Open Letter to Incoming Nike CEO: Innovate. Collaborate. Acquire.
To: Mr. Elliott Hill , Incoming CEO - Nike, Inc.
cc: Elliott Investment Management L.P. , Trian Fund Management, L.P. , ValueAct Capital , JANA Partners , Third Point LLC , Pershing Square Capital Management, L.P. , Silver Lake , Anson Funds , Ancora Holdings Group , Petrus Advisers , EQT Group , Permira , KKR , Clearlake Capital Group , Insight Partners , Bain Capital , Hellman & Friedman , 凯雷投资集团 , General Atlantic , Warburg Pincus LLC , Fortress Investment Group , Cevian Capital , Bluebell Capital Partners
Dear Mr. Hill,
Many congratulations for taking on the honour and privilege of one of the most exciting and daunting assignments in the world of business. Not just in the world of consumer brands but in the world of business.
Period.
As you know, the iconic 耐克 brand means so much in so many different ways to hundreds of millions of loyal customers and fans on the planet.
In fact you have made your contribution over the years to building Nike into a brand that enjoys a deep and personal connection with its legions of fans that few other brands do.
Nike is more deeply embedded in pop culture as no other sportswear brand.
Priceless.
To me, personally, Nike has meant action, motion, drive, hunger, passion, athleticism, style, innovation, entrepreneurship, quality, effort, reward, merit, diversity, unity, desire, persistence and most of all, cool.
Today, as you know, Nike finds itself in one of its most challenging phases in the company's storied history.
From a high of ~$180 per share in Q4 - 2021, Nike stock trades today at ~$85 at the end of Q3 - 2024. In other words, Nike's equity value has been effectively cut in half over the last 3 years.
The last time Nike stock traded at current levels was during the Covid-19 stock market crash in Q1 and Q2 - 2020.
Brands like On and Hoka have eaten into Nike's market-share and mind-share.
New Balance has made a remarkable comeback -- particularly in context of its vintage sneaker designs resonating will multiple generations at the same time.
It is time for Nike to take the initiative back.
It is time for Nike to go on the offensive.
As an active tennis player, cyclist, hiker, sports enthusiast as well as a life-long student and exponent of investing, growth strategy, corporate development and product management, I have studied the evolution of storied global sportswear brands like Nike, 阿迪达斯 , PUMA Group , ASICS , 新百伦 -- younger brands like HOKA , On and Under Armour -- legacy-rich sports gear brands like Head, Wilson, Babolat, Yonnex -- outdoor brands like The North Face , Patagonia , Arc'teryx Equipment , Salomon and even more specialised outdoor brands like Rab , Mammut Sports Group AG , Norr?na , Hagl?fs , among others.
So, please allow me to outline in this memo a few initiatives that would allow Nike to regain its mojo.
The strategy: To expand Nike's reach across various dimensions of pop culture.
From fashion to art to automobiles to watches to technology to media to electronics -- Nike should keep coming back with new, exciting and culturally relevant collaborations with brands that have a unique, distinctive and authentic voice.
If implemented, I am confident that these strategic moves would materially impact Nike’s revenues, profits and equity price.
As you can well appreciate, however, it all starts with re-kindling a genuine spirit of innovation in everything that Nike does. From product, pricing and distribution innovation to marketing innovation to supply chain innovation to partnership / collaboration innovation to M&A and corporate development innovation.
Innovation, innovation, and more innovation.
Genuine innovation.
If genuine innovation is rewarded internally by leadership within Nike, it will also be rewarded by customers and investors externally outside Nike.
Initiative #1: Nike Permanent Collaborations
Objective: To build lasting independent brands like Jordan.
Nike has already done several successful collaborations over the years to substantial commercial success -- the most iconic of which remains Nike x Michael Jordan spawning the multi-billion dollar franchise that is the Jordan brand today.
Most of these collaborations, however, had a pre-determined scope or a finite shelf-life or limited success.
Given the fast-changing tastes and trends in sportswear, Nike should turbo-charge collaborations (collabs) to more of those kind which can grow into major sub-brands on a permanent basis.
As they say, let a thousand blossoms bloom.
Take the venture capital (VC) approach to collabs.
Make smaller investments across a wider set of collabs.
After all, the collabs that go viral and catch on is as much art as it is science.
Most collabs will have limited success for a finite period of time. But by running a more prolific collab engine, Nike will be maximising odds of another successful collab that grows to become a multi-billion dollar brand like Jordan.
These future collabs could be with brands that share Nike's values, but crucially, with brands that open up whole new markets for Nike products.
I have drawn up a healthy list of collabs that would add significant value to Nike's brand equity, keep Nike's product portfolio fresh and exciting, considerably increase sales volumes, and most importantly, help launch entirely new and profitable sub-brands for Nike.
Notably, these collaborations will add enormous value to the collaborating brands as well.
Done thoughtfully, there will be very attractive synergies for all the collaborating partners.
Given that Nike already commands a sizeable lead in the North American market, perhaps it is time for Nike to devote more capital and management attention to international expansion via European and Asian brand collaborations. (I have specific business cases drawn up for each of these potential collaborations.):
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How these collaborations would unfold and what the critical success factors are for those collabs to work -- is something we can discuss in a more private forum.
Afterall, God is in the details.
It is worth highlighting that these collabs are not focused simply on a classic sneaker (as are a majority of collabs between sportswear companies and designers or celebrities).
The collab ideas I have developed cover Nike’s entire repertoire of products (and those of the potential partner companies).
It would be a pleasure to discuss the detailed business cases and specific product ideas for each of the above proposed brand collabs in due course with you.
Initiative #2: Nike as the world’s leading ‘All Seasons, All Terrains’ brand.
Objective: To position Nike to become the undisputed outdoor activities brand.
As the outdoor enthusiast community grows steadily, there are many long-term advantages for Nike to build the world’s leading brand/s in outdoor activities.
Globally.
Obviously, Nike's ACG (All Conditions Gear) sub-brand and Nike's Pegasus, Kiger, Wildhorse and Zegama trail-running shoes have been making inroads across outdoor activity segments.
However you will agree that, even compared with adidas' outdoor-focused sub-brand Terrex, Nike's ACG does not offer the product range, quality or credibility that ACG can deliver if more resources were devoted to developing ACG as a full-range viable option for outdoor enthusiasts.
According to Outdoor Industry Association, in the US market alone:
"Outdoor participation grew 4.1% to a record 175.8 million participants: 57.3% of all Americans aged six and older.?
For the first time ever, more than half of American women are participating in outdoor recreation: The female participation rate reached 51.9% in 2023, up from 50% in 2022."?
The ‘All Seasons, All Terrains’ philosophy would help drive Nike's uncompromising focus on quality and innovation across different terrains that can and should go above and beyond the current set of ACG offerings.
Such an ‘All Seasons, All Terrains’ strategy would include organic growth of the ACG sub-brand through product development, innovative partnerships and portfolio optimisation.
More importantly, however, the 'All Seasons, All Terrains' strategy would allow Nike to expand its growth aperture via inorganic growth, i.e. acquisitions of outdoor apparel and equipment brands with an existing “cult” following which can benefit from Nike’s deep R&D bench, world-class marketing expertise, production economies of scale, and world-wide distribution capability.
Therefore, I offer you a number of acquisition proposals in context of this expanded vision to help grow Nike into the world’s leading ‘All Seasons, All Terrains’ outdoor brand via inorganic expansion.
Some of these specialised outdoor brands brands sit awkwardly within larger publicly-listed consumer product conglomerates where the parent companies are not quite firing on all cylinders given their strategic, operational, marketing or financial challenges. Therefore, these world class outdoor brands (looking at you, The North Face) have been enduring years of under-investment, neglect or mismanagement.
Many of these publicly-traded entities have experienced 50 to 80% stock price declines in the bear market of 2022 and have never really recovered. As a consequence, the target outdoor brands can be acquired at 50% or greater discounts to their high stock price watermarks -- but even 50% or greater discounts relative to their intrinsic values.?
Other outdoor brands are independent and privately-owned, and therefore, are suffering from under-investment.
An acquirer like Nike can help these niche brands realise their true potential.
One can start with collaborations with leading outdoor gear brands like The North Face , Patagonia , Arc'teryx Equipment , Rab , Mammut Sports Group AG , Norr?na , Thule Group and a handful of other brands which command legions of loyal customers in this space.
In the process, Nike can turbo-charge its sales and acquire a whole new audience of loyal customers as well.
Identities of those potential acquisition targets (and the underlying detailed business plans for those acquisitions) can be provided to you and the relevant Nike executives at an appropriate stage in our dialogue.
Initiative #3: Nike Collabs with celebrities to support their favourite charities
Objective: Celebrities giving back to the community rather than pursuing purely profits.
Nike does celeb collabs all the time.
Adidas, Puma, New Balance and Reebok do too.
Nothing new in pure celebrity collabs.
However, what if Nike were to do collaborations in new and interesting ways with the world’s leading celebrities who are Nike fans already with an objective of supporting their favourite charities from part the profits generated out of such collaborations?
Which celebrity does not own a Nike?
Who isn't a fan of Nike?
So, if Nike can offer a platform to these celebrities to support their favourite charities and immortalise them with a custom design Nike shoe (or other Nike product) collaboration, then there would be few names in the celebrity universe not willing to take on such a "cool" opportunity.
As part of these collabs with celebrities, a non-fiction streaming series ( Netflix , 华特迪士尼公司 , 苹果 TV+, etc.) could be produced with the said celebrities discussing their favourite charities, how a collab with Nike would help those charities, candid interviews of what Nike means to them since their childhood, and vignettes of the Nike collab product development process with those celebrities.
I believe this would make compelling viewing.
Again, in a private setting, I’ll be glad to detail out this initiative in detail around specific celebrities and the envisioned content showcasing Nike products at a suitable stage in our engagement.
I believe the ideas, initiatives and strategies laid out in this memo for your consideration would propel Nike as the top brand among the discerning athletic communities and the outdoor enthusiast communities around the globe.
Crucially, these initiatives will draw in tens of millions of new customers who have either deserted the Nike brand altogether, lost interest in the brand or have never really engaged with the brand in any meaningful way.
By the time even some of these initiatives have been implemented, Nike's equity value would zoom back to ~$200 billion.
Investors, more than ever before, are not rewarding companies just for their current and expected revenues, margins and cash-flows. Investors, today, want to see multiple growth engines, i.e. paths to sustain and succeed. Those companies which demonstrate their growth engines are firing on all cylinders not only enjoy widespread investor sponsorship but actually command a premium equity multiple.
As an equity investor, strategy consultant and corporate financier, I’d be pleased to work with you and your leadership team to drive these initiatives from ideation to execution.
Greater Innovation + Better Collaboration + More Acquisition = Higher Sales = Higher Revenues.
Higher Profits = Higher Equity Value.
Innovate. Collaborate. Acquire.
Sincerely,
Managing Director, Neuron Partners
Chief Investment Officer, Neuron Investors
Email: [email protected]
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