Nike Faces Challenges: Shares Plunge, Strategy Backfires

Despite the global showcase of the Olympics and a host of stars championing its products, Nike is in a tough spot. The company's shares have fallen 59% since their 2021 high, reaching levels last seen during the March 2020 lockdown. Disappointing results released on June 27 prompted a major downgrade from analysts from Wall Street, causing Nike's stock to lose a fifth of its value in a single day, marking its worst performance since the company's 1980 stock market debut.

In an attempt to turn things around, Nike has rehired Tom Peddie, a company veteran who retired in 2020. Peddie, who previously served as vice president and general manager of Nike's North American business, is tasked with overseeing retail partnerships as the company looks to rebuild relationships with retailers such as Foot Locker. The move is a response to Nike's misstep of redirecting its products from third-party retailers to its own stores and digital channels, a strategy implemented by CEO John Donahoe.

Donahoe, who took on the role in January 2020, believed consumers would permanently shift to online shopping after the COVID-19 lockdowns. However, this strategy backfired, allowing younger rivals such as Castore, Hoka and On Running to fill shelves and space at third-party retailers. The direct-to-consumer strategy also failed, with sales from that division falling 8% to $5.1 billion in the three months to the end of May.

Nike's cost-saving restructuring, which saw the abandonment of divisions covering individual sports in the men's, women's and children's sales categories, also weakened its relationship and understanding of those sports. The company has also been criticized for over-reliance on some products and for diluting the exclusivity of some of its main brands.

Despite these challenges, Nike co-founder Phil Knight has expressed confidence in Donahoe and the company's future plans. These plans are expected to include more innovation, a renewed focus on its core product and heritage, and a push towards price-conscious consumers. Peddie's reappointment is a key part of Nike's strategy to reconnect with its retail partners and consumers. However, the impact of these changes on Nike's sales may not be visible until the middle of next year, testing Wall Street's patience.