Nike’s current turnaround strategy is demonstrating initial positive signs, but it will “take a while” for the company to return to a period of profitable growth, according to CEO Elliott Hill. Speaking from the company’s headquarters in Beaverton, Oregon, Hill explained the complexity of managing a global brand: “When we come to work we think about three brands, and then multiple sports under each brand and then 190 countries that roll up to our four geographies.” He added that each segment, from brand times sport to geography times country, is at a “different stage of the evolution.”
Reverting the Retail Strategy
When questioned about when investors could anticipate Nike reaching mid-to-high single-digit revenue growth with strong margins, Hill acknowledged that it “it’ll take time” and emphasized that the progress is “not linear.” He assured that the company has “the path” to achieve this goal through managing its portfolio. These comments come nearly a year into Hill’s tenure as CEO, a period where investors have been looking for clear evidence that his strategy is working amid declining quarterly sales and profits. Nike’s stock has fallen by about 12% in the last year, reflecting Wall Street’s uncertainty over the timeline for the company’s recovery.
Since taking over last October, Hill has worked to reverse many of the strategies implemented by his predecessor, John Donahoe, who focused heavily on selling shoes and apparel directly to consumers (DTC). Hill is shifting the focus back to wholesalers in an effort to regain shelf space that competitors have taken over. Hill explained that Donahoe’s intense focus on digital sales made sense during the COVID-19 pandemic when demand surged and supply was constrained. At that time, shifting product to digital commerce was a winning strategy that doubled revenue and margins. However, when the world normalized and physical retail reopened, continuing that strategy ended up hurting the brand because a segment of consumers prefers “to shop choice” across different distribution channels. Hill affirmed that the company is making strides toward reclaiming lost shelf space and is engaging with fresh partners, such as Aritzia, to specifically win over new, female shoppers.
Structural Changes to Drive Innovation
Hill is also revising the corporate structure, moving the business back to its historical roots. Instead of the previous segmentation by women’s, men’s, and kid’s (a strategy aimed at driving lifestyle sales), Hill is reorganizing the company so that departments are centered on individual sports. This structure involves small, cross-functional teams in each business segment, recognizing that the consumers and competition are different in each sport. This change is intended to reignite innovation, which Nike was previously criticized for lacking under Donahoe due to an over-focus on driving sales of classic styles like the Air Force 1 and Nike Dunks. By focusing squarely on the distinct needs of different athletes, the teams should be able to create and deliver better, innovative products for those specific consumers.
While many industry insiders expect a full recovery, broader macroeconomic challenges are making the turnaround more difficult. When reporting fiscal first-quarter earnings last week, Nike warned that it now expects tariffs to cost the company $1.5 billion in the current fiscal year, an increase from the $1 billion projected in June. These new duties are expected to impact the company’s gross margin by 1.2 percentage points. Hill told the interviewer that Nike is working to offset the cost of tariffs by leaning on its suppliers, factories, and retail partners. The company has also recently implemented certain price increases across its products, a measure expected to help blunt the financial impact of the new duties.
What The Author Thinks
Nike’s public concession that it over-indexed on Direct-to-Consumer (DTC) sales during the pandemic is a necessary admission that the physical retail channel is indispensable for brand health and market ubiquity. While DTC offers higher margins, its exclusivity risks alienating a crucial segment of shoppers and ceding critical shelf presence to rivals—a fatal flaw for a mass-market athletic brand. The shift back to wholesalers and the sports-focused reorganization correctly prioritizes innovation and market reach, suggesting that Nike has wisely accepted the lower DTC margins for the immediate goal of reclaiming market dominance and ensuring its products remain culturally unavoidable.
Featured image credit: Luis Felipe Lins via Unsplash
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