New Era for Nike: Refocusing on Core Sports
After a tumultuous period, Nike is poised for a comeback under the leadership of new CEO Elliott Hill. Hill’s plan to refocus on sports that are core to the brand, such as basketball and running, has alleviated some investor concerns. However, Wall Street remains cautious, taking a wait-and-see approach to the promised turnaround.
A Shift in Strategy
Hill, a longtime Nike executive, returned to the company in October to steer a turnaround that investors hope will help reverse several quarters of weak sales and revive the Nike brand. In his first public address as CEO, Hill acknowledged that Nike had “lost its obsession with sport” and vowed to put it back on track. The company’s focus on direct-to-consumer sales had led to high inventories, necessitating steep discounting.
Back to Basics
Hill’s plan involves shifting focus away from streetwear and fashion, which had taken over the brand, and back to what worked. This means reducing heavy discounting and neglect of retailers. John Nagle, chief investment officer at Kavar Capital Partners, which owns Nike shares, believes that Hill is taking the right approach. “The recovery is going to be a multi-year process, but he seems to be going back to the roots, back to Nike being Nike.”
Challenges Ahead
Despite the optimism, at least 10 brokerages cut price targets on the stock, citing the lack of a clear timeline for Nike’s return to growth. Analysts point out that the reset actions will take a material toll on profit margins and sales growth. Morgan Stanley’s Alex Straton notes that Nike’s trajectory is likely to get worse before it can get better, as the inflection point for growth remains uncertain.
Innovative Styles and Partnerships
Nike’s lack of newness led to reliance on promotions, and Hill plans to sell more products at full price on its website and app. The company has lost out to rival brands, including Roger Federer-backed On and Deckers’ Hoka, who lured consumers with fresher and more innovative styles. Hill is also working to reverse certain strategy missteps under the former CEO that soured its relations with retailers such as Foot Locker.
A New Chapter
Foot Locker CEO Mary Dillon has expressed support for Hill’s approach, saying that the retailer is “working closely” with Nike to emphasize newer sportswear styles. Eric Clark, portfolio manager at the Rational Dynamic Brands fund, believes that Hill’s leadership marks a turning point for the company. “A rudderless ship now has a rudder, and a sailor who knows how to drive it.”
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