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September 20, 2024
What Does Nike’s New CEO Need To Do?
Nike Inc. ousted beleaguered CEO John Donahoe, bringing 32-year Nike veteran Elliott Hill out of retirement to recapture market share lost after what’s seen as a failed direct-to-consumer push.
Donahoe, formerly CEO of software company ServiceNow and eBay as well as worldwide managing director of strategy at Bain & Co., was hired in early 2020 to upgrade the company’s digital sales and engagement approach to elevate one-on-one relationships with consumers. He wound up accelerating a push to reduce or cut ties with long-time wholesale partners in a bid to directly sell and engage consumers and exit “undifferentiated” wholesale accounts.
The move paid off early during the pandemic as online sales surged but eventually enabled long-time competitors such as New Balance and Adidas as well as upstarts, especially Haka and On, to claim shelf space abandoned by Nike as consumers shifted back to in-store shopping.
Innovation efforts were also hampered by Donahoe’s lack of footwear experience. Nike rode a revival of the Dunks line from the ‘80s early in his tenure, but no new lines developed a strong following after demand for Dunks faded. An emphasis on limited-edition sneakers also led to oversupply issues. Donahoe acknowledged in March of this year that Nike missed the benefit third-party retailers provide in scaling launches in the marketplace.
Finally, multiple restructurings and Donahoe’s consulting-centric management style rankled employees, disrupting innovation, go-to-market plans, and morale.
In June, Nike warned that sales are now projected to fall by mid-single digits in its fiscal year that ends May 31, 2025, including a high-single-digit drop in the first half.
To revitalize growth, Nike has been repairing relationships with retailers like Foot Locker, Macy’s, and DSW. Nike also recently pared back the number of releases and is trying to rebuild the strength of its three key classic franchises: Air Force 1, Dunk, and Air Jordan. Last December, Nike announced plans to eliminate $2 billion in expenses over the next three years to be able to reinvest in growth initiatives.
Before retiring in 2020, Hill was president of consumer and marketplace, leading all commercial and marketing operations for Nike and Jordan Brand, including the P&L across the company’s four geographies.
Hill, who started at Nike as an intern in 1988, will have to overcome competitors’ momentum and the loss of several experienced designers and other executives.
“I know things haven’t been easy, and we certainly have taken our fair share of shots,” Hill said in a note to employees, which also included a video message, as reported by Bloomberg.
In the video message, he told employees they would need to “rally as a team” and “move with speed and a sense of urgency.”
Executive Chairman and former CEO Mark Parker said in a statement, “The board concluded it was clear Elliott’s global expertise, leadership style, and deep understanding of our industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, make him the right person to lead Nike’s next stage of growth.”
Discussion Questions
What should Elliott Hill’s near-term priorities be as he takes over as Nike’s CEO?
Do you like the hire?
Are internal missteps significantly more than external factors responsible for Nike’s recent underperformance?
Poll
Loading …BrainTrust
Mark Self
President and CEO, Vector Textiles
Shep Hyken
Chief Amazement Officer, Shepard Presentations, LLC
Lucille DeHart
Principal, MKT Marketing Services/Columbus Consulting
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The problem with an inside hire, of course, is that – presumably – he’ll attempt to rewarm old strategies, rather than come up with something new. Nike was built on two things: a technical superiority, and an aggressive, in-your-face marketing style. Tho I’m not an expert, I would think competitors have diminished the former over the years; as for the latter: the controversy over their Olympics spot suggests they haven’t changed that either…to my disappointment (and perhaps their eventual regret).
It is notable that Nike brought back a company veteran. It symbolizes a desire to get Nike back to where it used to be: an innovator, storyteller, and strong partner to retailers.
But Nike has a long road to travel in order to compete more successfully against younger, nimbler brands. And its reinvention coincides with a period of soft sneaker demand.
Hill likely has the skill and vision to turn the business around, but this will not happen overnight. A change of jockey does not automatically put the Nike horse out in front.
Nike shares jumped this morning as investors responded positively to a reshuffling at the sneaker giant’s top leadership post. Investors hope incoming CEO Elliot Hill can reverse the stock’s fortunes. The end of Donahoe’s tenure as Nike CEO coincides with dismally low expectations for Nike in its fiscal year ending May 2025. Consensus analysts expect Nike to report a 4.8% annual decline in revenue, its first year-over-year drop since 2010 (excluding the pandemic-affected 2020), and a significant 21.8% drop in profit
Hill will face many challenges as he and the Nike leadership advance their transformation plan.
There are several transformation strategies that Hill and the Nike team should leverage to accelerate growth and regain market share. Including:
I like what Nike is doing. They do not need to reinvent themselves. They need to go back to being the company they used to be. They were always innovative. They are rebuilding relationship with the retailers that gave them great visibility. When you combine that with the direct-to-consumer model, they have been using over the past few years, that could be a winning combination. The new CEO has The background and history with Nike that is needed to bring the past into the future.
It would have been super easy to hire another outsider, a “change agent” to turn things around, however Nike did that and it did not work. Promoting from within is the right move here, and I believe their fortunes will improve.
I want to see Nike get back to the “just do it” ethos of past regimes. They do not need to work out a new business models they need to get back to basics starting with working to dominate every sporting line they enter.
The current plateau of Nike is not unusual for a company and brand of this size. Many known mature brands go through reinvention cycles. The fact that the board placed an insider at the helm is a good start to reignite the Nike magic. Elliot-Hill should focus on reinstating the right wholesale partners to expand sales channels and initiate more internal innovation. I would not minimize the need to be digital first and to prioritize unique offerings for vertical channels, but I would incent stronger presence at top retail doors. With the rise of soccer, I can see the brand further embracing sports stars to create short term demand on new launches. Basically, they have the right ingedients already, they just need a fresh recipie.
By limiting channels of distribution, Nike assumed that customers would follow them. Big mistake. The mantra for most in the retail world regarding customers is ” meet the customers where they are”. Nike needs to determine how best to woo the customer back as many were “left at the altar” and moved on.
It must have been sooooo tempting for one of the most powerful brands on the planet to walk away from some of those pesky retailers. But…oops…look at all that shelf space that just opened up for existing and emerging brands. And for customers who insist on actually trying shoes on before making a decision. (As a shopper I have a little tolerance for different fits in tops, minute tolerance for different fits in bottoms, and zero tolerance for less than perfect fit in shoes.) The pandemic gave a momentary illusion of success, and then the reality of the importance of physical retail made itself know…again…still. This has been a great lesson about the partnership…the true partnership…between brands and retailers. Solid execution by both partners give each party a 1+1=3 perception by the customer.
Congrats are in order for the BrainTrust- a few years ago when Nike first announced their DTC strategy and the elimination of many retail partners, we all called “foul” and predicted it wouldn’t go well.
Well, here we are. Nike’s brand still has tremendous equity in the market, but… and this is a big but… they now find themselves having to recapture market share they’ve lost over the years as the competition has stepped up. Recapturing market share is expensive and difficult. Retreaded strategies (Pun intended) won’t suffice here.