Nike is an iconic brand, but it’s been going through tough times. A month ago, it delivered financial results so disappointing that it sent the stock market plummeting, losing $25 billion in value in a single day. It’s down 30 percent so far this year.

The outlook is not much better. Hope King reported AxiosThe company expects sales to fall by about 10% this quarter, and estimates for the rest of the year have also been lowered.

What brought Nike to this point?

Changes in distribution modelAs Massimo Giunco, former CMO and brand strategist at Nike, explains, the company made a decision in 2020 that is already paying off: it moved from a model driven by wholesale to a model focused on direct sales to the consumer (DTC model).

This decision was directly driven by CEO John Donahue and its chairman. Consumer, Product and BrandHeidi O’Neill. This meant the end of deals with hundreds of local partners and a significant reduction in business with other partners. Giunco ​​says this had unexpected consequences:

“Many consumers (mostly casual shoppers) did not follow Nike, but continued to shop where they had done before. So when they could not find Nike shoes in ‘their’ stores, they switched to other brands.”

Inventory issues and margin erosion. The transition to a DTC model also presented operational challenges. Accustomed to a well-established “futures” system, Nike struggled to manage the change. As a result, inventory levels skyrocketed: from $6.5 billion in May 2021 to $10 billion in November 2022.

To address the overstock issue, Nike began offering more discounts on its own channels, such as its online store. This reduced its gross margin from 46% in 2022 to 43.5% in 2023.

Changes in marketing strategyAnother important factor in understanding Nike’s crisis is the radical change in its marketing approach. Giunco ​​explains that it shifted from a model focused on creating demand to one focused on “meeting and maintaining demand.” This resulted in advertising dollars being directed at customers Nike already had, rather than expanding its customer base.

Nike has also invested heavily in programmatic advertising and performance marketing. According to Giunco, they’ve focused on investing billions of dollars in something less cash but easier to measure, versus something more effective but harder to measure. It’s a waste of money.

Loss of innovationThe elimination of product categories within Nike’s organization also had a negative impact. Giunco ​​explains that this decision “resulted in the loss of a solid process and a lot of experience and knowledge.” runningfootball, basketball, fitness, training, sportswear etc. built with decades of leadership and footwear and apparel experience.

A personal comment from the author of these lines: I have been buying Nike running shoes for years. The catalog has never been as confusing and chaotic as it is now.

Growing competition. As Nike grapples with its own internal changes, competition has intensified. Younger brands in particular. France’s Hoka has gained market share in running shoes, a category that has seen a lot of interest since the pandemic and that Nike doesn’t yet know how to address.

The Roger Federer-endorsed On has also grown, but is still more visible as a city shoe than a sports training shoe… This also happened to Nike at the time.

Despite the crisis, Nike remains a hugely popular brand, capable of generating between $5,000 million and $7,000 million in profits each year. But that leadership is starting to be questioned. It’s up to Nike to make up for lost ground and keep its competitors at bay. Either that or you’ll inevitably lose weight.

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