September 2020, Singapore. The strictest lockdown in the world has been (mildly) eased, and the tennis courts in our Condo unlocked (literally). There is but one obstacle to me rushing onto the inviting blue surface. My much neglected tennis shoes have not aged well in the intervening months of mouldy neglect.
I drive to the nearest Nike outlet to get a like-for-like replacement only to find that the wall displaying basketball and tennis shoes has been redesignated Mens. The two other usable walls (the front display is glass) are labeled Womens and Kids. None of them have tennis shoes displayed.
Seriously impressed (and a tad puzzled) with the number of folks who have clearly taken to tennis in recent years (my old shoe was about three years old and I have not had occasion to shop for one in recent times), I walk up to the salesman to enquire when they are going to get stocks replenished. While chatting, I also ask why the shelves are not stacked by types of shoes, and instead by gender.
The answer intrigues me. ‘We won’t be selling tennis shoes at stores sir,’ I am informed. ‘Nike has decided that sports specific shoes will only be available online. We have been asked to mainly display shoes that can be used for walking or running, and the display type is now based on the buyer’s gender. All Nike stores worldwide are now following this directive. You will see we only have a few specialised shoes.’ I leave the store shaking my head. “How will today’s young kid ‘be like Mike’,” is the thought going round in my head, having spent several years in the United States at the height of the 1980’s craze for Nike shoes.
I still need new shoes before stepping on court, so I go online and buy a pair, hoping they will fit. I am lucky. They do. And they will serve me well for hundreds of miles of tramping across hard courts over the next four years. Then two months ago, it is deja vu time.
I wander into a Nike store in Mumbai, looking for a replacement for my covid baby. The conversation with the manager of the relatively empty store (the Adidas, Skechers and New Balance outlets next door are packed), is a rewind of the one I had had in Singapore four years ago. ‘Sorry sir, we don't stock tennis shoes. You will have to buy them online.’ Ten minutes later, neighbour Adidas has gained a customer.
While I found it a bit unsettling back in 2020 that Nike, the one time innovation leader in specialised sports shoes had now adopted a generic clothing store look and feel, now, I am truly intrigued. What had changed at Nike? Why would a one time market leader and a much admired brand, throw away what they were loved for? Why would they descend down a path that, even to a loyal customer, makes them seem an also-ran?
What Happened at Nike?
It is July 2024 and Nike’s shareholders have just seen $28 billion get wiped off their net worth in just one day. In their earnings call the previous day, while announcing that second quarter sales are down 10%, Nike’s executive management uses the word innovation a total of twenty four times in relation to turning things around. Under normal circumstances, investors would welcome a revival strategy. But in this case, there is a problem. Nike has got where it has because of innovating and staying ahead of the market. It is now talking about innovation as its new strategy. So what exactly has it been doing in recent years that has precipitated this financial meltdown?
In 1984 Michael Jordan was already a household name, but not quite the icon he will become. Nike was a medium sized firm with $920 million in revenue. The two decided that what they needed was not just an endorsement but a partnership. They signed a deal that gave Jordan a share of the sales revenue from the brand that Nike built around him. ‘Be Like Mike’ went viral and the Air Jordan tsunami swept the world.
Over the next few years, Nike and its swish would become the epitome of everything that is uber cool. It remained “cool” by staying at the forefront of the sneaker game — branding with top sports leagues and teams, working with premiere athletes, investing in research and development, releasing stunning ads and making sure buyers like me could find Nike products easily through retailers. While long-term marketing partnerships helped create demand, Nike simultaneously turned to long-term supplier partnerships to deliver a competitive advantage in its supply chain. Its early strategy of forging strategic supplier relationships helped Nike stay ahead of the competition by bringing innovation to its manufacturing and supply chain.
New CEO Changes Nike’s Game
The story of Nike’s transformation from market leader to a near straggler in its sector, and one who lost me as a customer, is a scarcely believable one. At its core, it owes its origins to the data driven strategy adopted by John Donahoe, the CEO who presided over the fateful earnings call and subsequent $28 billion single-day wipeout of its market capitalization.
Donahoe joined Nike in 2020 after a long career as a consultant who rose to become CEO of Bain & Co. Before Nike he had been at ebay and CEO of a cloud computing company in Silicon Valley. Nike at the time was launching its own apps, had started marketing itself as a bit of a tech company, and wanted to sell more of its products directly to consumers on its web site and own stores, a push that was a priority for co-founder Phil Knight. The only problem was that Donahoe had no experience in retail and had never had anything to do with the sports shoe industry. He did however understand finance, and the power of data.
Donahoe’s first priority at Nike was to focus on short term financials, a not unreasonable approach, and one that was driven by data. It is how he chose to use the data at the exclusion of everything else, that would be a matter of subsequent post-mortem. For the quarter-on-quarter focus on the bottomline came at the expense of two cornerstones of Nike’s success - innovation and long term partnerships.
Strong strategic partnerships had been the cornerstone of Nike’s success. They had always allowed Nike to position themselves better to deliver the experiences and services that their customers sought. But when Donahoe and his team moved away from strategic partnerships with suppliers and instead treated them as mere vendors focused on price, they missed out on innovation, better service and ultimately, profits, as former partners, now vendors, were less invested in the brand and the relationship.
The company shifted products from retailers to Nike’s own stores, making it harder to meet customers where they shop and reducing the buzz and windfall surrounding shoe releases. As Mark Wilson wrote in a feature article about Nike’s struggles for Fast Company, ‘The move diminished Nike’s ‘Futures Orders’ program, which allows retailers to preorder products months in advance, giving the company a cash infusion even before products go on sale. The loss of these small-store relationships had an unfortunate side effect: Nike severed a crucial feedback loop from the businesses closest to its customers.’
DTC (Direct to Consumer) sales approach through channels like their website, for example, undoubtedly cut costs, and the data told Donahoe that it was the way to go in today’s world. But the approach didn't just drive away loyal customers, it also had a long-term effect that Donahoe failed to grasp. The consumers his new strategy targeted were not going to buy Nike products online just on the basis of price. There were far cheaper alternatives out there. Their buying behaviour was equally driven by innovation, and they found that Nike was now just a commoditized product of Men, Women and Kids categorised sneakers, and the company’s ‘coolness’ had simply melted away.
The good news is that Nike has not entirely stopped innovating. The Jordan Brand and its 29% Y-o-Y growth is testimony to that. It has grown the brand’s fan base across multiple generations, and kept the Jordan range of shoes at the forefront of on-court and off-court usage. It has been strategic in its collaborations, partnering with artists, designers and other influential figures, and created exclusive products. But look beyond the Jordan brand, and it looks a completely different company set on a trajectory of self destruction.
By the time 2024 and the $28 billion wipeout happened, Nike’s annual revenues were $51 billion and Jordan endorsed products constituted $6.6 billion of it. In fact, the Jordan brand revenue had a 29% year-on-year growth. In contrast, Nike’s primary business lines today - Men, Women and Kids, grew 10%, 4% and 3% respectively. The warning bells had never peeled louder, and for Donahue, they tolled one last time late last year. He resigned.
Nike’s Future and the Lessons for Leaders
In October 2024, Elliott Hill, who had started as an intern at Nike (he attended a Sports Marketing class at college and wrote a paper on a company called Nike) and retired from the company in 2020, after spending more than 32 years with the shoe brand, was brought in to pick up the frayed reins at the sports shoe maker. During his tenure at the company, Hill had worked across departments and in both North America and Europe. Before retiring he had been running commercial and marketing operations for Nike and the Jordan Brand.
While Hill had been away, Nike had moved towards being a generic sports shoe company that catered to the masses. Nike’s strength and where the innovation also originated was from focusing on athletes, talking to them, getting insights that helped the company develop innovative designs and then find ways of marketing them through emotional narratives. For the past few years, that focus on athletes had dropped away, and 2% of the workforce had been laid off to save costs. Many of them were the very marketers that made Nike what it was.
The big lessons for leaders to take away from Nike’s unfortunate experience has to do with data. Data is ubiquitous in today’s world. There is nothing that companies want to know about their business and cannot get their hands on. If anything, the problem is one of plenty. The important question is how that data is used. This is where the discussion gets interesting.
Building a Data First Mindset is a critical leadership skill that is needed at every level of leadership today. It involves in the first place knowing how to use the humungous amount of data being collected and made available to them. But the greater skill lies in avoiding the mistake that Nike’s Donahoe made in sacrificing long term partnerships at the altar of short term gains, forgetting innovation and not focusing on athletes, everything that had been at the core of its long term success.
Two weeks ago Hill indicated that Nike has decided to go back to its roots. Hill’s turnaround plan hinges on sport-first innovation, brand storytelling, and marketplace integration. Precisely the qualities that once made Nike successful. It also happened to be the ones his predecessor had sacrificed at the altar of a single minded focus on data.
‘Every company has a core of what makes them great. Sport is the core of what we are about, about human potential and performance. We lost our obsession with sport. Moving forward, we will lead with sport and put the athlete at the center of every decision. Nike is back,’ Hill said in a recent interview.
Nike will undoubtedly swish back even if it takes time. But the lessons its travails these past few years hold for corporate leaders is to avoid making the critical mistake Nike did, adopting a data only (rather than first) mindset, and thus succumbing to the pitfalls of the new age conundrum - which comes first, the data chicken, or the strategy egg. The answer, as Bob Dylan would say, is blowing in the wind.
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