For years, Nike has been everyone else’s Louis Vuitton: It has built a premium fashion business around a logo, a big passion (in Nike’s case, sports) and a huge advertising budget.
The active giant spent $4.3 billion last year alone on “demand creation,” shelling out 10 figures to cover “the costs of sponsorship contracts, ancillary products, television, digital and print advertising and media costs, branded events and retail branding.”
Nike’s formula has been a potent one, studied by competitors and partners looking to gain market share or get in on the action. But competition is intensifying. It’s been especially fierce in running, where brands like On, Hoka and Brooks are on the rise, but there are plenty of others joining Nike as well, including Adidas, which has had success of late with its more casual Samba style.
Nike still has the upper hand (with sales of $51 billion last year and a market cap of nearly $110 billion), but its lead is shrinking, and it’s becoming a case study in how a company with the benefits of scale, brand recognition and passion can stumble anyway.
John Donahoe, who has been president and CEO since 2020, told analysts last month that Nike is “meeting our challenges and regaining our edge.”
But it’s still a work in progress.
“While fiscal 2025 will be a transitional year for our business, we continue to make real progress in our recovery,” the CEO said.
Nike’s revenue fell 2 percent to $12.6 billion in the fourth quarter ended May 31, and the company expects revenue to show a high-single-digit decline for the fiscal first half as it manages supply of its classic footwear franchises.
That’s caused Nike’s stock to lose nearly 25 percent of its value over the past month, leaving the company’s shares down 17 percent over the past five years, a period in which the S&P 500 has grown 86 percent.
The brand has simply failed to deliver the one thing that gives fashion and active brands their oomph: novelty.
“They became so obsessed with where they were selling their products that they lost focus on what they were selling,” said Tom Nikic, an analyst at Wedbush.
In 2017, Nike began aligning its business around a direct-to-consumer strategy that led it to eliminate wholesale accounts and focus on nike.com instead of focusing on product.
“No brand has the resources that Nike has,” Nikic said. “No brand can spend more money on R&D than Nike. No brand can spend more money on marketing than Nike. The combined revenues of Hoka and On ($3.8 billion) are less than Nike’s annual advertising budget.
“Product is king,” he said. “If you have a great product, you can win. If you don’t have a great product, if you neglect product innovation, no matter how big or powerful you are, the customer will look for something else.”
As innovation slowed, Nike focused more on products that were in short supply.
“They started selling more and more retro Jordans and Dunks,” Nikic said. “And when there was a huge amount of those products, they lost some of their special flavor. Sometimes we’ve seen discounted retro Jordans, which never happened before.”
The company’s troubles in some ways mirror those of Vans, which became too enamored of its traditional look and then foundered once trends changed, leading to a CEO change at parent company VF Corp.
Nike’s troubles have cast a harsh light on Donahoe, a former chief executive of eBay and a long-serving board member at the group before taking the top job.
“If John Donahoe is going to stay in that position, I think a couple of things need to happen,” Nikic said. “First, he needs to change his mindset. That might be difficult for him because he comes from a technology background, not a footwear background. But he’s going to have to become more product-oriented and realize that the consumer is driving the wheel.”
John Donahoe, CEO of Nike
Meron Menghistab/World Health Journal
There are signs that Nike is realizing this now.
Jessica Ramirez, a senior research analyst at Jane Hali & Associates, said the company has recently been working on “recalibrating its platform” and “highlighting sneakers that are really resonating with consumers.”
He pointed to the Nike Vomero and the more casual Killshot silhouette.
“If they had put this plan together a year ago and realized, ‘Hey, we can be the biggest in the industry, that doesn’t mean we’re untouchable,’ because they kind of fell asleep (and waited to renew it) — it would have affected them more than they expected,” Ramirez said.
“It’s been a year where Nike has been going through some tough times, and we know that within retail, it used to be two quarters and a year, there needs to be a change (in the CEO position) because something is heading in the wrong direction,” he said.
The fact that Nike is experiencing a “transition year,” that Donahoe appears to be on shaky ground and that the powerhouse brand is having to revamp its strategy so radically sends a pride-before-a-fall message to other brands also navigating a challenging marketplace and a fickle consumer.
“You can’t get comfortable,” Ramirez said. “You always have to be prepared for the future and you have to do that through your retail strategy, through your product and through your operations. You have to be one step ahead of where you are if you expect to be the winner. And you can’t lose sight of consumer interest and the competitive landscape, how it’s changing, because the competitive landscape changes as consumers change their lifestyle. The consumer is the one telling you, ‘This is where I’m going to spend my money.’”
The Bottom Line is a business analysis column written by Evan Clark, deputy editor, who has covered the fashion industry since 2000. It is published every other Thursday.
(tags to translate)Nike
