Nike is one of the biggest names in sports and fashion but has been facing a tough year. Sales are down, innovation has slowed, and the company is struggling to keep up with competitors like Adidas. But the sportswear giant is hoping to turn things around with a leadership change on the horizon. Recently, Nike announced that CEO John Donahoe will be stepping down, and Elliott Hill, a former Nike executive, will take over as CEO starting October 13.
Hill’s return comes at a critical time for Nike, which has seen its market value drop and its stock fall by 20% over the past year. Despite these challenges, Hill’s appointment gave an immediate boost to the company—Nike’s stock jumped 10.2% in after-hours trading, adding more than $12 billion to its market value. Hill, who has a long history with Nike, is expected to bring fresh ideas and guide the company back to growth.
John Donahoe, who became CEO in 2020, tried to push Nike towards a “direct-to-consumer” strategy, cutting ties with major retailers like Amazon and Foot Locker to increase profit margins by selling directly to customers.
However, while this initially looked promising, it led to some big problems.
Nike’s decision left a gap in stores, allowing rivals like Adidas, New Balance, and others to move in and take over shelf space that Nike once dominated. In addition, Nike struggled to keep its product lineup fresh, with classics like the Air Force 1 and Dunks losing their appeal, and new designs failing to generate the same excitement.
Adidas, meanwhile, has been seizing the opportunity.
Two of its retro sneakers—the Samba and the Gazelle—are making a huge comeback. These classic “terrace” sneakers are popular with a wide range of consumers, from fashion-forward buyers to casual wearers, and have given Adidas a significant advantage by capitalizing on these styles, Adidas is gaining ground while Nike seems stuck in a slump.
Nike’s problems didn’t end there.
The company also faced production challenges, with factory shutdowns in Vietnam due to the pandemic disrupting their supply chain. Sales started to drop, particularly in important markets like China and Europe. To cope with these setbacks, Donahoe made some tough decisions, including $2 billion in cost cuts and a 2% reduction in the global workforce.
However, these moves weren’t enough to boost the company’s fortunes, and many longtime employees, especially designers and product managers, became frustrated, leading to a wave of talent leaving the company.
Adding to the woes, Nike’s high-end fashion collaborations, which once helped build its image among luxury consumers, have slowed down. While brands like New Balance and On are thriving with collaborations with designers like Aimé Leon Dore, Junya Watanabe, and even Miu Miu, Nike has struggled to keep pace in this space.
These fashion collaborations, which once helped elevate Nike’s brand among high-end consumers, have become less frequent, allowing competitors to capture the attention of discerning shoppers. Brands like On have thrived by creating high-fashion sportswear that appeals to a growing number of customers who want both style and performance. Even newer players like Pangaia seized opportunities in the post-Covid era by tapping into the elevated sportswear trend, a category Nike missed out on.
Nike’s challenge now is not just to regain its broad customer base but to reconnect with the high-end, fashion-conscious consumers who have drifted towards other brands. The competition is fierce, especially as the fashion and sportswear markets blur, with more brands entering the sports sneaker space. Nike will need to innovate not only in its products but also in how it positions itself to a more discerning, style-driven audience.
Adidas Capitalizing on Nike’s Struggles
Nike’s ongoing problems are giving Adidas the perfect chance to steal more market share from its larger American competitor. However, to keep shoppers interested, Adidas will need to keep pushing its popular Samba and Gazelle sneakers while staying ahead of the competition.
These shoes have been a big hit for Adidas over the past year, boosting sales. Analysts expect Adidas to report revenues of 6.4 billion euros, a 10% increase from last year, when the company releases its third-quarter earnings on October 29. But experts say the Samba’s reign as the “it shoe” won’t last forever.
Sneaker experts, like Aneesha Sherman from Bernstein, believe the most fashion-conscious consumers have already bought the Sambas. Now, Adidas is targeting the rest of the market by offering the shoes at lower price points. “They can still see a lot of growth because some people who haven’t bought the Sambas yet might jump in now, especially with lower prices around $60 instead of $100,” Sherman says.
To keep the trend going, Adidas has introduced new colorways for its Samba, Gazelle, and Spezial lines. Some models even feature unique designs like football-boot-style tongues or materials like velvet. This variety has kept third-party retailers, like JD Sports, excited about stocking these sneakers. Adidas CEO Bjorn Gulden mentioned in July that the brand was still struggling to keep up with the high demand from retailers.
However, industry experts warn that Adidas needs to be careful not to overdo it. Matt Powell, a sneaker industry advisor, suggests that Adidas should slow down the release of Samba and Gazelle models to ensure long-term success. “They should focus on promoting the sell-through,” Powell explains, referring to the percentage of products retailers sell after receiving them from Adidas.
Adidas is already looking ahead to other shoes, such as the Campus and SL72 retro running sneakers. During Paris Fashion Week, designer Stella McCartney even showcased a new Adidas shoe inspired by motorsport racing, tapping into the growing trend of Formula 1, which recently partnered with luxury group LVMH.
While Adidas benefited from selling leftover Yeezy sneakers, demand for these shoes has dropped since their designer, Kanye West, fell out of favor. In August, Adidas offered discounts of up to 70% on Yeezys to its sneaker club members.
Despite this, Adidas is in a strong position, especially as Nike deals with its own challenges. Nike recently withdrew its financial guidance for the year and expects a weak holiday season, as it transitions to a new CEO. Adidas has a unique chance to grow, particularly in the U.S., where Nike has always been dominant and Adidas heavily relied on the now-fading Yeezy line.
In Europe, Adidas has been gaining market share while Nike’s has slipped. Other competitors, such as On Running, Puma, and Hoka, are also seeing growth.
Analysts like Sherman believe Adidas will keep gaining ground over the next year, as Nike’s recovery will take time. However, things could change if Nike manages to release a strong new lifestyle shoe next spring. “If Nike launches something that catches on, the hot shoes of summer 2024 could shift from Adidas’ Samba and Gazelle to a new Nike model,” Sherman notes.
Snapshot
As Nike works to rebuild under Hill’s leadership, it will have to reclaim not only the mass market but also the higher-end segments that help shape its reputation. Nike’s path forward is uncertain, but with Adidas gaining momentum, especially with the resurgence of the Samba and Gazelle sneakers, the competition is tougher than ever. Adidas’s careful play with these retro models could keep it on top, while Nike’s comeback strategy remains a key area to watch for ahead.
