Nike races to keep from losing ground to more nimble rivals

When John Donahoe took over as chief executive of Nike four years ago, the company had a stranglehold on the sport of running, its largest category. Now, it is at risk of falling behind.

Seventeen Nike athletes won individual gold medals in running events at the World Athletics Championships in 2019, compared with just five representing all other brands combined. Its Vaporfly 4% running trainers were such a technological breakthrough that competing brands were giving their elite athletes permission to wear Nike shoes in races with the logo covered up. 

Four years later, the rest of the running world has caught up. The breakthrough of the Vaporflys — a carbon-fibre plate inserted into the midsole — has since been adopted by the rest of the market. At the 2023 World Athletics Championships, athletes representing brands other than Nike won more individual running gold medals, 12, versus Nike’s 10.

The changes in the running footwear market are the starkest examples of how much the sportswear industry has shifted during Donahoe’s tenure. Today, Nike’s competition goes beyond traditional rivals like Adidas as newer, more nimble shoe companies take market share.

Athletes who drove sales at the beginning of the century, such as US golfer Tiger Woods, are now in the twilight of their careers. And macroeconomic effects, from the pandemic to inflation and supply chain disruptions, have not favoured a global behemoth like Nike.

“We know we must be faster, increasing the pace of innovation, increasing the pace of market to consumer and increasing our agility and responsiveness,” Donahoe told analysts on an earnings call last month, as he announced the second big restructuring of the company during his term in response to slowing demand for its products worldwide.

The “everyday running category”, he added, “is the area where we have the most work.”

Wall Street analysts are concerned about Nike’s performance as its margins tighten and sales growth slows. Revenues for the most recent fiscal year, which ended in May 2023, rose 10 per cent year over year, but profits shrank 16 per cent. Excluding the nadir of the pandemic, Nike’s margins on earnings before interest and taxes are at 10-year lows. In December, it lowered its outlook for 2024, projecting sales growth of just 1 per cent, down from expected mid-single-digit growth.

The shortfall between the latest forecasts and earlier revenue projections, “is challenging CEO John Donahoe’s credibility”, wrote Jim Duffy, managing director of consumer and retail at Stifel. 

To be sure, Donahoe has moved quickly to make changes. A former chief executive of ServiceNow, eBay, and Bain & Co, he hit the ground running after taking the helm. In the early months of the pandemic, he implemented one of the largest overhauls in the company’s history, eschewing Nike’s internal organisation by sport categories — such as running, basketball and football — in favour of silos for men, women and kids. 

The changes were made in part to accelerate Nike’s transition away from relying primarily on selling its products through retail stores towards selling more directly to consumers, especially online. The latest restructuring, announced in December, is aimed at cutting $2bn in costs over the next three years.

In a statement to the Financial Times, Nike said the savings from this round of cuts would be reinvested into its running, women and Jordan brand divisions. Its newest running shoes, the Alphafly3, were worn by Kelvin Kiptum when he set a world record at the 2023 Chicago Marathon.

“We’ve proven in our labs that Nike racing shoes provide measurable benefits and we will continue to deliver breakthrough innovations for elite athletes and everyday runners alike,” the company said, adding that it would roll out newer models in the lead-up to the Paris Olympics.

When Donahoe first came to Nike it was “a period of a lot of disruption in the industry and globally”, said John Kernan, managing director at TD Cowen — even for big players with global name recognition. Nike’s primary rival, Adidas, has recently warned investors it could post its first annual loss in three decades, after cutting ties with Kanye West, the US rapper and designer of their Yeezy brand.

The age of social media has also allowed upstart brands to scale more effectively. Two newcomers in particular — Hoka and On Running — have benefited from stronger direct sales and strategic endorsements. They have also capitalised on the appetite from big retailers to reduce their reliance on Nike amid Donahoe’s emphasis on direct sales. 

Mary Dillon, chief executive of shoe retailer Foot Locker, said Hoka and On Running were two of its fastest-growing brands. The retailer said 36 per cent of sales in the most recent quarter came from brands other than Nike, up from 32 per cent the year before, and on track to reach Foot Locker’s goal of 40 per cent by 2026.

Hoka, originally a niche brand known for “maximalist” shoes with thick soles, is the fastest-growing brand in the Deckers Outdoor Corporation portfolio, outpacing sibling brands Ugg boots and Teva sandals. In December, Hoka took over the sponsorship of a top US competition for high school cross-country running, improving its visibility with the target youth demographic.

On Running, a Swiss brand founded in 2010, received a global profile boost in 2019 when tennis champion Roger Federer invested in the company. Since then, the company has gone public, signing top-ranked tennis player Iga Świątek as well as Hellen Obiri, the 2023 winner of the New York City and Boston Marathons. Both athletes had previously been outfitted by Nike.

Federer’s effect on On Running could be a template for Woods, who left Nike this week after 27 years. Both men spent decades of their pro careers in the swoosh while breaking records in their respective sports.

In the meantime, analysts think Nike should focus on its strengths. “It is still a great company, but the industry is much more challenging and there is only so much management can do,” said Kernan. “Brands cannot be all things to all people anymore.”