Lunch With Phil & Junior; Nike Deja Vu & 'Green Shoots' of Progress
5 min read @ 1450 words
It’s been a busy few weeks of news and earnings in our footwear world. “The Apprentice” drama at Under Armour, MLB’s own version of naked dressing, On’s surprise earnings loss and Allbird’s turnaround plans. An industry feast. Plenty to write about.
Change of plans. Today we’re going to talk about Nike. I’ve danced around the margins in past posts, but it’s time to dive deeper.
This post is going to piss some people off. Using some great advice I received early in my Nike career, “Get over it”. There’s nothing here that Nike hasn’t heard in the press or talked about on the corporate jet.
First, a story.
LUNCH WITH PHIL & JUNIOR
Circa 2018, we had just finished a product review with Ken Griffey Jr. We broke for lunch with plans to circle back later in the afternoon. My boss and I headed to lunch at the cafeteria in the Joan Benoit building. Surprisingly, he prodded me to enter through a door I’d never entered. He’d been at Nike for 30 yrs. Maybe he knew a secret short-cut?
Talking loudly, I went through the door first. Half a step in, I stopped in my tracks. My boss ran right into me, banging his nose on the back of my head. Now whispering, I said, “Uhhhh, we’re not supposed to be in here.” He started laughing and gave me a good shove into the room. This wasn’t the cafeteria. There was only one table.
Sitting near the back of the room was Phil Knight. He was sitting alone at a small table, chuckling a bit at my awkward entry. He immediately stood up, walked over and warmly said, “Hi, I’m Phil”.
My boss grew up at the brand and knew Phil well. They went way back to a time when the brand was small, hungry and bold. I was welcomed to the table. All awkward feelings melted away just in time for Junior (Ken Griffey Jr) to show up with one of our sports marketing teammates.
A table of five headlined by the founder of Nike and one of MLB’s greatest ever.
The five of us had lunch for two hours. Phil and Junior poked fun at each other like good friends do. I took my share after describing my time as a left-handed catcher and .200 hitter in Little League. We talked family, sports and our own passion projects. When guards are down, humanity emerges. That’s where the magic happens.
Phil and Junior aren’t likely to remember that lunch. I certainly do. It was an important bookmark, a confirmation for me of Nike’s purpose and genre-busting potential.
Sport is real. You gotta believe.
NIKE DEJA VU & ‘GREEN SHOOTS’ OF PROGRESS
Last week, Nike reported Q3-FY24 earnings and shared guidance for the next nine months. Quarterly earnings beat expectations and guidance for the first half of FY25 (Jun-Nov 2024) calls for revenue to decline low single-digits. (Numbers ; Transcript)
Normally I dive into the numbers and provide insider context. This time we’ll go deeper on strategy and what appears to be executive acknowledgement that Nike’s rebuilt engine has been sputtering.
“…we know NIKE is not performing at our potential” Nike CEO John Donohoe during the earnings call
Commenting further, he said:
“While our Consumer Direct Acceleration strategy has has driven growth and direct connections with consumers, it’s been clear that we need to make some important adjustments.”
We must sharpen our focus on sport.
We must drive a continuous flow of new product innovation.
Our brand must become bolder and more distinctive
Four years after taking the helm, it appears the CEO’s attempting to piece together the Nike 101 Playbook that was ripped up in 2020. It’s a move back in the right direction toward what Nike does best - LEAD FROM THE FRONT.
Unfortunately, this sudden deja vu has been costly across many fronts - financial, market share, employee morale and credibility.
A closer look:
Two Rounds of layoffs & $600-$700m restructuring costs (oregonlive)
2020: 700 laid off @ $200-$250m
2024: 1500 laid off @ $400-$450m
Consumer Construct Changes (Nike earnings Q&A section)
Product innovation and newness have suffered.
Jan 2020: Sport-based category offense
Jun 2020: Move to gender-based category offense
Oct 2023: Return to sport-based category offense
Consumer Direct Strategy (Re)Shift (Nike earnings)
Jun 2020: Consumer Direct Acceleration
60% revenue from DTC by 2025 (reuters)
Major reduction in wholesale partners. Focus on only 40 retail partners (sgbonline)
Jun 2023: Announced a re-embrace of wholesale (Nike earnings)
Industry analysts and experts have been vocal:
Talent drain:
“The loss of hundreds of years of institutional knowledge has had a devastating effect on Nike. Many new people are in jobs that they are not prepared for and are reporting to people who are in jobs that they, too, are not prepared for. Nike’s issues are fixable, but not in the short term. We are seeing a massive change in the sneaker world happening right before our eyes.” Matt Powell-adviser to Spurwink River and Sr Adviser at BCE Consulting as told to SGB
Strategy and Leadership
"Today, it appears as if consultants, rather than Nike experts are leading strategy decisions, senior leaders are too dogmatic, and do not welcome all opinions," Williams Trading analyst Sam Poser wrote in a note Monday as told by Footwear News
Newness and Innovation:
"What happened with Nike, and lots of brands during the pandemic, was they made a decision to play it very safe. They essentially shut down their innovation engine and said, 'We're not going to come out with new product because it's risky. We're going to lean hard on our tried-and-true, top best sellers because those are the safest shoes we have in the mix.'" Matt Powell to Footwearnews
“ ‘Innovation is an overused and misunderstood concept. Brands that played it safe during the pandemic and leaned on core products now look stale and dated (Nike, UA, Adidas). Brands that stayed fresh flourished (LULU, Hoka, On, NB)…” Matt Powell’s LinkedIn post shared on SGB
The refreshed product innovation pipeline
“The most important thing is for Nike to recognize that they need to bring something new to the market. And we see some product coming for the end of the year, but mostly beginning of next year (ie. 2025), that are exciting as a buyer.” JD Sports CEO Regis Schultz - Key Nike Retail Partner - as told to Footwear News
Three Big Things:
1/ Eventually the results reflect the culture:
Nike has 50+ years of innovation muscle memory along with a healthy dose of anti-establishment attitude. That doesn’t just disappear because of lay-offs or new leadership.
It can be suppressed. We’re witnessing the effects.
There are plenty of talented product folks on campus; some new, many well-seasoned.
Footwear teams: Time to push back at the risk-averse voices holding you back.
2/ Embracing change and ambiguity are keys to success at Nike, up to a point.
Nike thrives on change in all aspects of the business. It seeks and embraces it to stay on top.
The best leaders manage the delicate balance of just enough vs too much-too fast.
What were witnessing is a multi-year clean-up of too much-too fast that’s left many scratching their heads.
Attempts to reduce layers and simplify the organization have led to more layers and complexity in other areas. John Donahoe and Matt Friend (CFO) called this out.
Certain areas of Nike are always going to be a hairball. The best navigate and leverage it to their advantage.
3/ Wholesale retail matters in misunderstood ways
Some of my toughest career moments have come from criticism at the hands of wholesale retail buyers. Often in big conference rooms amongst my peers. Back in the old Foot Locker days, I had shoes thrown at me. We all did. Some days are battles. It made me a better product leader. It will do the same for you.
Product teams need to get outside the bubble of corporate safety and on the road with the commercial teams. Some trips are a hassle, others are revelatory. It’s always worth it.
Not only do you get feedback on your product, but you get it with real world context. Buyers see product from all brands and have reams of data on the competitive market place. See where I’m going?
Can your DTC retail team do this for you? Time to ask.
Long post - quick ending.