For years, Nike has been Louis Vuitton to everyone, building a world-class fashion business around a logo, a passion (in Nike’s case, a passion for sports), and a huge advertising budget.
The asset giant spent $4.3 billion on “demand generation” last year alone — a 10-figure sum on “the costs of support contracts, complementary product, television, digital and print advertising and media costs, brand events and retail brand presentation.”
More from WWD
Nike’s formula is a strong one — one that has been studied by rivals and partners looking to grab market share or get in on the action. But competition is heating up. It’s been particularly fierce in the run-up to the rise of brands like On, Hoka and Brooks, but Nike is also being approached by a number of other brands, including Adidas, which has been successful recently with its more relaxed Samba style.
Nike is still a clear leader, with $51 billion in sales last year and a market value of about $110 billion, but its advantage is waning and it is becoming an example of how a company with advantages like scale, brand awareness and passion can stumble.
John Donahoe, the company’s president and CEO since 2020, told analysts last month that Nike “has overcome the challenges and we have regained our edge.”
But it is still a topic that is being worked on.
“While fiscal 2025 will be a transitional year for our business, we continue to make real progress on our turnaround,” the CEO said.
Nike’s revenue fell 2 percent to $12.6 billion in the fourth quarter ended May 31. The company expects revenue to decline by high single digits in the first half of the fiscal year as it manages supply to its classic shoe retailers.
This has caused Nike shares to lose about 25 percent of their value in the past month, compared to a 17 percent drop in the company’s stock over the past five years, when the S&P 500 index rose 86 percent.
The brand failed to deliver the one thing that animates fashion and active brands: innovation.
“They’ve become hyper-focused on where to sell their stuff and have stopped focusing on what to sell,” Wedbush analyst Tom Nikic said.
In 2017, Nike began to organize its business around a direct-to-consumer strategy, reducing its wholesale accounts and focusing on nike.com, and shifting away from product.
“No brand has the resources that Nike has,” Nikic said. “No brand can invest more money in R&D than Nike. No brand can invest more money in marketing than Nike. Hoka and On [at $3.8 billion] It’s 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’re lax on product innovation, no matter how big you are, no matter how strong you are, the customer will look for something else.”
As innovation slowed, Nike began to turn to products that were previously rare.
“They started selling more retro Jordans and retro Dunks,” Nikic said. “And when you have a glut of those items, they lose some of their special sauce. We’ve seen retro Jordans go on sale sometimes, which would never have happened before.”
The company’s troubles mirror those of Vans, which fell in love with its old look and went bankrupt when trends changed, prompting a CEO change at parent company VF Corp.
Nike’s struggles have had a hard time hitting Donahoe, who was the former CEO of eBay and a longtime board member of the group before taking the top job.
“If John Donahoe is going to stay in that seat, I think a couple of things have to happen,” Nikic said. “First, he has to change his mindset. Maybe it’s going to be tough for him because he comes from a technology background, not a shoe background. But he’s going to have to be more product-centric and realize that the consumer is in the driver’s seat.”
There are signs that Nike is now realizing this.
Jessica Ramírez, senior research analyst at Jane Hali & Associates, said the company has been working recently to “recalibrate their platform” and “highlight sneakers that really resonate with consumers.”
He pointed to the Nike Vomero and the more casual Killshot silhouette.
“If they had made this plan a year ago and woken up to ‘Hey, we may be the biggest in the industry, it doesn’t mean we’re untouchable’ – because they put it off a little bit [and waited to revamp]“This affected them more than they expected,” Ramírez said.
“It’s been a tough year for Nike and we know in retail it’s usually two quarters and a year, there needs to be a change [in the CEO slot] “Because something is being trended in the wrong direction,” he said.
That Nike is going through a “year of transition,” that Donahoe appears to be on thin ice, that the powerful brand has had to revamp its strategy so significantly, sends a message to other brands struggling in a tough market and with a fickle consumer that pride comes before decline.
“You can’t get complacent,” Ramírez said. “You always have to be future-proof and future-proof through your retail strategy, your product and your operations. You have to be ahead of where you are if you expect to be a winner. And you can’t lose sight of consumer interest and the competitive landscape, how that changes, because the competitive landscape changes as consumers change their lifestyles. 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 associate managing editor Evan Clark, who has been covering the fashion industry since 2000. It is published biweekly on Thursdays.
The best of WWD