Nike changed dramatically in the five years under now-departed CEO John Donahoe. And while its hard turn toward direct-to-consumer sales has gotten much of the attention in the hours after Donahoe’s replacement was announced, there are other major ways in which his leadership altered the sneaker giant’s financial outlook.
For starters, Jordan Brand has seen a dramatic resurgence. Once primarily men’s basketball and lifestyle clothing, Jordan’s business has expanded into new areas and found new popularity. Jordan sales were $3.1 billion in 2019, the year before Donahoe took over, and grew to $7 billion by 2024.
On the other side of the ledger, Nike’s business growth in China has slowed dramatically. The sportswear company isn’t alone in that regard, but stagnation in the world’s most populous country has weakened its long-term outlook. Incoming CEO Elliott Hill, who spent more than 30 years at Nike, will likely have to deal with all of this, and more, as he tries to right-size Nike’s business.
“With a background in sales/marketplace (not product), we view [Hill’s] return as a signal of [Nike’s] commitment to a balanced distribution strategy across wholesale/DTC with little risk of disrupting [its] current innovation pipeline,” Citi analysts wrote in note on Thursday. “We expect investors to place less focus on weaker near-term trends/potential earnings risk from a weakening China macro backdrop, and instead focus more on the potential timing/magnitude of a brand turnaround.”
Nike (NYSE: NKE) stock is up about 6% in trading on Friday afternoon. Elliott hasn’t yet spoken publicly, and a Nike rep said he’ll likely take some time before discussing specific priorities, but here are three of the biggest shifts that he is inheriting:
Direct-to-consumer
Donahoe’s largest change to Nike’s business was his increased emphasis on the company selling direct-to-consumer, or DTC. This push started under Mark Parker, Donahoe’s successor, but took on added importance over the past five years.
Nike has historically worked with hundreds of retail partners—from mall staples like Foot Locker to much smaller mom-and-pop stores—to distribute its product. Donahoe (like Parker before him) believed selling directly through Nike-owned channels, such as Nike.com, its app and its own brick-and-mortar locations, should be the company’s focus. DTC sales deliver better margins by cutting out middlemen, but also give Nike more say in pricing and more data about customers. By September 2021, less than two years into Donahoe’s tenure, the company had eliminated more than 50% of its retail partners, including Zappos, Dillard’s and Urban Outfitters.
At the same time, Nike revamped its DTC channels. Its app was bolstered, and it launched a new brick and mortar strategy aimed at creating more Nike-owned stores, particularly in a handful of key, global cities. Shoppers who have been to the new concept stores would recognize the changes—the physical locations became less about selling product directly from the shelves and more about providing showrooms of sorts for people to browse then shop online from Nike.com.
The company’s quarterly filings reflect these changes. In fiscal 2019, Nike reported 68% of its revenue through wholesale channels, as opposed to 32% from DTC sales. In fiscal 2024, it was 56% through wholesale channels, versus 44% through DTC sales.
The plan, however, had drawbacks. Many analysts felt Nike underestimated how many Swoosh wearers were more loyal to these down-market retail spots than they were to the company that made their shoes. It left a number of would-be buyers now shopping instead for rival brands. Nike also had an inventory backlog that was harder to clear without its long stable of eager retail partners. By early 2023, the company was quietly repairing retail relationships it had previously severed.
In a viral LinkedIn post from July chronicling the company’s recent struggles, former Nike executive Massimo Giunco detailed what he considered to be a significant misstep.
“Consumers are not so elastic as some business leaders think or hope, and consumers are not so loyal as some business leaders think or hope,” he wrote. “So, what happened? Simple. Many consumers—mainly occasional buyers—did not follow Nike (surprise, surprise) but continued shopping where they were shopping before the decision.”
Jordan Brand
As the DTC push was faltering, Nike made significant headway in another part of its business: Jordan Brand. The line built around NBA star and Nike icon Michael Jordan had initially expanded into men’s lifestyle and other basketball products, but over the past decade, Nike has made a concerted effort to broaden its horizons. This also started under Parker. Jordan’s mold-breaking deal with French soccer team Paris Saint-Germain, inked in 2018, showcased two parts of its future priorities—sports beyond basketball, and markets beyond the U.S.
Jordan Brand now works with a number of colleges and pro teams in multiple sports. Michigan’s football team won the national title last year wearing jerseys with the Jordan logo, a sign of how the brand has changed. In another expansion of the business, Nike under Donahoe dramatically expanded Jordan’s women’s offerings. (Surprisingly to many, Jordan didn’t release a women’s collection until 2018).
Jordan Brand sales have responded in kind. By Nike’s “wholesale equivalent revenue” metric, Jordan accounted for just 10% of company sales in fiscal 2019. In fiscal 2024, that had grown to 17%. On an earnings call in December, Donahoe said Jordan Brand was “on a clear path to become the No. 2 footwear brand in North America, the biggest brand not named Nike.”
“We’re proving that Jordan can be more than retro, more than footwear, more than men’s and more than North America,” he said. “And this is just the beginning for Jordan Brand, as we see even greater growth potential through our plan for deeper investment, which for Jordan will come in areas like merchandising, marketing and marketplace.”
China
China has for decades been an important sourcing and consumer market for Nike. As the company moved more and more of its manufacturing out of the country, however, its sales in China took on new importance. Quarter-by-quarter, Nike routinely saw double-digit growth in the world’s most populous country. In 2014, sales in China were $2.6 billion, about 10% of the company’s overall revenue. Five years later, when Donahoe took over, sales had jumped to $6.2 billion, or 17% of the company’s overall revenue.
In the most recent five years, however, growth has stagnated. Sales in China actually represented less of the company’s overall revenue (15%) in 2024 than they did when Donahoe took over. Framed another way, Nike saw year-over-year sales growth in China of at least 8.5% in 22 consecutive quarters from 2014 to 2019. In the 17 quarters since, it has seen growth of at least 8.5% just five times. Nike has said on multiple occasions that the adoption of its DTC push is lower in China than in other parts of the world, and that it has revised its sale expectations downward due to soft demand.
There are a number of reasons for the stalled growth—and Nike isn’t alone in its China troubles. The COVID-19 pandemic hit retail in China harder than in other parts of the world, and strained relations between the U.S. government and its counterparts in Beijing have led to decreased consumer interest in many Western brands. In sportswear, domestic companies like Li-Ning and Anta have eaten into Nike’s market share. China’s wider economic struggles have hurt as well.
Like the DTC strategy, this will be a priority for Hill immediately. In their note about the CEO change, Citi analysts also gave an update on their outlook for the company’s next earnings report. It warned of additional headwinds in China.
“However, with today’s [leadership] announcement,” the note says, “we believe Nike is more likely to get a pass on a weakening China macro.”
