Nike Brand Check-up: The Direct Bet That Gave Rivals Room
On June 28, Nike shares had their worst day on record, falling about 20% after the company warned that sales would shrink this fiscal year. Nike still sells more than $51 billion a year, and it is still profitable. But the symptoms point to a brand that stepped back from retail shelves, leaned on its classics and gave newer running brands room to grow.
Key takeaways
- Nike shares fell about 20% on June 28, 2024, the biggest one-day drop in the company’s history, after it guided to a mid-single-digit revenue decline for fiscal 2025.
- The direct-to-consumer push cut retail accounts and lifted digital sales, but NIKE Brand Digital fell 10% in the fourth quarter and the CEO has said Nike over-rotated away from wholesale.
- Sales of classic lifestyle franchises such as the Dunk slowed, and the CFO acknowledged a gap in Nike’s innovation pipeline.
- Running brands On and Hoka grew sales 46.6% and 27.9% in their latest fiscal years, and the Oregonian reported that Nike’s move away from wholesale opened shelf space for them.
Download the full Nike Brand Check-up (PDF): vital signs, timeline, diagnosis, treatment and sources.
What the June results showed
Nike reported fiscal 2024 revenue of $51.4 billion, up 1% on a currency-neutral basis. In the fourth quarter, revenue fell 2% to $12.6 billion. NIKE Direct revenue fell 8% to $5.1 billion, with NIKE Brand Digital down 10%. Wholesale rose 5% to $7.1 billion.
The outlook did the damage. Chief financial officer Matthew Friend told analysts that Nike now expects “fiscal ’25 reported revenue to be down mid-single digits with the first half down high single digits,” with first-quarter revenue down about 10%. The next day the shares fell from $94.19 to $75.37, the biggest one-day drop in Nike history, wiping out about $28 billion in value. On July 9 they closed at $72.46, about 59% below the November 2021 peak close of $177.51.
The direct bet went further than planned
In October 2017, Nike said it would focus its investment on 40 key retail partners out of a network of 30,000 retailers. John Donahoe, a former eBay chief, became chief executive in January 2020. That June, Nike announced the Consumer Direct Acceleration, which it called “a new digitally empowered phase” of its strategy. Along the way it cut or reduced accounts including Macy’s, DSW, Dillard’s, Urban Outfitters and Zappos.
Digital grew from about 10% of Nike’s sales to 30%, CNBC reported. But department stores and specialty shops are, in CNBC’s words, “massive customer acquisition engines.” Without them, brands have to spend more on marketing, which CNBC notes has become more expensive online. Reports that credit the last click can make that spend look better than it is (we explain the trap in our note on branded search inflation). In April, Donahoe told CNBC: “We recognize that in our movement toward digital, we had over-rotated away from wholesale a little more than we intended.” Nike restored Macy’s and DSW in 2023, and on the June call Donahoe said Nike is “embracing a more balanced approach to growing the whole marketplace.”
The classics carried too much weight
Under Donahoe, Nike bet heavily on classics such as Air Jordans, Dunks and Air Force 1s, the Oregonian reported. Friend noted that “In fiscal year ’19, the Dunk represented 0% of NIKE’s business.” In the fourth quarter, he said, “our lifestyle business declined in Q4 across men’s, women’s, and Jordan,” and Nike missed its plan partly on “lower sales of certain classic footwear franchises.” Nike is now tightening supply of those franchises and expects that to cost several points of revenue in fiscal 2025. Friend also conceded that “we had a gap in innovation in our pipeline.”
Running rivals took the shelf
The move away from wholesale opened shelf space for competitors including Hoka and On, the Oregonian noted. On’s 2023 net sales rose 46.6% to CHF 1.79 billion. Hoka’s net sales rose 27.9% to $1.807 billion in the fiscal year ended March 31, 2024. A June RBC report cited by Reuters put brands such as Hoka, Asics, New Balance and On at 35% of global market share in 2023, against 20% over 2013–2020. Donahoe now calls road running “a competitive battlefield.”
Our diagnosis
Nike treated distribution as a margin decision when it was also a brand decision. Stepping back from retailers raised the cost of reaching new buyers and left shelves to brands with fresh running shoes. Leaning on a few classic franchises left the brand short of newness when those franchises slowed. Nike’s clear brand position in performance sport was the asset at risk. Nike’s own plan points the same way: Friend said the company is “reinvesting nearly $1 billion in consumer-facing activities in fiscal ’25.”
What growing companies can learn
Owning the customer relationship is valuable, but partners often find customers more cheaply than you can. Before you cut a channel, measure what it does for reach as well as margin; a marketing audit should cover both. Keep the product pipeline ahead of your bestsellers. A brand that lives on its classics ages with them.
This check-up uses public information available on July 9, 2024. It is brand and marketing analysis, not investment advice.
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