When the leader of the brand is from PayPal and isn’t a part of the Nike family tree, when the brand has focused heavily on Direct sales to the detriment of brand momentum, the result is a Nike that is the most profitable and powerful in the footwear industry sounding unlike anything I’ve ever seen.
Big Tech layoffs: what the job cuts at Google, Meta, Amazon and Microsoft mean : NPR
Take a moment to read through this post on NPR about tech company layoffs and insert Nike into the picture and the commentary looks identical. The difference here is tech companies had to adjust to the post quarantine hiring boom. Nike is adjusting to mismanagement and a struggling U.S. market for the brand. In their report yesterday they stated,
- Wholesale revenues were $7.1 billion, down 2 percent on a reported basis and down 3 percent on a currency-neutral basis
- Revenues for the NIKE Brand were $12.9 billion, up 1 percent compared to the prior year and flat on a currency-neutral basis, as currency-neutral growth in APLA and Greater China was offset by declines in North America and EMEA.
- Revenues for Converse were $519 million, down 11 percent compared to the prior year and down 13 percent on a currency-neutral basis, due to declines in North America and Europe, partially offset by growth in Asia.
In my prediction for what would happen with Nike I wrote,
When Nike was able to focus on marketing as opposed to distribution, they were stronger and more agile. On December 21st Nike reports earnings. Expect reduced margins, but don’t be surprised by less inventory. Nike sneakers are still selling, even in this difficult retail environment. Expect Nike to highlight brand partners more than they have in the last 4 years. Nike must lean heavily on its brand doors to clean up the business, but until they stop attempting to be a Consumer Direct Acceleration brand and become what they’ve always been, a great wholesale partner and advertising wonder, Nike will continue to follow their fans instead of leading them.
How did my prediction playout? I was correct about the following aspects:
- Inventories for NIKE, Inc. were $8.0 billion, down 14 percent compared to the prior year, reflecting a decrease in units.
- Demand creation expense was $1.1 billion, up 1 percent, reflecting an increase in marketing expense.
- From Footwear News: North America revenues were down 3 percent in Q2, with wholesale in the region down 9 percent.
The Layoff Language is Emblematic of Tech Strategy
Layoffs are always an easy way of recapturing revenue, and it shows the willingness of a company to do the hard, difficult work. In tech, layoffs are explained in this manner,
“The belt-tightening is meant to send a message to shareholders at a time when tech companies have seen their stock prices plunge, said Sam Abuelsamid, an analyst at Guidehouse Insights… What they’re saying is, ‘we are being prudent. We want to get back on a growth path. We don’t want to continue to spend money needlessly.”
Compare the explanation above on big tech to the words from Matt Friend and Donahoe yesterday:
“NIKE’s second-quarter financial performance was a turning point in driving more profitable growth. As we look ahead to a softer second-half revenue outlook, we remain focused on strong gross margin execution and disciplined cost management.”
Donahoe finished with:
“We see an outstanding opportunity to drive long-term profitable growth,” said Donahoe. “Today we are embracing a company-wide journey to invest in our areas of greatest potential, increase the pace of our innovation, and accelerate our agility and responsiveness.”
Discipline, Agility and Responsiveness
The language of tech is one of reacting. The language that made Nike what it is was one of action. Nike has never spoken of discipline, agility and responsiveness. By comparison Nike is facing headwinds similar to the years of 2014 to 2016. Below is how Nike used to speak. Pay very close attention to 2016 as it represents Nike heading into a critical Olympic year. Q2 2016 is comparable to Q2 2024.
Old Nike would have delivered some discussion on sport and athletes especially with a recent signing of ShaCarri Richardson and an upcoming Olympic season which could see incredible growth by rivals like On, Hoka, Brooks and New Balance.
(These notes are pulled from Q2 of each year since 2015):
2015
“Our strong second quarter results once again demonstrate NIKE is a growth company,” said Mark Parker, President and CEO of NIKE, Inc. “The power of our portfolio continues to unlock growth, as we keep a laser focus on our biggest opportunities. The breadth and depth of that portfolio has helped us consistently deliver strong results – quarter after quarter, year after year.”
2016
“Our strong Q2 growth and profitability show that NIKE continues to drive real momentum through the Category Offense – by going deep with consumers by sport and serving them completely,” said Mark
Parker, President and CEO, NIKE, Inc. “And our powerful global portfolio of businesses, combined with strong financial discipline, continue to drive significant shareholder value. We see tremendous opportunity ahead as we enter an Olympic and European Championships year with a full pipeline of inspiring innovation for athletes everywhere.”2017
“NIKE’s ability to attack the opportunities that consistently drive growth over the near and long term is what sets us apart,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “With industry defining innovation platforms, highly anticipated signature basketball styles and more personalized retail experiences on the horizon, we are well positioned to carry our momentum into the back half of the fiscal year and beyond.”
2018
“This quarter, led by our Consumer Direct Offense, we accelerated international growth and built underlying momentum in our domestic business,” said Mark Parker, Chairman, President and CEO, NIKE, Inc. “For the back half of the fiscal year, NIKE’s innovation line-up is as strong as it’s ever been and we’ll continue to actively shape retail through new differentiated experiences.”
Note the difference in tone and language and you begin to see the difference in what Nike was and what it is becoming. If I pulled the words in bold from Mark Parker from 2015 to 2018 this is how it reads:
- Strong, we keep a laser focus
- drive real momentum, powerful global portfolio
- We see tremendous opportunity ahead as we enter an Olympic and European Championships year with a full pipeline of inspiring innovation for athletes everywhere.”
- attack the opportunities, what sets us apart
- actively shape
The language of the athlete can be seen in every report from Nike in the past. The language of safety and saying the correct thing seems to emanate from the brand today. Nike’s indecisiveness in marketing and product has moved the brand to a point where they follow the market vs creating the market. The language in the Q2 2024 report doesn’t inspire confidence. It’s reactionary and soft. Nike has lost its edge, and the language is clear. This is no longer the brand of athletes and excitement. It’s a disciplined, slow-moving company with potential that responds.
- softer
- disciplined cost management
- embracing
- greatest potential, increase the pace of our innovation, and accelerate our agility and responsiveness
