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(Bloomberg Opinion) -- Nike Inc. has gone and done it.
On Thursday, it parted company with Chief Executive Officer John Donahoe and replaced him with Elliott Hill, a longtime Nike executive who had retired in 2020.
Hill is a company veteran who should be able to reconnect with staff and retail partners. But with the depth of the decline over the past two years, a raft of sportswear upstarts nipping at Nike’s heels and Adidas AG CEO Bjorn Gulden proving himself to be an accomplished and nimble merchant, it won’t be quick or easy to get the $50 billion giant back on track.
It is surprising it took Nike so long to acknowledge the need for change. Donahoe’s position was looking increasingly untenable. With the company’s performance sliding and the shares down 25% this year, unusually, change at the top was being openly discussed. Last month, Bill Ackman’s Pershing Square Holdings Ltd. disclosed a $229 million stake.
The root of the current problems can be traced back to Donahoe’s strategy, after his appointment in 2020, of trying to turn Nike into a combination of a tech powerhouse and luxury brand.
Initially it worked. In June 2021, the shares soared to a record high as Nike projected that its sales would surpass $50 billion for the first time.
But prioritizing Nike’s own websites and stores and cutting back the supply of products to retailers, such as Foot Locker Inc., left gaps on shelves that were filled by rivals. That includes Adidas and New Balance, but also a host of challenger brands such as On Holding AG and Deckers Outdoor Corp.’s Hoka.
Meanwhile, Nike’s sneaker hit factory stalled. After popular styles caught on with fashionistas, such as the Airforce 1, Nike Dunk and Air Jordan 1, there was little new footwear to take their place — or inspire shoppers.
At the same time, fashion tastes pivoted away from chunky basketball sneakers to lower-rise retro styles, led by Adidas’ Samba. Nike has a portfolio of such items in its archives, such as the Cortez, but while Adidas’ Gulden quickly realized that Sambas were trending and ramped up their production, Nike was slower to shift to this aesthetic.
Hill will be familiar with the Nike history and culture and well regarded among many of its staff. Consequently, he should be able to galvanize employees and lift morale after a string of departures.
Top of his to-do list will be coming up with some sneakers that shoppers want to buy again. Nike must reach out to athletes in the running category, for example, where it has lost ground to On and Hoka.
But as the popularity of the Airforce 1 and Dunk show, Nike is also a fashion brand. It must sharpen its style credentials and win sales back from Adidas. It should take a leaf out of Inditex SA’s Zara’s book and develop products more quickly. It also needs to have a pipeline of fresh footwear so that it can avoid making the same mistake again by relying too much on one franchise.
Hill must also intensify the work that Donahoe began this year, rebuilding relationships with retailers to get more Nike sneakers into stores. After all, Nike doesn’t just sell to sneakerheads but a broad demographic. In July, it rehired Tom Peddie, a veteran executive who had worked for Nike for 30 years before retiring in 2020 to spearhead these efforts.
Finally, Hill must simply get Nike’s groove back, returning to the marketing it was once known for, and reviving the allure that made some of the world’s leading brands want to partner with it. Its notable that LVMH Moet Hennessy Louis Vuitton SE’s Loewe, one of the hottest around, has collaborated with On. Just a few years ago this would most likely have been Nike.
All of this will take time. “Things haven’t been easy,” Hill wrote in a memo to staff, seen by Bloomberg News.
That’s understating it. It can take more than a year to bring new products to the market.
Adidas is showing no sign of weakening — indeed, cycles where either Nike or Adidas is dominant can last several years. Even though Nike remains the leader, the sportswear market has become much more fragmented and crowded.
Against this backdrop Hill should look to rebase expectations, to get all the bad news out of the way and move forward. Initial relief that sent the shares up as much as 9% after market could prove short-lived.
This summer Nike unveiled its new slogan “Winning Isn’t for Everyone.”
After the turmoil of the past few years, the company can’t afford to lose again.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Andrea Felsted is a Bloomberg Opinion columnist covering consumer goods and the retail industry. Previously, she was a reporter for the Financial Times.
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