mistake Adidas made in 2018 with its Stan Smith and Superstar brands—and that it diluted the exclusivity of some of its best brands, like Air Force 1s, Air Jordan 1s, and Dunks, by being too ubiquitous.
Nike now faces the need to cut supply to restore premium quality to these names. Conversion sales fell 18% during the most recent quarter due to weakness in both North America and Europe.
Some investors also worry that younger consumers won’t have the connection to superstars like Michael Jordan — whose last game was in April 2003 — that previous generations did.
As Mr. Cramer said, “Many of Nike’s former strengths appear to have turned into weaknesses.”
Investors also question whether Mr. Donahoe, who has spent much of his career in the technology sector, really has the background and experience to lead a business like Nike.
Mr. Donahoe currently has the support of Phil Knight, Nike’s co-founder, chairman emeritus and still the company’s largest single shareholder.
Mr Knight, who has known Mr Donahoe for more than 30 years, released a statement after the recent results saying: “I have seen Nike’s plans for the future and I believe in them wholeheartedly. I am optimistic about the future of Nike and John Donahoe has my unwavering confidence and full support .”
What’s next?
In addition to reducing inventory in excess brands like the Air Force 1 and returning to third-party retailers — something Adidas has benefited from with the boom in popularity of its Sambas brand — the plans are likely to include more innovation.
It will also include a renewed focus on its core product and heritage as a purveyor of what was widely regarded as the best technical shoe for runners. It will also need to push towards price-conscious consumers, which Nike has somewhat abandoned in recent years.
That is why the appointment of Mr Peddie is of vital importance. It’s all part of Nike trying to reconnect with its retail partners and, through them, its consumers.
The problem for Mr. Donahoe is that these changes are unlikely to be reflected in Nikes sales until the middle of next year.
By then, Wall Street’s patience may be wearing thin.