A CEO can influence the fate of a giant.
After Nike announced last week that CEO John Donahoe would step down, the group’s share price rose by more than 10% at one point. The initiative to impeach John Donahoe had been brewing in the capital market before, and the outbreak of the share price completely released the market sentiment.
To evaluate the merits and demerits of a listed company CEO, there is no need for excessive words. The stock price performance is intuitive enough. Since John Donahoe took office in January 2020, Nike’s stock price has cumulatively dropped by about 20%, and its market value has lost about 30 billion US dollars.
With John Donahoe’s departure, the group announced that veteran Elliot Hill will return to the company after retiring for four years. The return of a veteran always comes with the mission of boosting morale. Many employees also revealed that the internal response to this appointment within the group is quite positive.
Especially after an Elliot Hill’s LinkedIn profile circulated widely on social media, the career ideals of sports brand practitioners that have been dormant for five years seem to have been reawakened.
This resume shows that Elliot Hill spent 32 years climbing the ladder from being an intern at Nike to becoming the CEO.
The picture shows the resume of the new CEO Elliot Hill
Elliot Hill joined Nike as a sales intern after obtaining a Master’s degree in Sports Management from the University of Ohio in 1988. Two years later, he became a regular employee in the sales team. Since then, he has been promoted gradually, from sales manager, director of the sports department to vice president of Nike’s US business department. Before his retirement in 2020, his final position was President of the Consumer and Market Division.
It is extremely rare to persist in a company for 32 years, and it is even rarer to get a promotion again after retirement.
In contrast, John Donahoe’s resume is filled with the typical aura of an outstanding student. From Bain Consulting to tech giants, it carries the shadow of the era’s development.
John Donahoe graduated from Dartmouth College in the United States and obtained an MBA degree from Stanford University. Then he joined Bain Consulting and spent 20 years advancing from an ordinary consultant to the CEO of Bain Consulting. In 1999, John Donahoe had mastered the conventional methods of reducing corporate costs and the cutting-edge knowledge of e-commerce at Bain, which have become his core skills for nearly three decades since then.
In the consulting industry, strategy consultants are almost always on the lookout for opportunities to leap to senior positions in enterprises, although they are well aware that they must adapt to the significant differences in the working atmosphere between enterprises and consulting firms.
Unlike those insiders who strive from the bottom of the enterprises, senior practitioners in consulting companies can often get the opportunity to be parachuted into corporate executives. They either become the right-hand men of the business owners, and a few can become the real helmsmen.
John Donahoe’s leap from Bain Consulting to a tech giant is remarkable. In 2005, he was hired as the president of Marketplaces under the e-commerce giant eBay, and in 2008, he was promoted to eBay CEO. He successfully turned around eBay and made more than 40 acquisitions during his tenure. In 2015, John Donahoe left eBay due to the spin-off of PayPal, and later in 2017, he became the CEO of the enterprise cloud computing company ServiceNow.
From this career path, it is easier to understand the series of strategies related to DTC in e-commerce that John Donahoe has implemented after entering Nike. And Nike’s founder, Phil Knight, precisely values John Donahoe’s thinking and ability in cost reduction and e-commerce, pinning his hopes for modernizing Nike on him, even though John Donahoe has little knowledge of sneakers.
In January 2020, John Donahoe officially took over the position from the former Nike CEO Mark Parker, becoming the second external CEO in the company’s history, while Mark Parker serves as the current Executive Chairman of Nike. Mark Parker, a highly respected sneaker designer with a background quite different from that of John Donahoe, has worked at Nike for decades, rising through the ranks from the grassroots level.
Phil Knight’s personnel transfer means that Nike is driven by a product-oriented mindset to a technology-oriented mindset.
This also led to Nike’s DTC (Direct-to-Consumer) reform after the epidemic.
For a long time, Nike has rarely opened its own offline stores. In overseas markets, it relies on distributors such as Footlocker, Belk, and DSW, while in the Chinese market, it opens brand stores through agents such as Topsports.
The space that a brand occupies on the shoe wall of distributors has always been a manifestation of the brand’s market share and influence
In the fiscal year 2021, John Donahoe gave clear instructions to the employees to vigorously develop the DTC channel led by Nike’s online website to make it the company’s primary source of income, while reducing the wholesale business to make it the secondary source of income.
In the first three years of his tenure, by increasing self-operated stores and online sales, he enabled Nike’s own DTC channel sales to increase by nearly $9 billion. The annual sales in fiscal year 2023 exceeded the $50 billion mark for the first time, delivering a very impressive result.
To make the online website the center of everything, the Nike team shifted brand marketing to digital marketing and brand promotion to sales activation. The brand began to invest twice or more in marketing such as programmatic advertising and performance to increase traffic to the Nike official website.
Meanwhile, in order to obtain higher profits from each sale, John Donahoe is upping the ante by investing more funds in the e-commerce business, strengthening the back-end technology, and simultaneously discontinuing partnerships with many large distributors, including Amazon, Zappos, and Foot Locker, among others.
In a world that emphasizes efficiency more, the disappearance of middlemen is considered an inevitable historical outcome. Especially for Nike, which has a strong brand power, it has enough confidence to achieve direct communication and interaction with consumers.
However, what John Donahoe has overlooked is that the prerequisite for the success of Nike’s DTC strategy is to maintain the brand power and product power at a high level in the market. If Nike products lose their bargaining power in the market, consumers will leave the brand more quickly, and there will be no middlemen to act as a buffer to help Nike bear the market risks.
Some analysts believe that in John Donahoe’s previous technology industry, the moat of product technology is much deeper than that in the consumer goods industry.
Once an enterprise possesses an innovative technology, it can continuously benefit from it. At Nike, John Donahoe also attempts to develop the Air Force 1, Air Jordan 1, and Dunk into the brand’s long-term core products.
He seems to believe that as long as through precise product life cycle management, as well as the development of icing-on-the-cake type products such as new color schemes and new co-branded items, it is sufficient to support its DTC channel reform and ensure Nike’s industry leadership position.
This is not the case. In the rapidly changing consumer goods industry, without the continuous support of product innovation, the DTC channel reform becomes an accelerator of brand decline.
In 2021, Nike drew inspiration from the Air Jordan 1 in its brand archive to launch the Panda Dunk. The low-top shoe with a black and white color scheme was highly sought after, and its sales soared, making it one of the most successful sneakers.
However, the Panda Dunk, which is worn by more and more people, seems to be owned by almost everyone on the internet. This shoe is considered to be overly hyped and is called the worst sneaker.
Nike is superstitious about the successful model of Panda Dunk
The success of the Panda Dunk has allowed Nike to revel in the joy of its own operational methodology.
After that, Nike began to launch a large number of new Dunk styles, but it was merely obsessed with color matching on the color palette. The brand followed the same approach and revitalized a large number of old shoe models such as Air Force 1 and Air Jordan 1.
However, people previously had the impression that Nike is a brand that emphasizes innovation, performance, and motivation, particularly focusing on enhancing athletic performance through high-tech products.
The reason why this brand has dominated the sports shoe market for many years is that it has continuously improved and refined the performance of sports shoes over the years, including sports technologies such as Flyknit and Air Max.
The benefits Nike has reaped from sporty and casual shoes like Dunk have led to a weakening in the development of performance shoes, causing both sectors to come to a clear standstill. In professional sports such as running and basketball, competitors, including Chinese brands, have been continuously challenging Nike’s dominance by making breakthroughs in individual niche areas.
In the past two years, the problem of Nike’s product innovation has been clearly pointed out by the market, but it has not been effectively improved.
John Donahoe shocked investors by blaming the innovation problem on the work-from-home situation of designers after the pandemic. This statement is considered too hasty and not in line with the facts. The brand later announced a reduction in orders for its core classic products, Air Force 1 and Pegasus, in an attempt to shift the focus to the development of new products. However, two years have passed, and the brand still has not made significant breakthroughs in new product research and development.
During the gap when channel transformation and product innovation have stagnated, a large number of shoe shelves of sneaker distributors have been given to other competitors. Whether it is the new brands Hoka and ON, or the once relatively marginalized New Balance and Asics, they have occupied more positions on the shoe wall. Brands like Puma don’t even need to take many actions to gain more market space from the two successive struggles of Adidas and Nike.
Meanwhile, the veteran competitor adidas, which is slightly inferior in performance technology, has ridden the fashion trend of retro sports. With retro shoe styles such as Samba and Gazelle in the Terrace series, its sales have soared. Although many industry insiders predict that the popularity of the adidas Terrence series will pass after this year, the company’s strategy of fully boosting product innovation and frequently achieving substantive outputs is considered to be in the right direction.
While the “De Xun Shoes” trend is booming, Adidas has continuously launched new models such as SL 72, OZMILLEN, and OZTHEMIS. Last week, the brand officially released information about the new 3D-printed shoe model ClimaCool, using high-molecular elastic materials to replace traditional materials, further innovating in breathability and comfort.
In contrast, Nike’s progress in new product research and development remains slow, disappointing the market. The reason behind this is the departure of designers and product experts, and this result is related to the DTC model.
According to a popular article by Massimo Giunco, Nike’s brand director who worked at the company for 21 years, Nike has abandoned category management and shifted to the DTC model, which means eliminating categories such as running, basketball, and football, and reclassifying all products into women, men, and children.
The logic behind this decision is that Nike has duplicate resource investment, and shifting to DTC will provide sufficient customer data to make product decisions rather than relying on category experts. Many basketball experts who have worked at Nike for more than 20 years have been laid off, resulting in Nike losing its insight into products and market trends.
Although global geopolitical situations and other issues have caused chaos in product orders, the wrong product strategy has always been an important reason for the inventory crisis.
According to Nike’s data, the inventory scale began to increase from the end of February 2022. The inventory scale at the end of that quarter was 7.7 billion US dollars, and by the end of August 2022, the inventory scale had increased to approximately 9.7 billion US dollars. As of the end of fiscal year 2023, this figure was 8.5 billion US dollars, accounting for 16.6% of the annual revenue.
To cope with this situation, Nike has started a crazy promotion on its online website. From the original one-day Black Friday, it has been extended to one month. More and more mid-season promotions, end-of-season promotions, and member promotions have made the brand’s profit margin increasingly lower.
Nike quietly reintroduced category management at the end of 2023, but the loss of product experts has dealt a heavy blow to Nike. Some analysts believe that the damage to the Nike brand assets caused by John Donahoe is extremely profound.
Today, five years later, many people’s total denial of John Donahoe’s DTC reform is actually a fallacy.
It is almost unimaginable in 2024 that an industry giant does not directly control offline channels. But conversely, when a giant that feeds a large number of middlemen suddenly withdraws orders, completely denying the long-standing symbiotic relationship, it is also difficult not to suffer a backlash due to this sterile environment.
In the first two years of John Donahoe’s tenure, during the pandemic, online shopping became the first choice for consumers, which is the e-commerce field that John Donahoe is good at. The success that the DTC channel has brought to Nike is undeniable, but after the pandemic, people will eventually return to offline stores, and the shelf space occupied by Nike has significantly reduced.
The space a brand occupies on the shoe wall of distributors is, from beginning to end, a manifestation of the brand’s market share and influence.
The DTC reform is imperative, but the problem lies in Nike’s aggressive actions and putting the channel reform before the most core products of consumer goods companies.
Only when a product has a strong pulling force and creates a substantial gap with market competitors, will consumers be willing to specifically enter the brand’s channel for shopping. Otherwise, for low-unit-price sports shoes, shopping in a multi-brand store scenario is more in line with consumers’ general habits.
Due to the market’s criticism of Nike’s DTC reform, Nike has to reconcile with dealers such as Footlocker. However, quickly reversing its decision after being overly aggressive makes Nike’s corporate image seem rather hasty.
In the face of intensified market pressure in the past year, John Donahoe made frequent blunders. In December last year, he announced that the company would save $2 billion in costs over the next three years. Subsequently, in February this year, it was announced that the total number of global employees would be reduced by approximately 2%. In April, a plan to cut 740 jobs in Oregon was announced. According to the company’s corporate report, the laid-off employees include 32 vice presidents, 112 senior directors, and 174 directors.
Team morale has thus dropped to the lowest point in history. According to Nike’s fiscal fourth quarter and full-year earnings report as of May 31, the company’s annual revenue increased by 1% to $51.4 billion, and its profit increased by 13% to $5.7 billion. Among them, the fourth-quarter revenue decreased by 2% to $12.6 billion, falling short of analysts’ expectations, while the profit soared by 45% to $1.5 billion.
Meanwhile, Nike also lowered its performance expectations, predicting that its revenue will decline by 10% in the next quarter. After the earnings report was released, Nike’s stock price plunged 12% to $83 in after-hours trading, and the company experienced its toughest day in the stock market since its listing.
The departure of John Donahoe has ended Nike’s most expensive round of trial and error.
This is the second attempt by Phil Knight, the actual controller of Nike. Nike’s first external CEO, William Perez, served as the brand’s CEO in 2005. However, due to differences of opinion with the founder Phil Knight, he left after only one year in office. Before joining Nike, he served as the CEO of Johnson & Johnson.
Mark Parker, who joined Nike in 1979, succeeded William Perez. At that time, the 50-year-old Mark Parker had been working at Nike for 27 years. He had participated in many projects such as brand product innovation and was also one of the top executives responsible for strategic planning.
Two similar coaching change incidents have made Nike clearly understand the reality and not willing to let history repeat itself.
Design, production and sales are always the backbone of sports companies, and for large companies to continue to develop, they rely on the unique corporate culture accumulated over the years. For Nike, this culture is the competitive spirit and the product spirit.
Even if external consultants have a rational understanding of this, they cannot rejuvenate themselves and take the new corporate culture as the instinct that drives their own decision-making.
The training that the consumer goods industry brings to people is the instinct to constantly respond to market changes. When Nike mistakenly believed that its product foundation was solid enough and should enter the modernization stage, it turns out that in this industry, there is never such a thing as this stage and the next stage; there is only the need to remain vigilant every day.
The downfall of John Donahoe is also accompanied by the fading of the halo of global consulting firms. A Bloomberg article directly titled it, “Why John Donahoe’s Bain Strategy Didn’t Work”. Perhaps under pressure, the article later changed the title to “The Man Who Made Nike Uncool”.
The smartest people in the world flock to the consulting industry, where they use their brilliant minds to provide insights across multiple industries. However, this has led to a templated way of thinking and acting. This is why downsizing and cost-cutting are the consulting companies’ specialties. Because it doesn’t require an understanding of the company’s business. In multinational companies where overreporting exists everywhere, downsizing and cost-cutting are the most intuitive changes, but also the laziest decisions.
It should not be forgotten that a group of “shoe dogs” founded Nike from scratch. Nike in the midst of a historical crisis must return to its entrepreneurial mindset.