Nike Shakeup, are They a Buy Now?
I know I am a little late to the Nike party, but today, we are going to be chatting about the recent Nike change in leadership. John Donahoe had been CEO for a little over 4-and-a-half years, but after some strategic blunders and a 30% fall in share price so far this year, he “retired.” AKA, the board, particularly Phil Knight booted him out of the company.
The man brought in to replace John was Elliott Hill, and I love this guy. The first sentence of his profile in the Wall Street Journal is “Nike’s incoming chief executive is known for welling up with tears when he speaks about the company because he cares so much about it.”
That is so awesome. I know his PR team fed the WSJ that line, but I do not care because that line is a bar. Also, his LinkedIn page is awesome. He was hired as an intern in 1988, spent his entire career at Nike racking up promotions, and is now their CEO. He was passed over for CEO in 2020 (a mistake obviously) but has returned at the behest of Phil Knight, Nike’s chair emeritus. So, we have established that he has a profound love for the company. That is unique and highly encouraging. I love that. Now, what does he face at Nike for his turnaround job?
OnCloud and Hoka have become challengers in the running space, which is tough. Despite being, or previously being, the world’s preeminent running brand, Nike has been effectively crowded out of the market. At the same time, the running market has become exploded. Running clubs have popped up all over the country, and it feels like everybody owns one or both of On or Hoka. Hoka in particular is doing well right now. My grandfather owns Hoka shoes and fashion-forward highschoolers own Hokas.
Also a big deal is their overselling of the Jordan brand. I remember in my freshman year, everybody was wearing Jordan shoes. Nike was riding a wave of Jordan love, so they wildly overproduced, which yielded short-term results but devalued the brand. Now, Nike is cutting production back, which is good. The sooner you cut and create artificial scarcity, the better. It is painful, and sales will be depressed in that department over the next twelve months, but if they had kept overproducing the brand until nobody was buying at all, the brand would be completely dead, and then they would have nothing.
John would do something I always hated. I did not even know he was doing this, or I would have been so much angrier, but apparently, he was loading up on consultants. Consultants are one of the worst things you can hire for your company unless you are in a hyper-dire situation. First, consultants do not really work. They are often young and bring a 30,000-foot view to hyper-complicated industries that take decades to understand. Second, if they somehow come up with a solution, the company is now dependent on consultants. I would much prefer my company’s executives not spend company money to hire consultants to do their jobs. Figure it out. Figuring out the company’s problems is what you get paid the big bucks for. Elliott is apparently much more bottom-up focused, probably because he knows every facet of the company.
I will be interested to see what Elliott’s comeback strategy is. Love for the company is great, and overall, I am optimistic about his chances, but I will have to see it first. I would not buy Nike yet until I see some real moves from him and the company.
Crucially, the stock will go up as Nike’s coolness goes up. I will alert you loyal Pax Romana readers to my high school’s take on Nike’s “coolness.”
