Nike Group (NYSE: NKE) is facing one of the most difficult situations in decades, as the world's largest sports brand has long left its competitors behind. But in June of this year, the company unexpectedly revealed that sales for the 2025 fiscal year may decline. After the news was exposed, Nike's stock price experienced the largest decline in history. On June 28th local time, Nike's stock price fell by 19.98%, and its market value evaporated by about 28.41 billion US dollars (about 206.46 billion yuan).
At a critical moment, Elliott Hill, the former global president of Nike, who had worked at Nike for 32 years from intern to retirement, returned to Nike headquarters in Beaverton, Oregon on October 14th local time to become the new CEO of Nike.
Wall Street attributed Nike's predicament to its exit from the retail partnership model and increasingly fierce competition. The accelerated implementation of the direct sales channel priority strategy by former Nike CEO John Donahoe has disrupted Nike's business relationships with traditional partners. Hill's rise to power has been highly anticipated by investors - they hope Hill can repair the relationship between Nike and its distributors, while retaining and motivating employees who have lost confidence in the company's development. It is crucial that he also accelerates the development of new products and revitalizes Nike's proud spirit of adventure.
On October 15th Beijing time, it was Hill's first day back at Nike, and Nike's stock price slightly fell on that day. From now on, Hill's next move will largely influence Nike's stock price. Whether Nike can turn the tide in the future depends on the "three arrows" that Hill will launch next, or more.
The first arrow: reusing veteran players to return to the spirit of adventure
Multiple executives, including the Global President and China President, have been updated, all of whom are Nike veterans
In order to reverse Nike's current situation, 61 year old veteran Hill, who retired in 2020, resolutely chose to return to Nike. People who have worked with Hill describe him as someone who is good at listening and collaborating.
Regarding Hill's return, Phil Knight, co-founder of Nike Legends, bluntly stated that he is the most suitable candidate at this time.
In 1988, Hill joined Nike as an intern in Memphis and was promoted to management responsible for retail and e-commerce businesses in different regions in 2000. He was responsible for the global retail department and opened Nike's franchise stores in China. In 2010, Hill took over Nike's North American business and increased sales in the region by 60% within four years. Subsequently, he was promoted to the position of Global President.
Nike executives believe that Hill is one of the key figures in the brand's rise under the leadership of Nike veterans Knight and Parker, representing the adventurous spirit that Nike veterans have always upheld.
In 2020, when Nike's board of directors chose Donahoe to lead the company, he was the only second external CEO in Nike's 48 year history. Founder Knight initially hoped to bring Donahoe's Silicon Valley mindset to Oregon and keep Nike's e-commerce business up-to-date.
For Hill's return, a senior professional who has been deeply involved in the industry for more than ten years told the Daily Economic News reporter, "I personally think it's a good thing. Because Nike is in two different stages. In the past few years, due to the epidemic, when promoting digitalization, Nike replaced people who understand digital configuration and online business. However, Nike's soul actually lies in the 'adventurous spirit', which is the innovative spirit of daring to take on failure and ultimately achieve success. The most important goals of professional managers are profit and revenue. For Nike, it has also lost the most important adventurous spirit of Nike.
Under the management of professional manager Donahoe, Nike deviated from its brand DNA, and rehiring Hill was the first step in reshaping Nike's brand culture, "said Anna Andreva, an analyst at Piper Sandler.
Just before Hill took office, Nike appointed a recently returned executive to oversee its North American business. On October 10th (last Thursday), Nike announced that Tom Peddie will serve as the General Manager of the North American region, which is currently Nike's largest regional market.
Pei Di previously worked for Nike for about 30 years, spanning different business segments and responsible for global sales, emerging markets, and wholesale partners. Nike hopes that his arrival can repair the relationship between the company and its partners, and solve problems such as declining sales.
Whether it's the newly appointed CEO Hill or the general Petty, their return sends a signal that Nike will adjust its business strategy and return to the days before Donahoe took over Nike. In the eyes of industry insiders, this means that Nike will shift towards closer wholesale partnerships, more impactful product innovation, and a focus on performance footwear and apparel.
In Nike's internal view, recruiting more veterans who understand and practice Nike's traditional brand culture in this way may help reverse the situation. Up to now, Nike has rehired and promoted several key players who were former long-term employees of Nike.
Now Nike is recalling many elderly people because the old Nike people understand Nike very well. They have been immersed in Nike's adventure culture from the beginning. The new CEO Hill has experienced Nike's most glorious times, including the ups and downs after signing Jordan. The same goes for Petty, who was appointed in North America. These elderly people know how to drive innovation and business growth, "the industry insider told reporters.
According to recent news on Nike China's official website, Dong Wei will serve as the Chairman and CEO of Nike Greater China and the Global CEO of the ACG brand. Dong Wei joined Nike China in 2005 and has served as the Global Vice President and General Manager of Nike Greater China for the past 10 years.
With Hill's return, Wall Street generally expects more changes in Nike's top management.
Second Arrow: Transforming Marketing Models and Repairing Dealer Relationships
Make every effort to reignite the momentum of Nike's wholesale business
In 2020, when Donahoe became the CEO of Nike, he had already served as the CEO of three companies - Bain&Company, eBay, and ServiceNow, a cloud computing company.
Nike hired Donahoe to transform Nike's sales mechanism, making the company more adaptable to modern society, reducing intermediaries, and hoping to obtain higher profits from each sale. This strategy is called DTC (Direct To Consumer), which is a business model that sells products directly to customers, bypassing third-party retailers, wholesalers, or any other intermediaries.
At that time, Donahoe led a global corporate layoff, cutting off partnerships with more than half of retail partners, terminating hundreds of agreements, and reducing the size of the global market sales team.
As Nike redirected customers to its stores and website, it also stopped supplying sneakers to retailers such as Amazon, Zappos, Dillards, and Urban Outfitters, and even reduced the supply of products from its closest partner in the United States, Foot Locker.
The seemingly effective strategy led to Nike's DTC revenue reaching $18.7 billion in the 2022 fiscal year, a year-on-year increase of 14%. Among them, Nike's brand digital business grew by 18%, and Nike's self operated store revenue increased by 10%. The proportion of direct operating revenue in total revenue for the 2023 fiscal year has reached 43.6%, and the revenue scale is 1.5 times that of the 2017 fiscal year.
Since Donahoe accelerated the promotion of its direct sales channel priority strategy, Nike's competitors quickly occupied the vacant shelf space: Adidas, New Balance, Puma, and a large number of running shoe brands suddenly found themselves gaining more exposure, many of which were sports nouveau riche, such as Hoka, On Run, and Salomon, which eroded Nike's market share in its most important categories.
The aforementioned industry insiders told reporters that the DTC model can improve the profit margin of products (because it does not need to go through distribution channels), which is a good strategy. However, Nike has been quite aggressive in the past few years, tilting resources towards this area and ignoring or reducing support for partners.
But with the increase of macro unfavorable factors such as economic slowdown in Europe, the Middle East, and Africa, coupled with the continuous decline in online traffic, the DTC model's boost effect on Nike's overall revenue is becoming increasingly limited. In the face of new challenges, in order to ensure the continued growth of the brand, Nike has to find new growth directions.
During Nike's recent earnings conference call, CFO Matthew Friend emphasized Petty's return. He said that Petty, other team members, and company partners are "doing their best to reignite the growth and momentum of Nike's wholesale business
According to Williams Trading, a brokerage firm, in a report last month, "Nike wholesale partners we have talked to are very satisfied with Mr. Petty's return.
Regarding Nike's future sales model selection, the aforementioned industry insider stated, 'I personally believe that Nike has no intention of not doing DTC. DTC and dealer channels are not either or.'. Nike will not give up DTC. Just slightly reduce or maintain the same level, and then allocate energy to improve our partners. This is Nike's incremental market.
In the Chinese market, Nike mainly opens brand stores through agents such as Taobao. Since the establishment of cooperation between Taobao and Nike in 1999, Taobao has been Nike's largest retail operation partner and customer in China (based on purchase amount). According to Taobao's financial report, Nike and Adidas, as its main brands, have contributed over 85% of total revenue for consecutive years.
Industry insiders told reporters that Nike's DTC strategy has little impact on Taobao and other companies, while foreign distributors are more affected.
In foreign countries, these dealer stores are mostly collection stores (which can be understood as shoe supermarkets), so if Nike's goods are reduced, other brands will naturally make up for it. Nike's sales will decline, "the industry insider further analyzed.
According to foreign media reports, in order to quickly repair relationships with overseas partners, Nike executives have already received their retail partners and showcased products planned to be released in the second half of 2025. In addition, Nike is also investing in its partner stores to develop new areas in Foot Locker and Dick's Sporting Goods stores.
The third arrow: Accelerating the development of new products, emphasizing that products are king
The spirit of 'product is king' has been lost in the past few years. Winning runners is very important
As is well known, Nike can be considered a master in product breakthroughs and driving sports culture trends. But after Donahoe took over Nike, Nike's most successful shoe styles were some of the company's oldest styles.
Donahoe is skilled in cost management and is considered an experienced technical executive and consultant, but he knows very little about sports shoes.
During his first two years in office, he was successful. At the initial stage of the COVID-19 epidemic, Nike's sales increased by about 25%. Donahoe has launched a large number of sports shoes to the market that consumers cannot put down. Nike has released more Dunk, Air Force 1, and Air Jordan 1 shoes, which were developed about 40 years ago and come in hundreds of colors, with new styles almost every day.
During Donahoe's tenure, one of the few new products was the Nike Air Max Dn released by Nike in March this year. This technology is essentially a dynamic air cushion, or a sole cushioning system based on Nike's previous Air technology, "said Pan Jun, a senior figure in the fashion industry with more than 20 years of experience, to reporters." (Under Donahoe's leadership, Nike) obviously has no innovative products, only excessive marketing. Nike has lost the spirit of 'product is king' in the past few years. I hope it can recover in the future.
At present, Nike is working hard to manage the three main shoe series of Nike Dunk, Air Force 1, and Jordan 1, which once pushed the company's sales to $50 billion, but since last year, these shoe winners have gradually lost their appeal. CFO Flender stated that in order to create a better balance, the company is intentionally reducing the proportion of these series in its business while refocusing on performance sports shoes and clothing. He also listed football, fitness, and running as growth areas.
During the previous earnings conference call, Nike emphasized its business advantages in the running field and stated that it will launch new products priced below $100 in the future.
The fundamentals of the running category still lie in traditional brands such as Nike, Adidas, and Arthurs. Nike's first pair of shoes was running shoes, which they have been making for 50 years. The accumulation of tradition is deep enough that as running gradually becomes a specialized sport, people's demand for this professionalism will be stronger, "said the industry insider.
Nike has been criticized for not prioritizing runners in its products in recent years, which was once one of its key markets.
We acknowledge that we have lost market share in the professional running channel, "said Flender, emphasizing the importance of this niche market. He added, 'Nike is a running company, Nike is a running brand, and winning runners is very important for Nike.'.
At this critical juncture, both Wall Street and Nike itself hope to see more of the "adventurous spirit" of old Nike people in the newly appointed Hill.
After all, Nike has not launched a breakthrough new product that the company can rely on for a long time. The public hopes that Hill can inspire Nike's designers and sneaker developers to bring more best-selling shoes to the market. The company's advantage in the product side is being caught up. However, Frank Cooker, a senior sneaker designer at Nike, has announced his return. This is good news, "said Pan Jun.
But the new model may take a year or more to target the end market. According to industry insiders mentioned earlier, "It's already October, and the 2025 goods on the dealer's end have been ordered. The new CEO's business will start from 2026.
Analyst Andreva added, "Although we believe Hill is a driving force for change, fiscal year 2025 may be seen as a transitional year, and fundamental recovery may take time. Currently, the company's stock is in a range of fluctuations
As of the close of October 14th local time in the United States, Nike's stock price has fallen by 23.92% so far this year, while the S&P 500 index has risen by 22.85% during the same period.
Major changes will not happen overnight. Especially for companies of Nike's size, seeing a substantial impact on the company's performance may require investors' patience, "said Adam Karamar, portfolio manager at Johnson Investment Management.