Nike Is Having a Really Bad Year
Summary
TLDRThis video explores the recent challenges faced by Nike, once the unassailable leader in athletic footwear and apparel. Despite a $50 billion annual revenue, Nike's share price has plummeted 60% in three years due to strategic missteps and competition from innovative brands like On Running and Hoka. The company's shift to e-commerce under CEO John Donaho initially seemed successful, but post-pandemic consumer behavior and a saturated resale market have led to a decline in revenue. The video examines Nike's digital strategy, the importance of product innovation, and the rise of competitors focusing on functionality, suggesting that even the top dog in the industry must innovate to remain relevant.
Takeaways
- π Nike's share price has fallen by almost 60% over the past 3 years, erasing over $100 billion of market capitalization.
- πββοΈ For the fiscal year 2025, Nike projects a revenue decline by a mid single digit percentage, marking their first decline in over a decade excluding the pandemic.
- π€ The video is sponsored by Nvidia AI, which offers a service to create publish-ready videos from text-based prompts.
- ποΈ Nike's business model involves three main sales channels: wholesale, owned stores, and e-commerce, with varying profit margins.
- π Nike's dominance in the athletic footwear and apparel market is attributed to its massive revenue, allowing for extensive athlete sponsorships and marketing.
- π‘ The appointment of John Donaho as CEO indicated a strategic shift towards digital strategies and technology to maximize profits.
- π² Nike's apps aim to engage consumers and drive sales, with some targeting specific consumer segments like sneaker enthusiasts.
- π Donaho's strategy involved reducing reliance on the wholesale channel to increase direct sales and profit margins.
- π The pandemic initially boosted Nike's e-commerce sales, tripling their revenue from e-commerce between 2019 to 2022.
- πΈ The secondary sneaker market's speculative bubble benefited Nike, but as the bubble burst, so did the demand for their limited edition shoes.
- π« Nike's focus on digital strategy and collector appeal may have overshadowed the need for functional product innovation, opening opportunities for competitors like Hoka and On Running.
Q & A
What is the main focus of the video?
-The video discusses the challenges faced by Nike, including a significant drop in share price and market share, and analyzes the strategic missteps and competitive threats that have put the company on the back foot.
How much has Nike's share price fallen over the past 3 years according to the video?
-Nike's share price has fallen by almost 60% over the past 3 years, which has wiped out well over $100 billion of market capitalization.
What is the projected revenue decline for Nike in the fiscal year of 2025?
-For the fiscal year of 2025, Nike is projecting that their revenue will decline by a mid single-digit percentage.
What is the significance of the video sponsor, Nvidia AI, in the context of the video?
-Nvidia AI is presented as a tool that can help content creators produce videos with just text-based prompts, showcasing how technology can assist in the creation and editing process, which is relevant to Nike's digital strategy discussed in the video.
What are the three main channels through which Nike sells its products?
-Nike sells its products through a wholesale channel to third-party retailers, through its own stores, and via e-commerce on its website and mobile app.
How does Nike maintain its top-of-mind presence among consumers?
-Nike maintains its top-of-mind presence by sponsoring hundreds of professional athletes worldwide and through celebrity endorsement deals, whichζ½ζθ―ε° makes Nike a default brand for athletic shoes.
What was the unusual choice for Nike's new CEO in 2020, and what was the reason behind it?
-John Donaho, a technologist with experience in e-commerce and enterprise software, was an unusual choice for the CEO of a sportswear company. Nike wanted him to focus on their digital strategy and leverage technology to maximize profits.
What are the four apps that Nike currently has, and what is the purpose of each?
-Nike has the main Nike app and the sneakers app for e-commerce, the Nike Run Club for tracking running activities, and the Nike Training Club for providing pre-made workouts. The apps aim to keep the Nike brand top of mind and potentially convert users into paying customers.
How did the COVID-19 pandemic affect Nike's e-commerce sales?
-The pandemic led to a significant increase in e-commerce sales for Nike, as people were forced to stay at home and traditional retail was disrupted. E-commerce revenue tripled from $3 billion in fiscal year 2019 to $11 billion in fiscal year 2022.
What are the two new competitors that have gained significant popularity in the athletic shoe market, and what is their main selling point?
-Hoka and On Running are the two new competitors that have seen a massive surge in popularity. Both brands focus on functionality and comfort as their main selling points, with Hoka known for its thick soles and On Running for its cloud-like cushioning technology.
What was the main issue with Nike's strategy during the pandemic, and how did it affect their product innovation?
-Nike's strategy during the pandemic focused heavily on digital engagement and e-commerce, which led to an overemphasis on limited edition releases and color variations. This took their focus away from product innovation and functionality, creating an opening for competitors to offer more innovative products.
Outlines
π Nike's Market Struggles and Strategic Shifts
This paragraph discusses the challenges faced by Nike, once the undisputed leader in athletic footwear and apparel. It highlights the company's significant drop in share price, losing over $100 billion in market capitalization, and the strategic missteps that led to this situation. The video script introduces the topic of Nike's business model, including its reliance on contract manufacturers and three main sales channels: wholesale, owned stores, and e-commerce. It also mentions the company's marketing strategy through athlete endorsements and the impact of the COVID-19 pandemic on its sales, which surprisingly led to an increase in e-commerce revenue. The paragraph ends with a mention of the video sponsor, Nvidia AI, which offers content creation tools for aspiring YouTubers.
ποΈ Nike's Digital Transformation and E-Commerce Focus
The second paragraph delves into Nike's digital strategy under the leadership of CEO John Donaho, a former e-commerce and software executive. It outlines Nike's four main apps, two of which are e-commerce platforms targeting different consumer segments, and the other two being free fitness apps aimed at keeping the Nike brand at the forefront of consumers' minds. The strategy focused on leveraging technology to increase profits and reduce reliance on the wholesale channel, which was seen as less profitable. The paragraph also discusses the impact of the COVID-19 pandemic, which ironically boosted Nike's e-commerce sales as traditional retail was disrupted, and the speculative bubble in the sneaker resale market, which benefited Nike's limited edition sales.
π The Pandemic's Unintended Boost to Nike's Sales
This paragraph examines how the COVID-19 pandemic, despite the initial challenges, ended up benefiting Nike due to changes in consumer behavior. With people staying at home, the demand for new sneakers decreased, but the company still managed to achieve record revenue and operating profit in fiscal year 2021. The paragraph explains how stimulus checks and low-interest rates fueled a speculative bubble in the sneaker market, leading to high resale values for limited edition Nike shoes. It also discusses the strategies employed by Nike to capitalize on this demand, such as lottery systems and shock drops on their app, which kept consumers engaged and eager to purchase their products.
π The Downturn and Nike's Strategic Overcorrection
The final paragraph addresses the reversal of fortune for Nike as the pandemic subsided and consumers returned to physical stores. It critiques Nike's overemphasis on e-commerce and digital engagement, which led to a neglect of product innovation and a saturation of the market with limited edition variations. This created an opportunity for competitors like Hoka and On Running to gain popularity by focusing on functionality and comfort. The paragraph also points out Nike's arrogance in assuming their brand dominance would allow them to continue selling retro designs without innovation. It concludes with the company's need for bolder moves to reinvigorate growth and the acknowledgment that even market leaders are not immune to challenges.
Mindmap
Keywords
π‘Nvidia
π‘Nike
π‘Market Capitalization
π‘Strategic Missteps
π‘E-commerce
π‘Wholesale Channel
π‘Sneaker Resale Market
π‘Scarcity Value
π‘Innovation
π‘Hoka and On-Running
π‘Pandemic
Highlights
Nvidia AI sponsors the video, offering a tool to create videos from text prompts, including scriptwriting, stock footage selection, and voice generation.
Nike's share price has fallen by almost 60% over the past 3 years, losing over $100 billion in market capitalization.
Nike is projected to have its first revenue decline in over a decade for the fiscal year of 2025.
Nike's business model involves designing shoes and clothing, manufacturing through contracts, and selling through wholesale, owned stores, and e-commerce.
Nike spends billions on athlete endorsements to maintain top-of-mind awareness for consumers.
John Donaho, Nike's CEO, focuses on leveraging technology and digital strategy to maximize profits.
Nike has four main apps: two e-commerce platforms, and two fitness apps to maintain brand engagement.
CEO Donaho reduced reliance on the wholesale channel to increase direct-to-consumer sales and profit margins.
The pandemic boosted Nike's e-commerce revenue, which tripled from fiscal year 2019 to 2022.
Stimulus checks and low-interest rates during the pandemic led to increased consumer spending on Nike products.
Speculative bubbles in the sneaker resale market have led to high demand and prices for limited edition Nike shoes.
Nike's digital strategy included shock drops and raffles on the sneakers app to create hype and scarcity value.
The resale market saturation and reduced speculation have led to a decline in Nike's e-commerce growth post-pandemic.
Nike's focus on collectors and resellers during the pandemic may have neglected product innovation and functionality.
New competitors like Hoka and On Running have gained popularity with a focus on shoe functionality and comfort.
Nike's arrogance in its brand dominance may have led to a lack of constant innovation, opening the door for competitors.
CEO Donaho has shifted focus from digital strategy to new product innovations to reinvigorate revenue growth.
Despite challenges, Nike remains the largest sportswear brand in the world, emphasizing the need for continuous innovation.
Transcripts
this video is brought to you by Nvidia
AI with over $50 billion of annual
revenue Nike is the largest athletic
footwear in apparel brand in the world
by far it's one of those Brands you kind
of take for granted they've been the top
athletic brand for as long as you can
remember and it would be hard to imagine
this will change at any point in the
foreseeable future but nothing lasts
forever over the past 3 years Nike's
share price has fallen by almost 60%
wiping out well over $100 billion of
market capitalization they've been
losing Market Shar to Innovative new
competitors like on running in Hoka for
the fiscal year of 2025 they're
projecting that their revenue will
decline by a mid single digit percentage
excluding the pandemic this will be the
company's first Revenue decline in well
over a decade in this video we'll look
at the Strategic missteps that put Nike
on the back foot and why the world's
most popular athletic brand no longer
looks so
bulletproof before we get into that I
just want to say that as someone who's
been making YouTube videos for the past
4 years there's a lot that goes on
behind the scenes to make a video like
this one there's many hours of research
script writing recording and editing for
someone who just wants to get started as
a content creator it can be intimidating
to try to learn all these skills that's
where today's video sponsor N Video AI
comes in they can take any idea and help
you create a publish ready video with
just text based prompts for example
let's say you want to create a video
about the sneaker resale market and how
this affects Brands like Nike from there
Nvidia will create an engaging script
pick highquality relevant stock footage
create a human- sounding voice and
within minutes you can see the first
draft of your video hey there business
enthusiasts today I'm diving into a
fascinating topic that's shaking up the
retail world you can also give it simple
text commands to make any changes for
example if you want the intro to be more
fast-paced I bet you didn't know how the
sneaker resale Market is shaking up big
Brands like Nike the coolest part is
that you can upload a 30-second clip of
your voice giving NV AI permission to
clone it and then your voice can be used
in all future projects you can try in
video AI for free but if you'd like to
clone your voice and create videos
without a watermark I'd highly recommend
choosing the paid plan which starts at
just $20 per month this will save you
hundreds of dollars you'll otherwise
have to spend on editing tools and stock
footage subscriptions since they have
them automatically included just go to
the link in the description and use my
code to get twice the number of video
generation credits in your first month
and now back to the video on the surface
Nike's business model is pretty simple
they design new shoes and clothing they
send the design to contract
manufacturers mostly in China and
Southeast Asia and then the final
products are sold to customers via three
channels first there's a wholesale
Channel Nike sells a product to third
party retailers like Footlocker or
Macy's secondly is through Nike's own
stores Nike operates more than 1,000
stores around the world that exclusively
sell Nike products finally there's the
e-commerce Channel Nike has a website
and mobile app where you can order
products directly
wholesale has the lowest gross margins
as wholesale prices are significantly
lower than the retail price the retailer
needs to cover the overhead cost of
operating the store as well as make a
profit for itself Nike's owned stores
have higher margins because they keep
the profit that would otherwise be made
by a third party seller e-commerce has
even higher margins not only does Nike
keep all the profits for itself it also
foros the overhead cost of operating a
brick and mortar store the main task of
any consumer brand is to convince
consumers to buy your products their two
aspects to this first is the products
themselves you need to design shoes that
are desirable either in terms of
functionality or style secondly you need
to make sure your brand is always at the
top of the consumer's mind every year
Nike spends billions of dollars
sponsoring hundreds of professional
athletes around the world they've signed
some of the largest celebrity
sponsorship deals of all time for
example it is estimated that Nike has
paid Michael Jordan over $1.2 billion to
use his brand in likeness similarly in
2015 they signed a deal with LeBron
James with an estimated lifetime value
of $1 billion the endorsements of
professional athletes in sports leagues
keeps Nike top of mind if all the
Superstar athletes are wearing Nike
subconsciously Nike becomes a default
brand that most people think of for
athletic shoes Nike is the largest
athletic brand in the world by far in
the most recent fiscal year they
generated $51 billion of Revenue this is
more than double their closest
competitor Adidas which has $23 billion
of annual revenue because Nike generates
the most Revenue they have the most
money to spend on sponsoring athletes
and other forms of marketing nobody can
compete with Nike in terms of Mind share
this gives them a seemingly
insurmountable Advantage versus any
smaller competitor in 2020 Nike
appointed John Dono to be their new CEO
on the surface he was a bit of an odd
choice for the job he lacked experience
in sportsware or fashion instead he was
a technologist having previously served
as a CEO of eBay in the enterprise
software company service now so why
would Nike want to hire an e-commerce
and software executive as their new CEO
from a product and brand perspective
Nike already had things figured out
given their established and ubiquitous
brand name it shouldn't take a huge
amount of expertise just to maintain
their position at the top instead
donoho's main focus was on Nike's
digital strategy and how they could
leverage technology to maximize
profits Nike currently has four apps the
main Nike app and the sneakers app are
e-commerce storefronts where you can
order Nike products directly
the Nike app targets the average
consumer the sneakers app targets
hardcore sneaker heads think of people
who spend thousands of dollars on shoe
collections which they display on their
walls or even people who try to buy and
sell valuable sneakers for a profit
we'll talk more about the sneakers app
in hardcore sneaker heads shortly the
second two apps are the Nike run club
and the Nike Training Club The Run Club
helps you keep track of your running
while the training Club gives you
pre-made workouts you can do at home
both apps are free Nike doesn't generate
any Revenue from them directly the idea
is that if people spend time using
Nike's fitness apps the Nike brand will
stay top of mind the users of these free
apps will hopefully convert to paying
customers CEO John donaho saw the
potential of these apps through the apps
Nike can advertise and sell shoes
directly to the consumer they can own
the entire customer
relationship remember that of Nike's 3
distribution channels e-commerce and
Nike owned stores have higher profit
margins while selling wholesale has the
lowest profit margins while wholesale
offers the lowest profit margins the
advantage is that you get access to the
Retailer's customer base for instance if
a customer visits Foot Locker without a
specific brand in mind the presence of
Nike shoes might lead them to purchase a
pair that they hadn't initially
considered John Dono reasoned that
Nike's brand value was so strong that
many consumers would specifically seek
Out Nike stores or use the Nike app to
purchase their products through their
apps Nike can directly give personalized
promotions and remind consumers to shop
at Nike shortly after taking over as CEO
in January of 2020 donaho decided that
Nike could reduce its Reliance on the
wholesale Channel Nike began severing
ties with several long-standing Retail
Partners including Bel Dillards elins
and zapo even for retailers that they
didn't cut off completely Nike decreased
the quantity and selection of what they
would sell to them by cutting back on
distribution through third party
retailers Nike aimed to drive consumers
to purchase directly from them thereby
achieving higher gross margins gono's
shift to e-commerce came at the perfect
time within months the pandemic struck
greatly disrupting the traditional
retail model many brick and mortar
stores were forced to close their doors
due to the pandemic related restrictions
Nike was de prioritizing their
relationships with these retailers
anyway this hurt Nike to an extent
because their own retail stores also had
to be shut down but remember that the
highest margin sales channel is
e-commerce thanks to the pandemic this
high margin sales Channel increased
massively in the fiscal year 2019 Nik
generated about $3 billion of revenue
from e-commerce by the fiscal year 2022
this had tripled to 11 billion
representing 24% of total revenue Nike
has a weird fiscal year where fiscal
2022 is the 12 months ended May 31st
2022 at first you might think a pandemic
would be bad for Nike with people forced
to stay at home all day there's not so
much need to buy new sneakers Nike
indeed suffered a slight decrease in
Revenue in fiscal year 2020 but in
fiscal year 2021 they generated record
revenue of $45 billion and a record
operating profit of $7 billion the
pandemic inadvertently caused two big
benefits for Nike firstly stimulus
checks and enhanced unemployment
insurance put more cash in consumers
Pockets much of this went to purchasing
Nikes more importantly the zero interest
rate policies of central banks caused
speculative bubbles to form not only in
the stock market but also in alternative
asset classes one alternative asset
class is Nike shoes Nike regularly
creates Limited addition trims of its
shoes certain colors and trims may only
be sold for a limited period of time and
in limited quantities this scarcity
often means the value of certain shoes
are significantly greater than the
retail price there are large secondary
markets such as stock X where people can
resell valuable shoes many people buy
Nike shoes not because they want to wear
them but because they want to flip them
on stockx for a profit the height of the
insanity is best exemplified by a report
published by CNA inside in October of
2020 they interviewed a 16-year-old in
Singapore who is making the equivalent
of $20,000 per month buying shoes on
Nike's website and flipping them on the
secondary market demand for limited
edition models was so great that new
releases would sell out within seconds
so people created software programs to
place orders autonomously this is
against Nike's terms of service but with
enough computer skills many scalpers
were able to get around the guard rails
while Nike doesn't directly benefit from
secondary Market transactions they
certainly benefited from the hype and
increased Demand with such a strong
secondary Market their limited edition
shoes were almost guaranteed to sell out
Nike knew that demand out strip supply
for limited edition drops on the Nike
sneakers app they have Lottery systems
you can enter a drawing for a random
chance to be allocated a pair of shoes
they also have shock drops where you'll
randomly be given the opportunity to buy
a difficult to find shoe for a limited
time this kept sneaker heads glued to
their phones if they got the opportunity
to pay $200 for a new pair of Jordans
they'd happily take it because those
shoes could be worth even more on the
secondary Market Nike could see which
types of shoes generated the most
interest from collectors typically new
variations of classic shoes such as
their dunk Low's or Jordan Retros were
the most sought after on the resale
Market to take advantage of this Nike
started flooding the market with
hundreds of new variations in color
schemes Nike's success during the
pandemic appeared to vindicate CEO John
donoho's strategy with e-commerce now
representing a quarter of their sales
deemphasizing their wholesale Channel
seemed like a wise decision the digital
strategy allowed Nike to maintain
connections to their customers even when
brick and mortar stores were closed this
perceived success caused the company's
share price to Surge in 2021 at its peak
Nike's market capitalization reached
$280 billion it was shocking that a shoe
company could be worth more than A4
trillion dollars on an earnings call in
June of 2021 Dono proclaimed that the
pandemic induced Shi in consumer
Behavior ge's digital engagement in
e-commerce was permanent he targeted for
50% of the company's Revenue to come
from digital channels by
2025 donaho grossly overestimated the
importance of e-commerce in a post
pandemic World once people were
vaccinated many of them went back to
shopping malls and department stores
Nike's e-commerce Revenue peaked at 26%
of total sales in fiscal year 2023 in
fiscal 2024 e-commerce declined slightly
to 25% of Revenue the company's previous
Target of 50% e-commerce Revenue by 2025
is clearly not going to happen in 23
Nike started increasing wholesale
distribution to third party retailers
this was an embarrassing reversal and
showed the limits to a directed consumer
business model as their e-commerce
charges slowed down their total revenue
flatlined in 2024 even more concerningly
the company recently announced that they
expect Revenue to decline by mid singled
digit percentage in fiscal 2025 back in
2021 investors were willing to pay
premium valuation for Nike stock because
of its strong Revenue growth now that
revenue is shrinking investors ENT has
collapsed Nike's share price has fallen
almost 60% from its highs so what went
wrong as the FED started raising
interest rates the amount of speculation
in the sneaker resale Market decreased
substantially the days of 16-year-olds
making $20,000 a month flipping shoes
are long behind us at the peak of the
speculative bubble new Air Jordan Ones
would sell for more than double the
retail price on the secondary Market
seeing the massive demand Nike started
increasing prices and increasing the
number of shoes they made for each
Limited Edition run by 2023 they had
saturated the market and now most Jordan
sell for a discount to list price a
large part of Nike's digital strategy
relied on scarcity value the shock drops
and Raffles on the sneakers app are only
interesting if the shoes are difficult
to obtain with the resale market now
being saturated there's no reason to
check your sneakers app for new releases
with declining usage on their apps Nike
had no choice but to go back to their
old Retail Partners to start moving
inventory over the past few years NE is
focused primarily on making slight
variations and changes in color scheme
for their limited edition releases this
is what collectors wanted during the
resale crazees of 2020 and 2021 but this
caused them to take their eye off the
ball in terms of product Innovation they
were no longer making improvements in
terms of the functionality of their
shoes by overly focusing on collectors
and resellers they neglected the people
who just want a good quality pair of
running shoes this created an opening
for Nike smaller competitors over the
past few years two new shoe brands Hoka
and on- running have seen a massive
surgeon popularity technically neither
brand is new as both were founded more
than 10 years ago but until recently
there are Niche Brands who very few
people would recognize over the past 6
years hooka sales have grown Eightfold
over the past 5 years on running sales
have increased Sevenfold to be clear
these brands are still minnow compared
to Nike in the most recent fiscal year
on running and hok's combined revenue is
equal to 7% of Nikes while that isn't
huge it's also not nothing so what are
Hoka and on- running doing right both
Brands focus on functionality as their
main selling point hokas with their
absurdly thick soles are more
comfortable than most other shoes this
can be useful both when you're running
and when you're just standing around on
running's Main selling point is her
pented cloudtech Souls which they claim
gives a sensation of running on clouds
with Nike having failed to deliver
groundbreaking Innovations in recent
years consumers are willing to try out
new brands with novel
designs Nike's main problem is arrogance
they thought their brand was so dominant
that they could sell overpriced retro
designs to sneaker heads indefinitely
the reality is in the fast-moving
athletic shoe industry you need to
innovate constantly just to remain
relevant with their share price tanking
Nike CEO finally understands the flaws
of his previous strategy in his recent
media appearances he's no longer
bragging about their digital strategy
like he used to instead he's talking
about new Innovations for example this
past may they launched a pegasus 40 one
which supposedly has some design
Innovations compared to the previous
version but it hardly seemed like a game
changer Nike is going to need Bolder
Innovation than this if they want to
reinvigorate revenue growth with all
that being said it's important not to
overstate Nike's problems it's still the
largest sportsware brand in the world by
far but even the top dog is not
Invincible all right guys that wraps it
up for this video what do you think
about Nike let us know in the comments
section below as always thank you so
much for watching and we'll see you in
the next one Wall Street Millennial
signing out
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