Did Nike lose its Cool or its Place?

Everyone seems to be dunking ON Nike, instead of dunking with Nike shoes this week. Bloomberg starts its ‘The Man Who Made Nike Uncool’ with the Panda Dunk – an initial blockbuster that became ?‘a cultural signifier that someone is new into sneakers or just doesn’t care about them all that much.' At the 2023 Got Sole sneaker convention, the shoe was called out by an attendee as ‘the worst sneaker of all time’. That surprised Nike executives, having monitored the product flow with precision, restocking the shoes just often enough to keep them circulating but still scarce, a typically successful Nike tactic.

So what went wrong? As usual in marketing, all 4 Ps play a role: product innovation was lacking in the last years, prices saw large discounts at Nike.com, and promotion spent less on brand and more on activation. Given the large sales effect of distribution though, I would argue that Nike’s main mistake was the P of Place, aka physical availability in the terminology of the Ehrenberg-Bass Institute.

As to product and its loss of coolness: under CEO Donahoe, Nike’s most successful shoes have been some of its oldest:

Donahoe flooded the market with sneakers shoppers couldn’t get enough of. Nike released more Dunks, Air Force 1s and Air Jordan 1s—models all developed around 40 years ago—in hundreds of colors, with new drops almost daily. These were lifestyle lines meant as streetwear, not to be worn on fields or courts by the athletes who’ve driven Nike’s business since its inception. Watching revenue pour in, Donahoe was hooked.

Last year, at Nike record sales of $50 B, Donahoe told investors: “The consumer told us they wanted lifestyle product, and we delivered". At the same time though, retailers complained: “They are now becoming overrated, and we need to cancel them.”

GQ?questioned Nike’s coolness, and former marketing executive Massimo Giunco, who worked under all four CEOs over 21 years in five countries, wrote on July 28th about the Epic Sage of Value Destruction at Nike:

After his first tour around the Nike world, the CEO announced – via email – his decisions (using the formula “dear Nike colleagues, this is what you asked for…”):

1)??? Nike will eliminate categories from the organization (brand, product development and sales)

2)??? Nike will become a DTC led company, ending the wholesale leadership.

3)??? Nike will change its marketing model, centralizing it and making it data driven and digitally led.

Because Donahoe eliminated categories, products were no longer organized by sport, but by gender, like any other generic fashion brand. Most importantly, Donahoe cut loose retailers such as Belk,?Big 5 Sporting Goods,?Bob’s Stores,?Boscov’s,?City Blue,?DSW,?Dunham’s Sports,?Fred Meyer,?Macy’s,?Olympia Sports,?Shoe Show?and V.I.M. “Although we are disappointed by Nike’s decision, we are encouraged by the response of other vendors,” Big 5 CEO Steven Miller told his investors. Cutting out middlemen to improve margins,Nike directed customers to its own stores and websites, and halted the flow of sneakers to retailers, including?Amazon,?Zappos,?Dillard’s?and?Urban Outfitters.

Perhaps nowhere was this change more threatening than at half-a-century partner Foot Locker, where Nike products accounted for about 75% of sales, dropping to 70% in 2021, and ?below 60% in 2022. The retailer had to switch to competing shoes. ?

As Bhasin and Meier wrote 2 days ago for Bloomberg:

“Instead of transforming the sneaker giant into a high-tech powerhouse, John Donahoe pissed off partners and disappointed fans.”

What is often overlooked though is that Donahoe did what Knight tasked him to do: ?modernize Nike’s e-commerce capabilities and shift more business to its own stores and online shop.

That second part proved a big mistake: physical availability is key to sales, and cutting distribution a bad idea for any but the highest involvement products and services. Did Nike fall for the typical marketing myopia that most customers are willing to go out of their way to get their hands on a pair of sneakers? ?As Massimo put it:

Consumers are not so elastic as some business leaders think or hope. And consumers are not so loyal as some business leaders think or hope. So, what happened? Simple. Many consumers - mainly occasional buyers - did not follow Nike (surprise, surprise) but continued shopping where they were shopping before the decision of the CEO and the President of the Brand. So, once they could not find Nike sneakers in “their” stores – because Nike wasn’t serving those stores any longer -, they simply opted for other brands.

The new strategy determined the end of the marketplace occupation. Nike opened unexpected spaces to competitors, small, medium, or large brands. And suddenly, certain brands started gaining market share, attacking Nike especially in those specialized categories where the company founded by Phil Knight and Bill Bowerman was once leader (i.e., running, football, fitness, training and, in part, lifestyle).

Nike’s previous CEO was Mark Parker (currently its executive chairman), a sneaker designer who’d risen through Nike’s ranks for decades and whose tenure includes some of Nike’s biggest advances, such as HyperAdapt 1.0 self-lacing shoes and the Flyknit manufacturing technology used in the Alphafly’s, the shoes we wore to Beat the T in Boston on Friday.

In December the company slashed its revenue forecast and unveiled a plan to cut $2 billion in costs, which included getting rid of 2% of the workforce. ?This year on June 28, the day after the company’s?latest earnings report, Nike had its?worst day in the stock market?since going public in 1980. ?As Massimo remarked, the DTC model actually LOWERED instead of increased gross margin, because of the lack of demand predictability (retailers worked with futures) and the “online appetite for discounts and the search for a definitive solution to the inventory issue.”

As GQ remembered: “ Nike built its untouchable aura on products that were extremely limited in both supply and availability. This was most effectively done through a mutually advantageous relationship with a global network of sneaker boutiques and skate shops—the coolest stores run by the coolest people where the coolest people shop. Up until the 2010s, this was a thriving ecosystem in which Nike not only flourished but dominated.”

This year, Donahoe is aiming to repair those retail relationships to get Nikes back in stores. DSW and Macy’s are once again selling them, and?Mary Dillon, Foot Locker’s new CEO, has spoken of a?renewed commitment?between her and Donahoe. Nike has hosted wholesale partners at summits to showcase what’s in the pipeline. JD Sports’ Schultz has since said the retailer’s feedback is increasingly “taken into account.” In July, Donahoe?brought back a retired Nike veteran?of 30 years,?Tom Peddie, to help rebuild relationships with retailers, according to an internal memo. The road ahead is uphill, however:

On a recent visit to the upscale running chain Fleet Feet in Portland’s hip Slabtown neighborhood, the sneaker wall was dotted with shoes from its competitors, many of them new to the market, each vying for casual runners. Does the store carry any Nikes? “Not at the moment,” says an associate.