2024 has been a seismic year for everyone's favourite global sports story, not the Olympics, Nike's 50-year (60 if you count Blue Ribbon Sports) rollercoaster ride of business ups and downs. Two CEOs, a historic stock crash, a brand masterclass at the Paris Olympics, and an endless supply of organic press on LinkedIn as everyone and their dog jumped on board a (too early?) hype train to declare the brand dead.
As we look towards the end of this year, and the collective good mood around Nike veteran Elliott Hill's appointment as incoming CEO the world seems a little rosier at the Swoosh. As a former employee of Nike, I feel the same sense of optimism. Elliot is an experienced hand who loves the brand, and an empathetic leader that understands the marketplace dynamics. At Nike a lot of the time culture really does beat strategy.
But most businesses don't have that luxury. Most need (at the very least) a bulletproof strategy to maximise culture. So it's worth pausing at this exact moment in time to look at how we got here, why decisions were made in good faith, why those decisions failed, and what you and your business can take away from that before we all get swept up in the inevitable rise of the NKE ticker again.
Another told you so Nike bashing article this is not, but there are concrete learnings that shouldn't be lost to time, so let's rewind 4 years.
Yesterday’s price is not today’s price.
2020. A year that will be remembered for many things and a year that seems like a lifetime ago now. It was also the year that Nike ushered in a new CEO, a new strategy and vision for the future direction of the company, and a more explicit move away from its historically successful (sports) category-led strategic offence and shifted its operating model to a more streamlined gender offence.
This big strategic shift aimed to solve 3 key areas:
1 - Simplify a go-to-market process that had become bloated, slow, and expensive.
2 - Reduce inefficiencies in a complex matrixed organisation that had grown from decades of growth across multiple sports-led categories (and the product creation and marketing engines to support innovation in those sports).
3 - Echo a more traditional DTC brand structure to crystallise a long-held desire to be a 100% DTC brand of the future.
This move was met with mixed reactions. While Nike has long been admired for its innovative marketing and strategic prowess, this pivot away from the traditional business-to-business (B2B) wholesale model has proven to be a double-edged sword, contributing significantly to its recent decline in sales and performance.
Fast forward to June 2024 and the publication of Nike's Q2 24 financial results, and the Streets reaction to those results – NKE shares at their lowest price since 2018, and a $24b loss in its market valuation. There are learnings to be made from this critical part of Nike's history that can be shared with other successful brands looking to simplify their operating model and/or make a play in the lucrative DTC space.
Operating model shift, beware – here be monsters!
For decades, Nike’s product categorisation by sport—running, basketball, football, and others—was a core component of its marketing and sales strategy. This approach resonated well with both athletes and consumers, creating a strong brand identity closely tied to performance and sport-specific excellence. When Nike was obsessing over the athlete (being the "Voice of the athlete") Product Innovation and Brand Desirability followed. In these periods of true brand mastery Nike very rarely had to talk about the product itself.
However, the teams and resources needed to support these matrixed specialised areas of excellence (specifically Product Creation, Brand, and Marketing) soon get expensive and complicated, in effect running several successful brands under one marque.
But how to simplify? A gender offence? Is 3 kingdoms better than 8?
We'll come to DTC further along this article, but some internal Nike data from its owned platforms had shown that DTC growth (in part) was driven by 'mum' making purchasing decisions for the family. Alongside this data, the CEO and board identified future accelerated growth needed to come from women's business and apparel (to offset some planned big footwear franchises being retired/declined).
So a pivot to a gender offence (at least on paper) was designed to help pull focus on these two opportunities:
1 - Make mum's shopping experience easier by signposting where and how to shop for her family members (and make navigation online and in-store easier).
2 - Internally pull focus and resources to accelerate growth where it is needed.
Initially, this was a deft move, certainly achieving growth in the desired areas of business. However, over the last few years, this growth has slowed and a full swing to a gender offence was softly rolled back in 2023.
For those of us who lived this, there are three key learnings (amongst others) on what ultimately caused this operating model shift to not be as effective in the real world as on paper.
Taking data at face value without applying your own tenure/experience to provide context. Historically Nike has flourished when it focuses on the power of Sport. Equally, it has gone through (and survived) rough patches when it forgets that. If the data is telling you "A", think about how that can live with your experienced and lived "B" to create something greater than the sum of its parts. Don't throw the baby out with the bath water.
Reducing the fidelity (sports vs gender) of your online and in-store navigation also shifts the way you tell product stories, and can inevitably lead to chasing trends. This in turn changes your relationship to innovation, the insight that goes into product and marketing, and the way you can lifecycle manage a product. This lifecycle management shift in parallel to a focus on DTC became a critical error for Nike (as we'll look at next).
The job of leadership doesn't end the day you deliver strategy, it begins. The 'why' behind the strategy should be clear to all employees, as should their role in it. Teams need to feel empowered but also supported. They need to see direction, clear communication, compassion, and collaboration from an organisation's highest leaders.
In hindsight, the re-categorisation risked alienating Nike’s core consumer base. Longtime customers, accustomed to finding the best products and storytelling for their sport-specific divisions, faced confusion navigating the new layout.
The sport-centric categorisation was more than an organisational tool; it was (and always has been) an integral part of Nike’s brand identity, reflecting its commitment to athletic performance and innovation.
The organisational shift (although designed with sound business reason) diluted this identity, making it harder for consumers to identify with the brand’s core ethos in a very crowded market(s).
If DTC was easy, everyone would do it.
With the success of several unicorn DTC brands over the last decade it's easy to see the allure for more traditional retail players to make a shift towards that model. The rewards can be incredible and Nike had been toying with the idea of a full DTC pivot for many years. Wholesale had not been performing at the same accelerated rate of growth as DTC, and an opportunity to strike on this momentum was identified.
Nike's own digital platforms specifically had driven huge financial growth and extended their reach.
Additionally, Nike has always been adept at seeing the future.
After successfully riding the wave of the tech boom (primarily eCom and Social) Nike began to see its future self as a hybrid sports/tech company with digital DTC and engagement platforms such as NRC, NTC, and .SWOOSH being a way to harvest and own data, funnelling consumers into a 'membership' led contactable database.
As such Nike predicted that a pivot to full DTC would foster a more direct relationship with its customers, increase margins, and reduce reliance on third-party retailers. This strategy aligns with broader retail trends where brands seek greater control over their sales channels and customer data.
Again, 3 years on, this isn't exactly how this shift has played out.
So what can we learn?
* DTC makes it hard to reset franchises without the brand reputation taking a hit on owned platforms as a 'discount retailer' as key styles start to perform less well (or in the case of Nike and the cycling industry, overstocked inventory that needs to be liquidated).
* The wholesale pricing pyramid (good, better, best) that Nike so successfully leveraged in the 2000s was a great way to lifecycle manage products off owned platforms. A pivot to DTC lost this competitive advantage and Nike.com is now almost always running some kind of discount promotion, i n turn impacting brand equity.
* Greater control of the brand 'voice' can also be a noose around marketers' necks when it comes to managing real-world market dynamics, and the reality of consumer trends (for example JD Sports can assort and market in a way that Nike can't).
* In this environment, owned DTC runs the risk of just working as an additional direct sales channel to supply wider (and capitalise on) trends that wholesalers create, rather than Nike having the ability to dictate and grow marketplace trends itself.
* Finally, in a crowded market like sportswear can a brand drive a trend/buying behaviour in the same way a true DTC unicorn can (serving a niche it has created)?
Those DTC unicorns that inspired the likes of Nike have done their growing up as DTC businesses, and built their foundational excellence and nimbleness as DTC businesses and then scaled. A major factor in Nike's declining performance was the lack of infrastructure and experience to support the rapid expansion of its DTC model. Unlike its established wholesale operations, which have decades of refinement and efficiency, the DTC channels require robust logistical support, advanced e-commerce capabilities, and sophisticated customer service operations—areas where Nike’s investments have lagged or become bloated (the enemy of speed and agility).
The wholesale model, comprising partnerships with numerous retailers globally, offered broad market reach and absorbed inventory risk. By reducing its reliance on these partners, Nike disrupted its supply chain efficiency and market penetration, leading to immediate negative impacts on sales.
The financial impact has been stark. Nike’s recent earnings reports reflect the strain of these strategic shifts. The company reported a notable decline in sales, particularly in regions heavily reliant on wholesale partners. For instance, the North American market, traditionally a stronghold for Nike, saw decreased revenue as the transition to DTC disrupted established retail relationships, supply chain efficiency and market penetration.
According to an analysis by Bloomberg, the pivot towards DTC has yet to offset the losses incurred from reduced wholesale operations. The significant investment required to scale DTC channels has not yielded proportional returns, placing additional pressure on Nike’s profitability.
"Nike’s approach, while innovative, lacked the phased implementation necessary for such a fundamental shift," commented a retail expert. "Competitors like Adidas have managed their transitions more cautiously, ensuring that wholesale operations continue to support overall sales while gradually building up their DTC capabilities."
For brands considering a similar path, Nike’s journey offers a cautionary tale. The allure of DTC is strong – higher margins, direct consumer engagement, and greater control over the brand experience. However, dismantling a well-oiled wholesale machine without a fully developed alternative can lead to unforeseen challenges. As the retail world evolves, brands must weigh their strategies carefully. The potential pitfalls of a rapid shift to DTC, without adequate preparation and support, are clear.
Nike’s experience begs the question: If it can happen to Nike, a titan in the industry, could it happen to your brand? The future will undoubtedly favour those who adapt wisely, balancing innovation with the foundational strengths that have long supported their success.
