Nike’s new chief runs into trouble as turnaround efforts falter


One of the most covetable sneakers ever made is a pair of black and yellow basketball high-tops, the Wu Tang Dunks, released by Nike in 1999. Legend has it that just 36 pairs were ever produced and given to friends and family of the Staten Island hip hop group. But when the world’s largest sportswear maker teased a commercial release of the shoes last week, posting a photo of the kicks to the Nike Sportswear account on Instagram, some collectors baulked.

“It’s hard not to think this is unconnected to Thursday’s disastrous earnings call,” wrote Mike Sykes, author of the sneakerhead newsletter, The Kicks You Wear. By taking a special collector’s item and putting it for sale to the general public, he said, “it feels like Nike is just buttering us up and hoping we forget how stale things are”.

Nike is in a crisis. On June 28, the day after executives issued a dim forecast for the year ahead, its shares plummeted 20 per cent in the single-worst day for the swoosh since its 1980 initial public offering. Consumers are not as fond of the brand’s classic shoes, like the Air Force 1s, Air Jordan 1s, and Dunks, as they used to be. Wall Street, disappointed with Nike stock that has fallen 30 per cent since the start of the year, is openly calling for “regime change” in upper management.

“Having a tech executive who came in to run a consumer product company and introduce a strategy shift, it’s proven to be the wrong approach”, said Jim Duffy, managing director at Stifel. That tech executive would be John Donahoe, Nike’s chief executive since January 2020, who previously served as the head of eBay and ServiceNow. 

In his time at the sneaker giant, Donahoe has overseen two massive restructurings leading to hundreds of lay-offs and reorganising Nike into men’s, women’s and kids’ categories instead of divisions devoted to individual sports. For the quarter ended in May, revenues at Nike sank 2 per cent to $12.6bn, compared to the year prior, while sales directly to consumer fell 8 per cent over the same period. The company said it now expects revenues to fall “mid-single digits” for Nike’s fiscal 2025, compared to its prior forecast of incremental growth.

In a statement issued the day of Nike’s stock plunge, the company’s cofounder and largest shareholder, Phil Knight, said: “I have seen Nike’s plans for the future and wholeheartedly believe in them. I am optimistic in Nike’s future and John Donahoe has my unwavering confidence and full support.”

Initially in his tenure, Donahoe was perceived as both a breath of fresh air at Nike — embracing change and keen to address demographic inequalities within headquarters — as well as someone who had Knight’s ear. The onset of the pandemic accelerated an existing plan to focus on higher-margin sales directly to consumers, especially on Nike’s website and apps.

But as the world emerged from Covid-19 lockdowns, Nike “took its eye off the ball”, Duffy said.

A major black eye came this spring, when the Major League Baseball season began. Uniforms supplied by Nike were see-through and lettering appeared small and cheap, prompting complaints from players and scorn from fans on social media. In May, MLB commissioner Rob Manfred issued a statement saying the league “listened to our players” and was working with Nike to correct problems, including discolouration from perspiration and adjustments to lettering and uniform colours.

One longtime employee, who left the company voluntarily during Donahoe’s tenure, said the MLB fiasco “would never have happened” when Nike’s internal structure had focused teams for each sport, including baseball. Successive rounds of lay-offs — some 1,940 jobs have been eliminated at Nike since 2020, according to paperwork filed with Oregon’s office for dislocated workers — coupled with the reorganisation from sport categories to men’s, women’s and kids’ silos has disrupted the focus.

Furthermore, by eschewing longtime wholesale partners, competing brands like Hoka, On, and New Balance took up Nike’s market share at chains like Foot Locker. In its semi-annual survey of teen shoppers, Piper Sandler observed in April that Nike’s hold on the top spot of preferred footwear brands was beginning to slip, declining more than 2 per cent over six months while New Balance was the largest gainer. 

Martin Hoffmann, co-chief executive of On, told investors on a conference call in March that the brand’s share of direct to consumer customers under the age of 30 is now 29 per cent, compared to just 24 per cent in 2021. The company has more than doubled revenues during that time.

Duffy, the Stifel managing director, said those metrics underscore not only that On is catching on with younger consumers now, but that a large segment of the wider growth in athletic brands has been older adults — a trend that Nike has missed.

“Traditionally that sweet spot was the 15 to 35 year old age bracket,” he said. “But a lot of older adults are now wearing sneakers to work, sneakers travelling, embracing that smart-casual look.”

Matthew Friend, Nike’s chief financial officer, said that some of the company’s recent initiatives are starting to bear fruit. Bookings by retail partners for Nike’s shoes this coming autumn are up “double digits” from the year prior, led by the June release of the Pegasus 41, a performance running shoe.

On the flip side, younger consumers do not have the same sense of attachment to some of Nike’s staples, like its Jordan sneakers, according to Sykes, author of the sneakerhead newsletter. 

“It’s been decades since Jordan played basketball, and Gen Z don’t have any connection to this guy,” he said. “You used to see people wear Air Force 1s or Dunks or Jordans on special occasions. Today you’ve got people wearing different pairs of Asics or even Crocs”.

On a conference call with analysts, Donahoe said that the company is planning “reductions” in its three largest sneaker franchises, which includes the Jordan 1. Nike and its chief competitor Adidas often release and restrict certain bestsellers, like the Air Forces and the Superstars, respectively, in order to manage demand.

“It’s a great time in footwear, but not necessarily the best time for Nike, because they’ve been so dominant for the past 20, 30 years,” said Sykes.



Source link

Content Disclaimer and Copyright Notice
Content Disclaimer

The content provided on this website is sourced from various RSS feeds and other publicly available sources. We strive to ensure the accuracy and reliability of the information, and we always provide source links to the original content. However, we are not responsible for the content’s accuracy or any changes made to the original sources after the information is aggregated on our site.

Fair Use and Copyright Notice

This website may contain copyrighted material, the use of which has not always been specifically authorized by the copyright owner. We believe this constitutes a “fair use” of any such copyrighted material as provided for in section 107 of the US Copyright Law.

In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.

Leave a Reply

Your email address will not be published. Required fields are marked *