Reimagining Retail: How Nike is trying to turn things around to stay relevant with rivals and new entrants

Audio by Sara Lebow, Zak Stambor, and Rachel Wolff | Nov 13, 2024

Episode Transcript:

Sara Lebow (00:00):

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(00:22):

Hello, listeners. Today is Wednesday, November 13th. Welcome to Behind the Numbers: Reimagining Retail, an eMarketer podcast. This is the show where we talk about how retail collides with every part of our lives. I'm your host, Sara Lebow. Today's episode topic is Nike.

(00:44):

Before we start talking about that company, let's meet today's guests, my company. Joining me for today's episode we have two of our analysts. Up first, it's Zak Stambor. Hey, Zak.

Zak Stambor (00:56):

Hey, Sara.

Sara Lebow (00:57):

Also with us is Rachel Wolff. Hi, Rachel.

Rachel Wolff (01:00):

Hey, thanks for having me.

Sara Lebow (01:01):

Okay, let's jump in to Nike. Based on how many ads I see for Nike all the time, it feels like Nike is still ubiquitous, still healthy, but they're not doing that well. Most recently, they reported some not-too-great earnings. Zak, can you kick me off with giving me a state of Nike right now?

Zak Stambor (01:21):

Yeah, so Nike is big. It's still a big company, but it is struggling quite a bit. Its stock is down 30% year to date. Its revenue in Q1 was down about 9%. Its reputation has taken a hit recently. In the RepTrak reputation ranking, it dropped seven points between August and September, and it's had a number of just missteps. The board voted against a proposal to address potential human rights violations throughout its supply chain. It fought to pay legal fees incurred by Lontex, which is a Pennsylvania sporting goods company that won a suit against Nike for stealing its trademark technology. And so it's just in a rut.

Sara Lebow (02:07):

And all of this comes around the same time as they're replacing their CEO, John Donahoe.

Zak Stambor (02:13):

Well, they go hand in hand. It's not surprising they're replacing their CEO as a result of the position that they find themselves in.

Sara Lebow (02:22):

So if each of you had to sort of assign why Nike isn't doing that great to a pie of reasons, like 50% this, 30% that, what would each of you sort of lump into that pie? Rachel, you go first.

Rachel Wolff (02:37):

Sure. So I think the bulk of it, I'm going to say 50%, is just their failure to innovate, right? They really pulled back on product development and basically just decided to keep pumping out as many Jordans and Air Force 1s as possible rather than finding new ways to bring in consumers. And they've also just been really slow to market. So even when they do come out with new innovations, it takes forever to get into the market. And there are so many other competitors at this point that they're just able to grab those sales before Nike can. So I think that, for me, is the biggest reason for why they are where they are.

(03:15):

Number two, I would say maybe 30%, is their ill-timed D2C push. So pulling away from wholesale and reducing just the visibility at key partners like Foot Locker, which really created an opening for these new upstarts like On and Hoka and even Adidas to just take share from Nike. And then the last bit, the last 20%, I would say is just poor leadership. Part of the reasons for the other two failures, I suppose, is just because they had somebody who maybe didn't have as much fashion experience, was more focused on just leading into areas where they were already successful and not so much about finding new ways to reach consumers.

Sara Lebow (03:59):

Yeah. Zak, any ingredients you would add or remove or substitute from that pie?

Zak Stambor (04:05):

So I have the same ingredients in different proportions, and I just throw in the leadership piece into the D2C strategy. So I guess it's sort of similar. But yeah, the D2C strategy was just the wrong strategy at the wrong time, and they ceded ground to these upstart companies that took that and ran with it and have built these connections with consumers that can be really difficult to untangle once they're formed. And the innovation piece is really, I think, crucial here as well because Nike built its brand on performance and innovation.

(04:46):

I was just watching the Prefontaine movie, which gets to the formation of Nike. And the thing with innovation is you have to always push forward. It's kind of like that line in Annie Hall, a relationship is like a shark. It has to constantly move forward or it dies. Same thing with innovation, because as soon as you stop moving the ball forward, you're enabling somebody else or some other company to move in and grab that ball.

Sara Lebow (05:21):

Zak, you're batting 400 with these sports puns.

Zak Stambor (05:24):

And in the running world, in particular, that's what happened is Nike burst out of the gate with carbon plate shoes, and then everybody else caught up. And Nike has just been slow to push out the next big thing. And even during the Olympics, when they did roll out some new whiz-bang technology, that technology's still not in stores. So that gets to the slowness to market, which is the other issue that they've faced.

Sara Lebow (05:59):

Yeah. I mean, during the Olympics, Nike was everywhere, including outfitting the athletes. They had all sorts of ads, which continue now. They had a massive deal with WNBA rookie Caitlin Clark. Why isn't Nike seeing all of these things pay off?

Rachel Wolff (06:16):

Yeah, I mean, that's exactly it, right? You can't buy any of that stuff in the store. So 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.

Sara Lebow (06:29):

It's so absurd to me to be marketing a product that people can't buy.

Zak Stambor (06:34):

It is. It's crazy.

Sara Lebow (06:36):

There's not much more to say about that. I mean, how can Nike stay relevant against these oncoming entrants, your Hoka, your On Running, and also legacy companies like Adidas?

Zak Stambor (06:51):

So I think it starts with performance, like actually finding new technology that resonates with athletes. So in the performance space, lean in heavily. In the fashion space, which is the other area that we've only sort of touched upon, it's don't be complacent. Fashion trends come and go, and so if you keep doing the same thing, people get bored with it, and they'll move on to the next thing.

Rachel Wolff (07:25):

Yeah, I think that's exactly right. I mean, my unofficial smell test is when I go to the gym, I look at what people are wearing, and over the past couple of years it's been much less Nike and much more Adidas, Hoka, On. Those kinds of brands. So I think they have to figure out how do you recapture people's attention and get them interested in buying Nike again and to sort of reformulate themselves as a fashion brand, which they've struggled with over the past year or so.

Sara Lebow (07:50):

My what shoes should I buy strategy, which probably isn't great for a fashion brand or a sports brand, is I ask the nurses I know what they're wearing because the nurses always have the most comfortable, most durable shoes.

Zak Stambor (08:01):

Get your shoes back on store shelves as well. I mean, that's the other piece is, again, to go back to the running category because that's the category I focus on just the most because I'm a runner. When you go to a running store, they don't have Nike. 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.

Sara Lebow (08:38):

Yeah, that's like how couch D2C's work, which is a totally different way of shopping. And even that doesn't necessarily work great for couch D2C's. So it's a wild strategy. How do those competitors compare to Nike?

Zak Stambor (08:54):

Yeah, they're all doing pretty well. Whereas Nike is not. Brooks Running, which is a privately held company, but released its Q3 results, hit a billion dollars in revenue through the first three quarters of the year for the first time ever. Hoka's sales were up 28% in fiscal year 24. On Running hit two billion in revenues last year and through the first six months of this year are up 29%. Skechers' Q3 revenue was up about 16% and through the first three quarters is up 12%. New Balance is up 23%. So they're all doing really well, whereas Nike is just not.

Sara Lebow (09:35):

So clearly the outlier here.

Zak Stambor (09:37):

Yeah. So it's not a category problem, it's a Nike problem.

Sara Lebow (09:40):

Yeah. Okay. So let's imagine you are Nike's new CEO, Elliott Hill. Which by the way, Elliott Hill started at Nike in the 90s as an intern. Now as CEO, you are Elliott Hill. What would you focus on for Nike?

Rachel Wolff (09:56):

I think it's more of what we've been saying. You have to rebuild connections with wholesalers and get your products back on store shelves. I think they also have a lot of work to do with the customer experience. The process of going to a Nike store in and of itself is not a pleasant experience. I mean, at least that's how I feel. So I think they have a lot to do. If they are focused on growing their D2C business, that's an area that they also have to invest in.

Zak Stambor (10:20):

Yeah. I think they should experiment with the store experience and try out some different types of store formats, which is something we've seen many, many retailers embark upon. But Nike hasn't done that that much, but there's a real opportunity there.

Sara Lebow (10:38):

Yeah, I mean, On Running has its fancy wall of shoes in the store. Lululemon-

Rachel Wolff (10:45):

I think Hoka has a rock climbing wall or something that you can test its shoes on.

Sara Lebow (10:50):

Yeah. Alo Yoga and Lululemon have both had yoga classes in store in the past. I don't know if Lululemon is still doing that, but Alo definitely is. Dick's Sporting Goods has the fun little track that you can run around. What does Nike have?

Zak Stambor (11:04):

Right, there's a million different things that Nike could do to make the store experience interesting, cool, unique. And then they also could experiment with different size stores so that they can make it easier for consumers to visit the store because there aren't that many Nike stores. You could try a smaller format store that you could get into different malls or whatnot.

Sara Lebow (11:30):

We mentioned other athletic brands Nike could learn from: Hoka, Lululemon, On Running. What are non-athletic brands that Nike could learn a lesson from?

Rachel Wolff (11:43):

So I think for me, Levi's is a good one that they could take some learnings from. In part because Levi's is on its own D2C push and they've seen more success of it more recently than Nike has. But one thing that they did specifically was to focus on improving speed to market. Because you're moving from wholesale to a D2C model. You need to make sure that you're able to respond to trends as they're emerging and not wait months like Nike has to get products on shelves. So I think that's one area where they could really take a page from Levi's playbook.

Zak Stambor (12:13):

Another one that I think of is Lego, which is a lot of different things to a lot of different people. And the Lego store is fun to visit. It's engaging. It has products that resonate with consumers in a lot of different ways, and it stays fresh. It's always rolling out new stuff. And when something resonates with consumers, they lean in that direction and just roll out more and more and more of it. And so I would just look toward a company like Lego to see how you can build relationships with consumers that resonate over time or that last over time.

Sara Lebow (12:55):

Both Levi's and Lego are also companies that have flagship brick-and-mortars, but also sell their products in other stores and other marketplaces as well. So you can expect to find Lego in a Target as much as you expect to find them in a Lego store.

(13:11):

Another thing that Levi's has done well is they've done a lot of clientele work in stores. They have a new app that associates in stores can use to know more about the people that they're talking to, whether they're regular Levi's purchasers, what their size is. All of this can be useful at a Nike store as well.

(13:32):

You want to know if you're talking to a marathoner like Zak or someone who goes on long walks around New York City like me and really address that customer how they need to be addressed. And the last thing I'll say about both Levi's and Lego is that they are both also legacy brands with strong, cool identities like Nike that they've managed to maintain by keeping fresh partnerships. Levi's most recently with Beyonce. Nike needs to keep doing that, but they need to make sure that the clothes that they're offering, the shoes that they're offering when they do those partnerships are available.

Zak Stambor (14:09):

Yeah, and it's not an impossible task. I mean, you can look to just some legacy running brands like Brooks or New Balance to see how you can reinvigorate the brand through innovation, a good customer experience, and all that sort of stuff that we've been talking about. It's not rocket science, but you have to execute.

Sara Lebow (14:31):

Okay. So one final hot take. Do you guys think Nike can or will turn it around?

Rachel Wolff (14:37):

I think yes. I mean, the company is not doing well, but I think the brand itself is still so strong and it still resonates with teens, for example. It's still the top brand among Gen Zs. So I think yeah, they will turn it around eventually, but it will take time.

Zak Stambor (14:53):

Yeah, I agree. I mean, they're in a rut, but they're not in a deep hole. And I think they can, in relatively short order, execute on a strategy that gets them back to level ground and then to growth.

Sara Lebow (15:08):

Okay. Well, that is all we have time for today. Thank you both for being here. Thank you, Rachel.

Rachel Wolff (15:13):

Thanks.

Sara Lebow (15:13):

Thank you, Zak.

Zak Stambor (15:14):

Yeah, thanks for having me.

Sara Lebow (15:15):

Thank you to our listeners and to Victoria, who edits the podcast and keeps everything running. We'll be back next Wednesday with another episode of Reimagining Retail, an eMarketer podcast, and tomorrow join Marcus for another episode of the Behind the Numbers Daily.