Why Nike is Facing Its Worst Performance in Years

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Nike is a behemoth. For decades, it’s dominated the global shoe market, controlling 38% of it. That kind of market share is staggering, and it wasn’t just built overnight. Yet, despite this long reign, Nike is stumbling. Sales are down, and the company is facing challenges it hasn’t seen since the late ‘90s. In Q1 this year, sales fell, leading to a decision to cut 2% of its workforce and slash $2 billion in costs.

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On the surface, it looks like just another big brand struggling to adapt. But if you look deeper, this is a classic example of what happens when growth outpaces understanding. And in today's world, there’s never been a better time to be small, nimble, and free from legacy constraints.

The Leadership Shift and the Rise of Tech Thinking

Nike’s path to reinvention started in 2020 when Mark Parker, a footwear designer turned CEO, stepped aside for John Donahoe, a tech executive. This shift marked the beginning of Nike’s transformation from a product-driven company to a digitally focused one. The idea was simple: Nike would double down on its direct-to-consumer (DTC) business, cutting out the middlemen and selling shoes through its own channels.

On paper, it made sense. E-commerce was booming, especially during the pandemic, and Nike’s own apps were seeing massive growth. By mid-2020, digital channels accounted for 30% of Nike’s sales, far ahead of projections. But this growth masked deeper issues—betting too hard on one strategy while neglecting the core of what made Nike successful in the first place.

This is the danger of being too caught up in chasing trends. Nike was betting big on tech, trying to act like a software company, forgetting that, at its heart, it’s a product company.

Inventory Glut: When Growth Outpaces Awareness

Nike’s over-investment in DTC led to a cascade of issues. The company severed ties with wholesale partners, assuming it could sustain its business through its own channels. But this strategy led to massive overproduction. By late 2022, Nike found itself sitting on $9.7 billion in inventory—the highest in its history. The solution? Discounts. The problem? Discounting chips away at the brand's perceived value and the loyalty that comes with it.

This is a classic case of overconfidence. When you think you’ve solved the game, you take risks you otherwise wouldn’t. Nike cut off wholesale channels thinking it could drive more profit through its own sales, but the market moves faster than we think. Consumers returned to physical stores post-pandemic, and Nike’s DTC efforts never reached the 50% goal it had aimed for.

Competitors Are Eating Nike’s Lunch

While Nike was wrestling with its inventory issues, smaller, more nimble competitors like Hoka and On-Running were growing. These brands captured the attention of consumers with unique designs and tech innovations—thick, foamy soles, or patented cushioning systems. While Nike was focused on its digital strategy, these competitors were focused on delivering products that spoke directly to consumers' evolving needs.

This is where the magic of being small comes in. When you’re not weighed down by a legacy system, you can pivot faster. Brands like Hoka don’t have the baggage of trying to maintain a $25 billion wholesale business while also experimenting with digital. They can simply focus on making great products and growing organically.

Nike, on the other hand, has to play a much bigger game. It’s a giant, and giants can’t turn on a dime.

The Future: A Return to What Works

Nike isn’t going anywhere. Even with all these challenges, it’s still a dominant force, four times the size of Adidas, its closest rival. What we’re seeing now is Nike realizing that growth for growth’s sake isn’t the answer. It needs to return to what it’s good at—creating innovative products that capture the imagination of consumers.

In a way, this is Nike’s greatest strength. It’s a brand built on reinvention. From the Air Max bubble to Flyknit to self-lacing shoes, Nike has always been about pushing boundaries. The key is to do this without losing sight of what makes the brand valuable: the product itself.

Conclusion

In the end, Nike’s recent struggles are a reminder that success comes from focus, not from chasing every shiny object. Just because digital was booming doesn’t mean it’s the only path forward. And just because you’ve been at the top for decades doesn’t mean you’re invincible.

Nike has the resources, the brand power, and the history to figure this out. But the lesson here is that even giants need to adapt with humility. When you think you’ve got it all figured out, that’s when you start to fall.

For Nike, this moment isn’t just about regaining market share or fixing its inventory problems. It’s about re-discovering its core: making products people love, not because they’re everywhere, but because they’re the best.