2017 NIKE, Inc. Investor Meeting | The Scale of Sport Highlights – A Detailed Breakdown
3 to 5 years, that’s how long a business takes to reflect the true momentum of the company. After monitoring and watching the introduction of websites and the growth of businesses in the sneaker industry, I developed a theory that explains how a business will have a growth trajectory of three years and in the fourth and fifth years the business will level out and show you what it really is. The only time this timeline doesn’t follow is when a major event takes place to disrupt the natural movement of the company.
In 2017 Nike held what was the most important moment in the recent history of the brand, the Scale of Sport Investor’s Day. Mark Parker was still leading the way. Nike had stumbled considerably after dumping a ton of product in the market from 2014 to 2016. Nike was also transitioning to their Nike Direct strategy. The name of this new strategy was introduced in the Scale of Sport, Nike’s Consumer Direct Offense. adidas from 2014 to 2017 gained considerable market share. There were prominent analysts stating that Yeezy had jumped over Jumpman:
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At the Scale of Sport event Trevor Edwards, the longtime Nike man, seemed poised to succeed Mark Parker. He led a fiery segment of the event sending subtle jabs at adidas and their problems with the NCAA. He even stated that “We Don’t Buy Our Community,” which led to a roar from the audience. In 2018 Trevor resigned after reports of inappropriate behavior were explained in a company e-mail. 2018 was five years ago. In 2020 the natural pattern of how Nike was growing was disrupted by Covid. The Covid hangover lasted two years 2020 to 2022 and this is the third year. Nike had several major adjustments after Trevor Edwards not taking over the helm of the company, port strikes, supply chain issues and the current layoffs and lawsuits. John Donahoe became the CEO in January of 2020. Two months before Nike had to shut down because of Covid. These adjustments affected every brand, but no brand had taken on such an aggressive DTC strategy.
The Scale of Sport is the ground floor for the 3-to-5-year theory. Nike introduced new technologies and strategies that corrected the market and saw Nike begin to reassert itself as the leader in sportswear. The brand had always been at the head of the class, but between a better method of make for Jordan footwear with an expedited production process, Air Max 270, advancements in Flyknit, Nike Next%, Zoom X, Nike React, Nike was truly back although it seemed that the company was losing ground because they no longer reported Futures as a measurement for Wall Street to consider. But it was Trevor Edwards resigning which reset the timer and led to John Donahoe, an outsider although he was on the board, delivering Nike’s digital first strategy that appeared to be the right thing to do, but that 3-to-5-year window is always a revelation.
Trevor Edwards had been through the last major layoffs for Nike in the late 90s. Donahoe had to lead the latest round of layoffs for Nike and in the process Nike lost a lot of the soul of the company. Edwards who understood the importance of wholesale accounts would have possibly moved a bit slower towards the Nike Consumer Direct Offense. Instead, an outsider, non-Nike man, shifted the brand to a Direct-to-consumer model which overlooked wholesale relationships. The Scale of Sport event did say this would happen by announcing Nike would cut down to 40 partners, but Trevor Edwards was next in line to lead the Swoosh when the announcement came and as the connection to the past and the head of wholesale the transition to Nike Direct would have looked much different than it has been under Donahoe.
Peak Nike
Nike has long wanted to hit 50 billion in revenue per year. This is the third year since 2020 and the brand has gone through a new round of layoffs, this time without a Nike man leading the way. When Phil Knight had to make cuts in the late 90s it was done with a sympathetic touch as explained by employees who were there. This time ex-employees have labeled the process as “cold”. Nike isn’t quite Nike anymore. “Unlike in previous reorganizations, employees weren’t given the option to take early retirement or accept lower positions to stay with the company, another former employee said. Multiple employees said the layoffs seemed indiscriminate and not reflective of employee skills or value to the company. “It seemed like a spreadsheet exercise,” a former employee said.”
Peak Nike is a term that creates a conundrum. How can a company that dominates sneaker and apparel sales be at its peak? One of the best measurements of brand heat is how the resale market is operating, especially with Nike. At this moment resale is flat for every brand except New Balance and that’s an anomaly since styles hitting resale for New Balance tend to be extremely limited. There are a number of factors involved in why resale has diminished, but Nike typically remains relevant. Unlike any time in the last 13 years, Nike is flat, and it started with a strategy implemented under Mark Parker. When the brand announced, “25% fewer styles by January. Edit to Amplify,” at the Scale of Sport, it seemed like a logical step, but the people who laid out this process are now fading away. Eric Sprunk, Trevor Edwards, Adam Sussman, and Elliot Hill are all gone. While a few of the leaders who spoke at the Scale of Sport are still inside of Nike, steps below the C-Suite shows a lot of the team members aren’t. Edit to Amplify seems to have created a repeat of 2014 to 2016. 2023 to 2025 offers an opportunity for other brands and unlike 2017, Nike may not have the talent to reset the next 3 to 5 years.
What happened from 2014 to 2016? Nike basketball sales had begun to cool. Wholesale accounts wanted more Jordan Retro sneakers to offset a lackluster roster of old product. There wasn’t any new tech from Nike. Lunarlon and Flywire were dead and Roshe was usurped by adidas ZX Flux. Nothing was really doing well. adidas was riding the wave of NMD, Boost and Kanye. Nike was trying to create excitement with signature models in basketball, but doing so as I explained in the above post led to, “… a glut of basketball releases being dropped by the Swoosh and this is not a good thing. When you consider that adidas is doing very well with its runners, there aren’t a lot of options there. There is the alphaBOUNCE, NMD and Ultra BOOST. There are a lot of colors and deviations in the trio of runners from adidas, but there are really only three shoes. Toss in the casual Tubular releases and you get about 5 different styles of similar models. adidas has focused on quality over quantity. Nike on the other hand has a bevy of Signature athlete shoes and so many variations of each model that each release undercuts the previous models potential sales contributing to shoes sitting on shelves and being discounted.”
In 2015 Nike rolled out a series of Jordan Retros that fell flat and they had delivered printed Foamposites which took years to sell. Nike lacked newness. The adjustment to Edit to Amplify in 2017 was fine initially because there was a bevy of newness in tech and 2020 disrupted everything allowing for sneaker sales to spike. The market has finally settled and with this adjustment Nike’s focus on Dunks, Jordan 1s, and Air Force 1s has led to the exact same situation as the flooding of Retros and Nike Basketball in 2014 to 2016. The difference this time is Nike has lost so much talent familiar with how the brand runs, there isn’t any newness on the menu. Nike also consolidated too much of its wholesale channels. Nike is looking like it has hit its peak and the resale market is reflecting this. In my most recent report I shared numbers on the keywords “Air Jordan” and on “Nike” year over year on eBay. Using resale as an indicator of brand heat has always paralleled what was happening in the larger marketplace. The year over year comp used was March 22 vs March 23. The keyword Air Jordan dropped from 28 million dollars to 18 million dollars. The keyword Nike dropped from 48 million dollars to 35 million.
The walls of sneaker stores have a ridiculous amount of choice with both Retro and Jordan product, Dunks and low-end Nike and Jordan Brand kicks. With so much inventory sneaker wall slats which typically hold one sneaker are pointing forward balancing precariously because there are three to four pair sitting on each slat. This overflow is allowing the consumer to wait on models that once sold out in days. Nike’s reliance on sneaker culture to make up the difference on product being sold for under 100 bucks or on promo was once a salve. Retros still sell through, but they take weeks and months vs days. The last three years under John Donahoe will potentially go down as the time Nike stopped being Nike. The Swoosh was once a marketing company that sold sneakers and apparel. The Swoosh is now a digitally led company relying on SNKRS and sneaker culture. Unfortunately for Nike and Jordan Brand, the consumer has more options than ever, and sneaker culture has become an echo chamber of frustration for a community more focused on sharing that they took an L than learning about all of the new and exciting things happening in footwear. Nike has accomplished what no other brand could, they stopped their own growth.
