- Under new CEO John Donahoe, Nike is transforming into a tech-first direct-to-consumer brand.
- The journey has been paved with executive exits, layoffs, and soaring digital sales.
- Some former employees are doubtful Nike can make the change or is playing to its strengths.
- Visit the Business section of Insider for more stories.
In January 2020, just days before the coronavirus pandemic would engulf the world, John Donahoe took the helm at Nike.
The former eBay and ServiceNow CEO had a bold mission to transform Nike from a marketing-first company into a technology juggernaut. Instead of selling shoes primarily in stores, Nike would up its innovation in a push to sell more products online and on smartphones.
The upsides of Donahoe’s plans are substantial: Nike could reap a hefty financial reward by eliminating the costly middlemen between sales. It could help the iconic marketing company control every aspect of how its customers buy shoes, from the first advertisement to the final purchase. At the same time, Nike would have the essential data it needs to understand its shoppers on a deeper level.
Early signs point to success: In its latest quarterly earnings report, Nike said it grew online sales by 59%.
But some worry that transforming Nike from a marketing company into a technology brand is too ambitious.
Insider spoke with two current and five former employees with knowledge of Nike’s tech evolution. These people, who represent varying degrees of seniority up to senior director and vice president levels, spoke on the condition of anonymity so that they could speak candidly.
Most felt Nike’s transformation doesn’t play to the company’s historic strengths and has resulted in difficult changes, including hundreds of layoffs and a major shift in the internal structure.
These employees said Nike was unparalleled in storytelling and product development. Nike’s advertisements are unforgettable. Its sneakers are iconic. But the company’s website and apps simply don’t inspire the same passion. Can Nike change that?
Nike did not return a request for comment for this story.
An all-consuming goal
Over the past decade, the one driving force at Nike has been the all-consuming goal of reaching the consumer directly via what Nike calls “digitalization.”
Digitalization, a term heralded at the brand as early as 2010, is a broad term at Nike. According to remarks in Nike’s latest earnings call, it encompasses everything on the nonphysical side of its business: e-commerce, direct to consumer, and mobile apps.
That strategy influences product innovation, including things like the 2012 FuelBand and the wildly popular Snkrs app.
It also means the company has made cutthroat moves like severing wholesale partnerships with retailers in favor of direct-to-consumer e-commerce sales through Nike Digital and brand-owned stores. Analysts say it’s all part of a calculated risk to use technology to tighten the bonds between Nike and its most loyal consumers.
“The biggest risk is losing customers and sales,” Neil Saunders, the managing director of retail at GlobalData, said. “Some Nike products are bought on impulse at department stores or through other channels, and if Nike pulls out of such points of distribution, it could see those sales go to rivals.”
But analysts say the likely benefits outweigh possible losses. Nike could maintain a higher margin on sold products, while controlling the retail display and perception of the brand, and embed itself in the minds of the consumer.
This last element, however, requires more sophisticated technological prowess.
“When a consumer comes to one of Nike’s websites, [Nike is] able to look at all kinds of metrics that can help them understand shopping preferences and habits which they can use to improve the business,” Saunders said. “Moreover, if consumers register on the Nike app or website, then Nike gets their details, which it is able to use for marketing purposes.”
A new direction under a new CEO
After CEO Mark Parker stepped down amid multiple controversies — including allegations of pay discrimination and a scandal involving the Nike running coach Alberto Salazar’s use of performance-enhancing drugs — he was replaced by John Donahoe in January 2020. Many saw the former eBay CEO’s arrival as a major factor that would elevate Nike’s technological aspirations.
Donahoe had served on Nike’s board since 2014. Perhaps more importantly, his background was primarily in tech. He was most recently the CEO of the cloud-computing company ServiceNow.
The new CEO’s overall ambitions were outlined in a July initiative that declared the company was entering “a new digitally empowered phase of Nike’s strategy to unlock long-term growth and profitability.”
Donahue simplified and restructured Nike to focus on three key areas: men’s, women’s, and kids’. Previously, Nike had operated under what it called a “Category Offense” model, which split the company into dedicated teams divided by sports.
Under the older system, each team designed, manufactured, and marketed their own lines of apparel, footwear, and accessories. While this allowed for nuance in design, it often caused product redundancy, a former Nike vice president who was laid off in October said.
“You had the basketball team making great basketball shorts, you had the running team making great running shorts, the athletic-training team making great training shorts,” the former exec said. “At some point in time, whether it was shorts or tights, there was just a lot of very similar — although not identical — but very similar product. And that led to a merchandising challenge.”
CDA would eliminate this redundancy and divide Nike’s business between the broader consumer categories. This consumer-first mentality would also build on previous efforts to strengthen Nike’s DTC and e-commerce channels, which had been announced as early as 2017.
Former employees said they felt that this change created turmoil within the company as business units shifted their focus from sports to consumers. A current lower-level employee at Nike who has worked at the company for almost four years told Insider he felt the switch from sports to the consumer category ran counter to the benefit of having designers and product developers who intimately know and can create products for a specific sport.
This employee, who was shifted to another team in light of the restructuring, said this change made him worry about “losing what makes Nike, Nike.”
Going all in on CDA last year resulted in hundreds of layoffs in the summer and through the fall across all business sectors as Nike’s internal structure shifted. At the forefront of this change was Donahoe, whose personality and background represented a new direction for Nike.
Beyond his tech background, Donahoe’s affability and extroversion stood in stark contrast to Parker, who was described by a former employee as quiet and conflict-averse. Some employees said Donahoe’s collaborative and engaging leadership style made him the perfect person to make Nike’s digital dreams a reality.
“Sometimes in meetings, he would just sit back, and he’d let his executive team start to lead. And I don’t think he was really great at managing conflict,” the former Nike vice president who was laid off in October said. “I think John Donahoe, he’s going to be completely opposite. It’s like, ‘What’s the conflict? Let me hear about it. Why? Yes? You? Why? OK. Here’s a decision. Let’s go. Get on board.'”
Nike wants to become a tech company, but it’s a difficult transition
Even with growing online sales and the pandemic’s tailwinds for everything e-commerce-related, Donahoe has his work cut out for him.
“Overall, there’s a lot more issues with the app than what the consumer on the day-to-day sees,” one former employee who had worked with the Nike app said, adding that programming issues and glitches were a regular occurrence on the app.
Two former employees said Nike’s legacy tech infrastructure was often at odds with new technologies that could not integrate with older systems. One of these former employees added that Nike also lagged behind tech competitors when it came to technology-driven retail concepts like Amazon Go-style stores.
There’s also a tech-talent gap. The company does not attract the same level of talent as companies like Google and Apple, some former employees said. An Insider analysis of salary data showed that many engineering roles paid much less at Nike than they would at a Google or Apple.
“Nike should never be able to attract the amount of tech talent in Apple or a tech company should because Nike is still a consumer company,” Simeon Siegel, a senior analyst at BMO Capital Markets, told Insider in an interview, adding that Nike’s smaller roster of engineers existed “simply because Nike is still selling shoes and shirts.”
And while Nike’s roster of tech bona fides is growing, especially given the résumé of its CEO, insiders said the company should be realistic about its image among most consumers.
“I don’t think Nike is a tech company,” a former high-ranking Nike employee said, sharing a sentiment expressed by other Nike employees who spoke with Insider. “I think Nike is a marketing company.”
Further complicating Nike’s online growth is the explosive resale market for Nike products that has skyrocketed in the past few years. Pairs of Nike’s will go on sale from Nike on its Snkrs app and be available on resale sites like StockX hours later, with markups as high as 10 times the price at retail.
It’s a market valuable enough that Nike’s sneaker releases are often marred by “bots,” or software applications that expedite the online checkout process and often prevent other users from obtaining a pair of shoes.
The releases are emblematic of the tension between Nike’s marketing and design prowess and its tech. It can create white-hot sneaker drops, but it seems to struggle to stop bots from buying up supply.
Siegel said this example spoke to Nike’s unique identity.
According to Complex, Donahue said earlier this month in an all-hands meeting that Nike was working on “anti-bot technology” to combat this issue.
In the same meeting, he also addressed the recent departure of Nike’s vice president and general manager for its North America division, Ann Hebert. The former executive, who managed Nike’s direct-to-consumer strategy and oversaw the Snkrs app, resigned after Bloomberg Businessweek reported in February that Hebert’s 19-year-old son had used her credit card to buy over $100,000 worth of limited-edition sneakers for reselling. Any assistance she provided to her son’s business, if any, is still unclear.
Nike is a marketing company at its heart
Nike’s changes come with costs to corporate employees, independent shoe stores, and longtime retail partners.
“I had never been at a company where you could feel so valuable one day but still question if you were going to be out the door the next,” said a former Nike employee who left the company in February but had witnessed the layoffs firsthand.
For those who were not laid off, the shifting of teams across the company is said to have complicated pathways for advancement and definitions of success for some employees.
“You’re setting goals, and you’re putting plans in place, and you can the rungs of the ladder to climb,” the current Nike employee, whose job changed during the restructuring, said. After Donahue’s shift in strategy, it was suddenly “a zigzagging ladder. It’s like a game of chutes and ladders, not just like one single ladder to kind of get to where your goal is.”
Layoffs were only part of the story — independent entities felt the sting of Nike’s efforts to revamp itself as an e-commerce player. In August, Nike canceled wholesale partnerships with online retailers such as Belk, Dillard’s, and Zappos that relied on the leading brand for sales. DSW, Urban Outfitters, Shoe Show, and more retailers were added to this list of canceled partnerships this month. Nike also ended a decadeslong wholesale partnership with mom-and-pop retailers across the country, like Frank’s Sport Shop, a New York City institution.
“Everything Nike does is to build the Nike brand,” Sam Poser, an equity analyst at Williams Trading, said, adding that these retailers “didn’t do anything in selling the product to enhance the Nike brand. So it didn’t make the brand stronger.”
Moves like these help the company become digital-first, executives have said. And they seem to be working. In Nike’s second-quarter earnings, Donahoe said the company had seen consecutive 80% online-sales growth for the past three quarters. In its most recent quarter, Donahoe said Nike North America hit $1 billion in digital revenue for the first time.
But if “digitalization” is the company’s north star that guides its constant evolution, some Nike insiders are doubtful the sportswear brand will ever become a bona fide tech company.
What makes a true tech company is up for debate. According to the NPD sports analyst Matt Powell, the footwear industry’s overarching shift toward digital sales makes it so that “every retailer is a tech company today.”
“That whole retail marketplace has changed,” the former Nike employee who was laid off in October said. “And Nike is doing its absolute best to not only move with that change but — as Nike always does — to start to lead the discussion around what that change is and how it can work.”
“It’s interesting to see a marketing product company turn into” a tech-focused company, the current Nike employee said. Still, he said it was no surprise to see Nike lean into this area, given the general rise in e-commerce and tech across all industries.
Another current Nike employee said that while he believes Donahoe’s tech background will help yield new digital opportunities for the brand, it is unlikely that Nike will ever become a true tech company. Key areas within Nike such as product creation, the employee said, will never be able to be completely digital.
A former director of strategy at Nike said the company was still nowhere near completing its digital transformation and was skeptical if Nike could ever be a tech company.
While this employee said that Nike had failed to become known for its commerce app, personalization technology, and tech talent, he added that the brand continued to excel in the marketing and storytelling around its merchandise.
“At the end of the day, Nike sells products,” he said. “That’s the heart, heart, heart of Nike.”
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