This article was compiled with the help of generative AI based on data and analysis that is original to EMARKETER.
Nike's recent struggles highlight the risks of an ill-timed shift to direct-to-consumer (D2C) sales. The sportswear giant's sales slumped 10% YoY for the quarter ending August 31 as competitors gained market share.
It will take time, but Nike can turn things around because the brand strongly resonates with Gen Z consumers, our analyst Zak Stambor said on the "Behind the Numbers: Reimagining Retail" podcast. "I think they can, in relatively short order, execute on a strategy that gets them back to level ground and then to growth."
Here are three reasons behind Nike's recent challenges.
"The bulk of it, I'm going to say 50%, is just their failure to innovate," our analyst Rachel Wolff said. Nike has relied heavily on legacy products like Jordans and Air Force 1s rather than developing new offerings to attract consumers.
Even when the company debuted technologies during the Olympics, those products still aren't available in stores. “Even if you get excited about seeing it on an athlete, you can't really do anything with that excitement until next year or whenever Nike will eventually get those products into stores,” she said.
Nike's reduced presence at key retail partners like Foot Locker created an opening for newer brands like On and Hoka—and even established stalwarts Adidas—to take share, Wolff said.
The D2C strategy was "just the wrong strategy at the wrong time," Stambor added. “They ceded ground to these upstart companies that just ran with it and built connections with consumers.”
Nike's leadership focused on areas where the company was already successful rather than finding new ways to reach consumers, said Wolff. This contributed to the innovation and D2C strategy missteps.
To stay relevant, said Wolff and Stambor, Nike needs to:
"When you go to a running store, they don't have Nike," Stambor said. "And so when you want to try out the shoes, you've got to try out their shoes and then either go to a Nike store or order Nike shoes online and see how those compare to the shoes that you bought or tried on in the store. And that's just not a process that most people are going to engage in."
Competitors are thriving as Nike struggles. Brooks Running hit $1 billion in revenue through Q3 for the first time ever, while Hoka's sales were up 27.9% in fiscal year 2024. On Running reported record sales in Q3 with 32.3% net sales growth YoY, while Skechers' Q3 revenue was up about 16%, and New Balance sales grew 23% last year.
"So it's not a category problem, it's a Nike problem," Stambor said.
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