Note: This is a 2000 word issue on Nike’s recent failings around aspects of its core product/distribution. Stay with us, we’ve bolded the things as takeaways.

Nike is trash now.

Well, not exactly. The company has a lot going for it, namely one thing: its continued dominance in the sports apparel market. But Nike has been on an interesting trajectory (read: burning heap of  trash) since 2020(ish).

So, what’s happened since 2020? John Donahoe took over from Mark Parker. Parker, who started in footwear design at Nike, oversaw an enormous period of growth for the company.  To give you an idea of his success, he took over the when Nike stock was 10-11 bucks, and stepped down when Nike stock was $100+ bucks. The guy replacing him (Donahoe) is a seasoned CEO, serving stints at tech firms like ServiceNow and eBay.

Since Parker stepped down, everything that has happened since is a slow march to the beginning of irrelevance. Nike has gone through some major restructuring since Donahoe started, and the company has focused a lot on its operations, namely trying to condense the time it takes to come up with a shoe idea and bring it to market, and streamlining inventory management by standing up one unified software system.

If you read transcripts of the investor calls, you’d get the sense that whatever is happening is supposed to be happening. Yeah, it makes sense to streamline operations, to bring products to market faster, until you realize that the demographic (read: youth) Nike built its empire on is slowly not giving a shit about Nike anymore. Things feel stale.

Since 2020, the stock price has seen a decline due to slowing revenue growth and product disasters that are uncharacteristic for a cornerstone apparel company. And after a ton of Youtube video watching research, we’ve nailed down that Nike is failing on the following things:

• Core Mission/Messaging

• Product

• Distribution

If you’re having trouble putting the dots together by now, we were in the same place you are. But we came up with an example to help you out. The greatest indicator of all these problems is distilled into the incessant re-releases, which seems to be Nike’s flagship move now. Specifically the Panda Dunks, which are now the property of every friend that kinda sorta has no personality whatsoever. We aren’t sorry if we’re offending anyone here. The panda dunks were trash when they came out, and they’re still trash today. Fight us. You’ll lose because you wear panda dunks. It’s just a perfect encapsulation of Nike’s creative decline at this moment in time.

Nike’s Core Messaging: Milquetoast at best

Nike has been America’s aspirational brand for decades. It’s the company that’s pushed us to dust off our shoes and hit the pavement because customers want just a little bit of that Nike Athlete glory. In recent years, the aspiration to run, to move, that has closely been associated with the Swoosh is being chipped away and co-opted by other rivals and smaller brands. This begins with the running shoes category. Smaller brands like On, Hoka, and Brooks have really taken off and delivered for runners what Nike used to: a better shoe, and a better connection.

Now, this is partially due to  Nike becoming a victim of its own success. The enormous growth in recent years means Nike is almost too big to fail. It now markets its products like a lot of traditional, bigger companies where the main message seems to be ubiquity, everywhere-ness, and catering to a broad spectrum of people as to almost have no personality (like Allbirds). If you read this newsletter, you know we love visual cues, so here’s an example of 2 pieces of social content, both indicative of the respective brand. Spoiler alert: almost all of Tracksmith’s reels are better and Nike Running seems to be some sort of beer commercial. And this is a perfect example of how Nike has drifted away from its athletic roots and focused more on the lifestyle side of things. You also see this happening with Nike’s product lineup as well, turning its many sneaker performance lines into ‘Men, Women, and Kids’. While this product re-shuffling certainly helps a casual customer navigate its product line, it’s a  puzzling move for a brand that has 100% brand awareness and built itself on performance, perfection, and ambition. Jordan Rodgers makes a great point in his YouTube video on this. The democratization on making great content has given an advantage to smaller brands who can use videos and visual cues on social media to pull away a customer from Nike.

Here’s Tracksmith’s reel (posted around 3 months ago)

tracksmithrunning

View more on Instagram

VS

A Reel on Nike Running’s Insta, which, again, feels like a beer/lifestyle commercial

nikerunning

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Nike’s Stumbling on Product

Nike doesn’t just have a marketing problem, they also have actual product problems. Nike has had a surprising number of blunders when it comes to its physical product and product curation. They’re just coming off a huge company crisis for shitty uniforms produced for the 2024 MLB season. The debacle was renewed this weekend because of the design for the All-Star game. While Fanatics actually manufactures the uniforms, and Nike just designs them, this still carries huge reputational risks to Nike since they also partner with almost every other American sports league.

Product curation is also becoming a problem for Nike with its excessive re-releasing of limited edition stuff and just flooding the market overall with new types of Jordan brand sneakers. The excess amount of releases makes everything a bit more stale. Sneaker driven events get less special, and we’ve seen SNKRS and Nike shopping have precipitous declines in monthly app downloads over the past 4 years.

Mike Sykes put it perfectly when talking about the Wu Tang Dunk release:

Nike’s Distribution: Efficiencies without the results

Here’s 2 big parts of Nike’s strategy when it comes to distribution:

1. Bring products to market faster than ever (Consumer Direct Acceleration)

2. Own the customer experience from first-look to purchase (D2C sales)

One of the main points continuously brought up is the digital end to end transformation. One of Nike’s main goals under Donahoe is to own the customer experience end to end.

And this makes sense. Nike is a behemoth, everyone knows about it, it makes sense to maintain differentiation by closing up distribution in places where your shoe just kinda sits there with a bunch of other shoes.

One of the things that doesn’t seem like a bad idea is the concept of Consumer Direct Acceleration (CDA), or Speed Lane as it’s known at Nike…or Express lane, depending on the year you joined. The notion of shortening the time between concept and final design/release is a huge cause for John Donahue, which we’re assuming is meant to get even more product on shelves, just faster.

Bringing products to market faster

So, what exactly is CDA (Speed Lane/Express Lane) meant to deliver? Let’s hear it in Donahoe’s own words:

……what? This is the most yogababbly shit we’ve ever heard. Well, This was in 2021. Surely we have to give it time. What about 2024?

Donahoe’s words in an earnings call on June 2024:

Well, that’s great! Right? I mean it sounds like it’s creating products and bringing things to market faster!

Well, Nike showed a YoY revenue decrease of 1.7% for the quarter, and reported its slowest sales gain in almost 15 years. Piper Sandler’s 47th Annual Survey called ‘Taking Stock with Teens’, Nike is still the favorite brand, but lost ground to New Balance, Hoka, and On Running. Listen, we’re not opponents of getting products to market faster. It can provide a huge operational advantage. But when your customers are beginning to cool on your products, it may be time to divert resources to design + build more innovation into the products, rather than around them .

On another note that we don’t dive into: Related directly or indirectly to product acceleration, Nike has been also focusing a ton on inventory management. Nike is primarily focused on getting everyone in procurement on the same software, a multibillion-dollar effort which is still not operational and 3 years behind schedule.

Direct to Consumer Sales: It’s not working

Nike is also been making a big push in direct to consumer sales, which is why you’ve seen them pull back on a lot of their 3rd party retailer partnerships.
They have pretty ambitious goals in this area.

Here’s Matt Friend (CFO of Nike) in 2021

But it’s not working, while Nike was approaching 40% of its sales with their direct to consumer channel, they’ve given all those covid gains back now that shoppers are returning back to stores, in particular the big retailers that Nike cut ties with. 

D2C is unsuccessful for another reason as well: assuming that 3rd party retailers don’t differentiate your brand for you . While Nike is focusing on focusing on its D2C channel, there ARE retailers that help you differentiate your product: the specialty store.

Nike is losing out on the specialty customer. The marathon runner, the running club president, who happen to be high earners/high performers and probably buy multiple pairs of shoes. Those specialty stores have a ton of product knowledge, so it doesn’t help Nike that there shoes aren’t an option in those places. And with the more casual atmosphere post-covid, sneakers are also office footwear again, and the specialty runners want to show off high performance on and off the track.

So what should Nike do?

Listen, a lot of newsletters like this one are MMQBing issues to death. Donahoe’s “innovations” in operations could very well position Nike for a bright future, but the slowing growth speaks for itself.

But here are some very obvious things Nike should (and probably will) do in the next 12-18 months.

1. Fall in love with big box retailers again

While Nike made huge strides forward in digital channels the last few years, all those gains have been wiped away now that people are returning back to stores to shop. Nike should probably re-kindle some partnerships with big boy retailers.

2. Move investment away from the unified software initiative and towards product design/marketing

Donahoe’s initiative to help better manage inventory isn’t working, and it’s not even operational. Cut that BS and put it back into the design and marketing teams to inject some innovation into the physical product again.

3. Finally, space out the SNKRS product releases

Pretty self-explanatory. And Risky. And it doesn’t really address the slowing sales growth problem. But collectors are getting wise to the repetitive nature of Nike’s money grabs releases. Having less but bigger releases would show that Nike is listening to customers and it would also show that it’s trying to be more thoughtful when it comes to new sneakers.

Again, none of this is investment advice.

Have a great week!

Ahmed and Peter