Nike is done and done it

(Bloomberg Opinion) — Nike has done just that.

On Thursday, the company parted ways with CEO John Donahoe, replacing him with Elliott Hill, a longtime Nike executive who retired in 2020.

Hill is a veteran of the company and should be able to reconnect with staff and retail partners. But the severity of the decline over the past two years, many sportswear startups nibbling on Nike’s heels, and Adidas AG CEO Björn Gulden proving to be a skilled and nimble merchant. Considering that, getting $50 won’t be easy or quick. The billion dollar giant is back on track.

It’s surprising that it took Nike this long to realize the need for change. Donahoe’s position looked increasingly untenable. This year, as the company’s performance has been weak and its stock price has fallen 25%, a leadership change has unusually become openly discussed. Last month, Bill Ackman’s Pershing Square Holdings went public for $229 million.

The roots of the current problems can be traced back to Mr. Donahoe’s strategy to transform Nike into a combination of a technology powerhouse and a luxury brand after taking over in 2020.

It worked fine at first. In June 2021, the stock soared to an all-time high as Nike predicted sales would exceed $50 billion for the first time.

But Nike’s decision to prioritize its own website and stores and cut product supply to retailers like Foot Locker Inc. has left a gap on the shelves that rivals have filled. This includes not only Adidas and New Balance, but also many challenging brands such as On Holding AG and Deckers Outdoor’s Hoka.

Meanwhile, Nike’s sneaker hit factory has stalled. After popular styles like the Air Force 1, Nike Dunk, and Air Jordan 1 became popular with fashionistas, there were few new shoes to replace them or inspire shoppers.

At the same time, fashion tastes veered away from chunky basketball sneakers and toward low-rise, retro styles, most notably Adidas’ Samba. Nike has a portfolio of such items in its archives, such as the Cortez, but while Adidas’ Gulden quickly noticed the Sambas trend and ramped up production, Nike was slow to transition to this aesthetic.

Hill is well-versed in Nike’s history and culture and is well-respected among many of the staff. As a result, it should be possible to encourage employees and boost morale even after a wave of resignations.

At the top of his to-do list is to come up with sneakers that shoppers will want to buy again. Nike, for example, needs to reach out to athletes in the running category who are losing out on the on and off.

But Nike is also a fashion brand, as evidenced by the popularity of the Air Force 1 and Dunk. The company must improve its style credibility and regain sales from Adidas. We need to learn from Inditex SA’s Zara’s book and develop products faster. They also need to have a pipeline of new shoes so they don’t repeat the same mistakes by relying too much on one franchise.

Mr. Hill also needs to build on efforts Mr. Donahoe started this year and rebuild relationships with retailers to get more Nike sneakers in stores. After all, Nike sells to a wider audience than just sneakerheads. In July, the company rehired Tom Peddie, a veteran executive who spent 30 years at Nike before retiring in 2020, to spearhead these efforts.

In the end, Hill simply needs to get Nike back on track, returning to the marketing it was once known for and reviving the appeal that made the world’s biggest brands want to partner with Nike. Notably, LVMH Moët Hennessy Louis Vuitton SE’s Loewe, one of the hottest brands, has collaborated with On. Just a few years ago, this would probably have been Nike.

All this takes time. “Things have not been easy,” Hill wrote in a memo to staff, seen by Bloomberg News.

That’s an understatement. It can take more than a year for a new product to come to market.

Adidas shows no signs of slowing down, and in fact, the cycle in which either Nike or Adidas dominate could continue for several years. Although Nike remains the leader, the sportswear market has become more fragmented and crowded.

Against this backdrop, Hill should try to reframe expectations in order to weed out all the bad news and move forward. The initial sense of relief that sent stocks up as much as 9% after the market close may be short-lived.

This summer, Nike announced a new slogan: “Victory Isn’t for Everyone.”

After the turmoil of the past few years, the company can’t afford to lose again.

More from Bloomberg Opinion:

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 the consumer goods and retail industries. Previously, he was a reporter for the Financial Times.

See more articles like this at bloomberg.com/opinion