Where Does Nike Go From Here?
With pressure mounting on CEO John Donahoe, the sportswear giant’s precise turnaround plan remains unclear. But the rehiring of Nike veteran Tom Peddie this week offered more clues on the brand’s direction.
Nike, now entering the second year of its worst slump in many years, appears to finally be addressing some of its missteps.
Earlier this week, the brand rehired Tom Peddie, a 30-year veteran of the company who retired in 2020, as its vice president of marketplace, a move designed to support the continued recalibration of its distribution strategy. It was one of the clearest signs yet that the brand was rapidly unwinding a strategy that saw it cut relationships with major retailers in a bid to focus on direct-to-consumer channels.
Solving distribution may be the easiest of Nike’s problems to solve. As executives have begun to acknowledge, the only way out of this is to release more products people want to buy, whether it’s on the SNKRS app, in their stores or at a third party retailer.
Nike has already warned that it expects sales to drop 10 percent in the current quarter, and by mid-single-digit percentages in the year ending May 2025, after rising just 1 percent in its most recent fiscal year. If that forecast bears out, it will be the company’s worst performance in 25 years. Nike’s stock is down over 30 percent this year, closing Thursday at its lowest price since March 2020.
Internally, rounds of layoffs affecting its Beaverton, Oregon base and its European headquarters in Amsterdam as part of its $2 billion restructuring plan has seen the continued removal of long-tenured, senior employees and hammered already low internal morale.
Meanwhile, a host of challenger brands new and old are chipping away at Nike’s market share in myriad categories, from athletic footwear to activewear to lifestyle sneakers. Its closest rival Adidas is set to report its highest profit margin in three years when it reports earnings for the first half of 2024 on July 31.
Chief executive John Donahoe has repeatedly said Nike’s fortunes will reverse when investment in innovation and a refreshed product pipeline kick in. But little has materialised so far by way of new or exciting franchises.
Consider the launch of the Nike Dn sneaker. Hailed by the brand as the next big silhouette when it launched in March, the chunky lifestyle shoe never really caught on with sneakerheads, despite a major marketing push, store takeovers and consumer activations in multiple cities.
A lack of compelling new products also raises doubts about how much of an Olympics boost the company is likely to receive. The games are frequently cited by Nike executives as a valuable launchpad for driving brand heat — but its not certain how valuable the tournament will be without compelling products to centre marketing around.
Meanwhile, the brand’s decision to introduce a new footwear products below $100 — revealed by Matthew Friend on the brand’s fourth quarter earnings call in June — appeared to analysts to be counterintuitive, especially when brands like Hoka and On are thriving at a price point of $150 and up.
“It’s not that the customer isn’t wanting to pay more than $100 for sneakers,” said Jessica Ramirez, senior research analyst at Jane Hali & Associates. “Nike have always had pricing power and you don’t want them to dilute the brand by being associated with cheaper sneakers than their competitors.”
A more positive spin on the tepid-seeming turnaround is that Nike has the luxury of being able to take its time to guarantee the right outcome. The company is in no danger of losing its lead in the sportswear market; with $51.4 billion in sales in its last fiscal year, double Adidas’ annual revenue.
Nike coaxing Peddie out of retirement this week followed the hire of veteran American designer Tim Hamilton, formerly of The North Face, as vice president of men’s apparel, who joined the Swoosh in March. It now has respected names in charge of fixing its two biggest shortcomings, distribution and product.
And Nike is also taking the painful but necessary step of pulling back on the distribution of key retro franchises like the Air Force One and Dunks. Those silhouettes carried its lifestyle sneaker business over the past four years, but at the expense of newness, as Friend told analysts this month.
In their place, Nike is mining other models from its archive. The Vomero 5, a retro running sneaker, has picked up demand in recent months after and is one of the newer franchises which Nike is expected to ramp up supply of moving forward, Ramirez said. In the coming months, Nike will also flood the market with lifestyle models like the Killshot and the Field General, which more closely resemble Adidas’ successful Gazelle and Samba franchises, rather than the chunky basketball silhouettes like Dunks and Jordans. The brand also confirmed to sneakerheads delight the return of the Total 90 silhouette, a football boot turned casual sneaker which reached cult status among Nike lovers in the 2000s.
On the performance side, the newly launched Pegasus 41 running sneaker is expected to be pushed by the brand in the coming year. New products, and not just updates on retro models are also a priority.
“We expect the business contribution from new products to more than double from the start of fiscal 2024 to where we end the year in fiscal 2025,” Friend told analysts in June.
Experts believe that a successful course correction is likely. But it’s going to be a long-term process, and whether Donahoe is kept in his job to see it through is increasingly a source of speculation.
“I do think management has to change,” Ramirez said. “But if they continue to do what they’ve been doing the past three months, then there’s a path for them to get things fixed.”