Neal's Deals (Vol. 69) - Sole Searching: How Nike Lost Its Footing ??????
Hey everyone - As some of you may know, this has been a challenging year for Nike. The stock is down more than 25% over the last year, a far cry from the S&P 500’s 25%+ gain over the same period. Yesterday’s poor earnings report shows that its cost-cutting measures and restructuring may not be enough for the company. Moreover, Nike’s 1% sales growth this year is their worst in 25 years outside of the recession and pandemic. The point being, the once flashy brand is losing its allure amongst customer segments and the many sports it once dominated.
Leadership changes and conflicting opinions certainly didn't help, but this stagnation boils down to one word: innovation. The company's failure to stay ahead of product and market trends is increasingly evident, and addressing this issue is crucial to regaining their footing.
I know this is an early-stage tech newsletter, but history repeats itself and some of the best lessons can be dissected from our predecessors. That is why in this edition of Neal’s Deals, we highlight the missteps Nike has taken over the past two years, the repercussions, and proposed strategies for remediation.
What went wrong?
Nike's recent challenges are multifaceted, but many insiders trace the brand's shortcomings to decisions made early in John Donahoe's tenure as CEO, which began in January 2020. Donahoe's arrival coincided with an exodus of veteran designers, marketing experts, and executives, leading to several waves of restructuring that centralized decision-making. The company heavily invested in its booming retro sneaker business, capitalizing on the demand for iterations of vintage Jordans and Air Force 1s. Although these strategies initially boosted sales by 19 percent in fiscal year 2021 and increased gross margins to a six-year high, Nike began losing ground in the performance products category.
Historically, Nike's brand was built on performance products and associations with elite athletes, reinforced by iconic ad campaigns. However, recent years have seen a shift in focus, with marketing campaigns promoting easy slip-on shoes for children alongside undifferentiated content. Additionally, Nike has reduced its culturally savvy teams in key cities, trying to dictate culture from its headquarters in Beaverton. This shift has led to criticism, with many noting a lack of ingenuity in product innovation.
What are the repercussions?
Stale and slowing sales across segments.
Basketball: Nike's recent struggles in the basketball segment can be traced to a series of blunders, one of most notably being the delayed termination of its deal with Kyrie Irving in December 2022 after the athlete shared a link to a film with anti-Semitic views. This partnership had already been fraught, with Irving publicly criticizing the design and marketing of his Kyrie 8 sneaker. Regardless, Nike's performance on and off the court has faltered noting a repetitive design approach across its signature basketball shoes.
Running: Nike, once a leader in the running segment, has missed out on the running boom despite its deep roots in the space. Run clubs frequently see representatives from New Balance, Hoka, and Asics, who regularly attend events to promote their products. In contrast, Nike has been notably absent, with only two road demos in three years. Despite its efforts to reinvest in the running category, Nike's current presence in the running community is overshadowed by other brands that have tapped into the growing and inclusive post-pandemic running culture.
I keep going but these are just a few worth mentioning…
Remediation?
In December, Nike announced a $2 billion cost-savings plan that includes significant layoffs, with projected severance costs up to $450 million. To achieve these savings, Nike plans streamline its organization through an aggressive "save-to-invest" program, which involves simplifying its product portfolio, increasing automation and the use of technology, and focusing on new product launches. CFO Matt Friend informed investors that Nike would cut back on supplies of "classic" shoes, including the popular Air Force 1 sneakers, to prioritize new product development in underperforming segments. This marks a major shift from five years ago when basketball shoes from the Jordan brand and styles like the Air Force 1 and Nike Dunk drove sales.
Also, Nike has previously stated it can make more than double the profit selling goods through its own website and stores rather than wholesale partners. The company focused its resources, marketing, and top products on just 40 select retail partners, like Dick’s Sporting Goods and Foot Locker. However, this change hurt sales, leading Nike to bring back many of the retailers it initially cut out...
Taking inspiration from Phil Knight’s "Shoe Dog," one of my favorite books, Nike may need to go back to the drawing board and make radical changes to the status quo of performance footwear. Otherwise it is hard to foresee anything changing.
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Let’s get to it:
TestParty , a New York startup that helps to create accessible websites using automated tools, raised a $4 million seed round co-led by Harlem Capital and the Urban Innovation Fund.
Why this is interesting: TestParty aims to help businesses automatically rewrite source code to comply with global digital accessibility regulations such as the European Accessibility Act and the Americans with Disabilities Act. Currently, nearly all of the world’s most popular website homepages fail to meet the Web Content Accessibility Guidelines, preventing individuals who are blind or need assistive devices from fully engaging with most websites. The idea originated from the founder's experience at Twitch, which faced a lawsuit in 2021 for lacking digital accessibility. The team also recognized the increasing regulatory pressure, such as the EU's management of digital accessibility complaints starting in 2025 and the U.S. mandate for compliance in local, state, and federal institutions. The belief is that as more digitally native businesses launch, consultants will be unable to keep up with the pace, highlighting the crucial role of needing an automated solution. Given the compliance-driven nature of the business, to me, its success hinges on the continued push for new legislation and regulatory scrutiny.
Fantasy Chess , a?startup founded by?chess champion Magnus Carlsen that is building an interactive chess platform,?raised a pre-seed round from?SN? Ventures, Coatue,?Breakthrough Initiatives,?and Thiel Capital.
Why this is interesting: Arguably, half of the diligence process in evaluating early-stage startups involves assessing whether the founders are the best people to execute upon the mission. Considering that the world's best chess player is the founder of this company, reaching a decision likely didn't take long. After testing a fantasy game with Norway Chess at its tournament last May, Fantasy Chess now aims to expand beyond the traditional genre of the sport. In this instance, participants selected specific competitors' pieces to follow, winning points if they captured other pieces and losing points if their own pieces were captured. The founders envision creating new content for chess and presenting it in a better way, believing that other elite players and content creators will want to use Fantasy Chess to reach larger audiences. They have already had top players test the game and express excitement about being part of it, seeing the potential for more engaging content around chess broadcasts. Anyways, feel free to reach out if you want to be a part of Neal’s Deals fantasy chess league; will host a great draft party.
Created by Humans , a San Francisco startup that helps authors and creators license their creative work for use in AI models, raised a $5 million seed round from Craft Ventures, Floodgate, Launch, and Slow Ventures.
Why this is interesting: It seems like every week brings a new lawsuit from media organizations, author groups, or artists against generative AI companies for using their work to train models without permission. The lack of a clear framework on what constitutes copyright violation in this context keeps copyright lawyers busy. Created by Humans aims to bypass these legal battles by offering a marketplace where creators can directly license their intellectual property to LLMs. The platform allows authors to submit their work and AI companies to purchase specific elements with predefined usage rights, although the exact details of its licensing agreements are still evolving. Created by Humans proposes a set of guiding principles called the Fourth Law advocating for human consent, control, compensation, and credit in AI content usage. For example, an author can choose what content to license from their books, and he would have a dashboard to track usage and earnings. This opportunity is particularly compelling as the startup is setting the precedent for monetizing and tracking creative work in the evolving world of AI.
Deals in the Works:?If you want to learn more - feel free to reach out
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Quote of the week:
“Where liberty dwells, there is my country.”
— Benjamin Franklin ????????????
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Will be taking a short break next week from writing the newsletter. Have a great weekend everyone, and Happy July 4th!