Nike’s Next CEO Has One Hell of a Challenge Ahead

After a tumultuous few years marked by declining sales, lacklustre innovation and decimated retail relationships, John Donahoe has stepped down as CEO of Nike.

His departure comes on the heels of mounting criticism over Nike’s digital transformation strategy, which hit a critical juncture on June 28 when the company’s market capitalization plummeted by $28 billion following a dismal earnings report. The report projected that Nike’s revenues would drop by “mid-single digits” in fiscal 2025, triggering the worst day for Nike stock since its 1980 IPO.

It was a downturn that many industry insiders had long anticipated. Although Donahoe was brought in from Silicon Valley with a mandate to make Nike a digitally-driven company, the justification for this strategy quickly eroded in a post-pandemic landscape. The rapid shift toward ecommerce, once seen as the future of retail, began to lose momentum as consumer preferences swung back to in-person experiences. But Nike, having pivoted so heavily into a direct-to-consumer (DTC) model while neglecting the core pillars that originally made it a global sportswear leader—namely, cutting-edge product innovation and culturally resonant marketing—found itself in a precarious position.

While smaller, niche players like Hoka and On Running doubled down on product innovation and grassroots marketing, Nike seemed stuck in a loop of digital experimentation that failed to excite the core sportswear consumer. By focusing almost exclusively on scaling its own digital platforms, apps, and virtual ventures, Nike alienated key wholesale partners and overlooked the growing demand for authentic, community-driven experiences in favor of short-term gains through DTC margins. Now it appears the long-term ramifications have finally caught up.

To fill the leadership vacuum, the sportswear giant has named company veteran Elliott Hill as its new CEO. Hill, who joined Nike as an intern in 1988, worked his way up through the ranks, eventually heading global operations for both Nike and the Jordan Brand, before retiring in 2020. His return has already sparked a wave of optimism, with Nike’s shares, which had fallen by 25 percent this year, rising by 6 percent in premarket trading following the announcement.

Many investors hope that Hill’s deep understanding of the brand and its products will guide Nike back to dominance. However, experts caution that the road to recovery will be arduous.

“It’s shocking to see how much damage was done in such a short time,” remarks Alex Ropes, CEO of fashion and streetwear community The Basement, who previously collaborated with Nike on sneakers in 2017 and 2019. “To regain its edge, Nike will need to backtrack on many of Donahoe’s strategies, a process that will require time and significant investment.”

Nike’s DTC Play: A Double-Edged Sword

Donahoe’s tenure at Nike began in 2020 as the company’s second-ever outsider CEO (it’s worth noting the first, William Perez, a former head of S.C. Johnson & Son, barely lasted a year). Having previously served as CEO of eBay, Bain & Company, and ServiceNow, he famously had no experience in product design, sporting goods, or even sneakers for that matter.

It was a significant departure from his predecessor, revered sneaker designer Mark Parker, who founder Phil Knight told Portland Business Journal would often finish his “thoughts before I even know I’m having them.” Donahoe was tasked with turning Nike into a tech powerhouse. His first point of call: Bolster the company’s DTC sales channels and cut reliance on wholesale partners.

To do so Nike also invested heavily into the digital space. It launched a chatbot that helped ecommerce customers navigate their website with personalized product recommendations; and invested heavily in data-science technology, acquiring data integration startup platform, Datalogue in 2021. And, perhaps most ambitiously, entered the metaverse via the Roblox-hosted Nikeland, also in 2021, which was reinforced by the purchase of NFT studio RTFKT later that year.

The logic seemed sound during the pandemic when people were forced to stay home and stores were closed, causing ecommerce sales to surge. At first Donahoe’s plans worked. Nike’s direct-to-consumer sales shot up by almost $9 billion in Donahoe’s first three full years, and by March 2022 digital channels accounted for more than 25 percent of its revenues. The brand’s metaverse adventures proved equally fruitful. In April 2022, it made $3.1 million selling 600 pairs of “Cryptokicks” NFT sneakers, while seven million people had visited Nikeland by that June.

Then reality reasserted itself. The company’s aggressive shift away from wholesale partners ultimately meant that they “lost out on a lot of shelf space that went to their competitors,” says Fiona Harkin, director of foresight at The Future Laboratory. Once retail stores reopened and shopping habits normalized, a flurry of challenger running shoe brands such On Running, Hoka and Brooks swiftly capitalized on the available real estate.

“There was a real thirst for IRL connection and community following the pandemic,” says Harkin. “The hype surrounding the metaverse and NFTs quickly fell out of fashion, too. After two years at home, why would anyone want to spend more time in online worlds?”

Unfortunately, this was a question that escaped Nike executive’s minds. In fact, they only doubled down on their strategy, but with more confused, ill-thought-out ventures. Take .Swoosh, their own virtual world independent of Roblox, which it launched in November 2022 to little fanfare, and has been deadly quiet about ever since.

Instead of focusing on technological breakthroughs, Nike has leaned heavily on reviving old lifestyle models like the Panda Dunk from the 1980s. A sneaker convention last year voted it “the worst sneaker of all time.”

What’s more, Nike lost a network of tastemakers who once made it cool. “What really set Nike apart was its ability to create an untouchable mystique around products that were incredibly scarce and hard to get,” says Ropes. This was achieved through a carefully cultivated relationship with a global network of sneaker boutiques and skate shops—the kinds of stores run by tastemakers—where only the most discerning shoppers would go, he explains. Yes, Amazon and Foot Locker were huge blows to bottom lines, but by cutting ties with these “Tier Zero” concept stores such as Alife Rivington Club and the late, great, Dave’s Quality Meat (both of whom had partnered with Nike on hyped collabs) they began losing their elusive cultural cachet.

The misfire is reflected in the figures. In 2020, Nike, Adidas, Puma, Under Armour, and Vans collectively held 80 percent of the global sportswear market. By 2023, that number had fallen to 65 percent, with challenger brands growing at an annual average rate of 29 percent compared to incumbents, which grew by just 8 percent.

Worse still, analysts at RBC Capital Markets predict that challenger brands will continue to outperform the incumbents, projecting a growth rate of 11 percent per year through 2026, versus just 5 percent for Nike and its peers.

However it’s not just visibility that gave these challenger brands the edge, but innovation, too.

Stalled Innovation and Disconnect

While the introduction of Flyknit in 2012 marked a high point in Nike’s technical innovation, competitors such as Adidas, On Running, and Hoka have since taken the lead in introducing game-changing footwear technologies. Adidas’ Boost, On’s CloudTec, and Hoka’s Meta-Rocker designs have captivated the performance running market, while Nike’s once-dominant models like the Pegasus have struggled to keep pace.

Instead of focusing on technological breakthroughs, Donahoe leaned heavily on reviving old lifestyle models like the Panda Dunk, originally a popular sneaker in the 1980s. Although the Panda Dunk was an instant hit upon its rerelease in 2021, it quickly went from a streetwear favorite to a symbol of oversaturation. A 2023 sneaker convention even voted it “the worst sneaker of all time.”

One of the few new products Donahoe can point to is the Air Max Dn, which incorporated a footwear cushioning system derived from Nike’s signature Air technology. “It was very forgettable,” says Alex Ropes.

Nike has been focusing its technological advancements on automation in supply chain manufacturing, which have remained “invisible to the consumer,” according to Nicoline Van Enter, a prominent voice in sportswear innovation as CEO of Footwearology. While this focus on supply-chain technology has undoubtedly improved Nike’s operational efficiency, and helped cut costs, it has failed to excite or engage Nike’s audience, leaving the brand’s outward image stagnant.

But the question remains: Why has Nike fallen behind in innovation? Donahoe has attributed the lack of progress to the challenges posed by remote work, suggesting it makes it harder to foster the kind of creativity and collaboration needed for product development. This excuse was quickly dispelled by employees at Nike’s LeBron James Innovation Center, the company’s state-of-the-art R&D hub, who had returned to work full-time during the mid-pandemic period.

This disconnect between leadership and both employees and consumers has also permeated Nike’s internal corporate culture. Several women at the company have spoken out against an “old-school” male-dominated environment, which they say fosters a culture of exclusion and inequality.

In 2018, following an internal review, Nike faced a series of allegations surrounding its treatment of female employees, leading to several high-level resignations. Although the company pledged to address the issues, some insiders believe that these problems persist, with alleged ripple effects that are visible in the company’s output. “It’s going to reflect in what they put out to their consumers,” Harkin says, suggesting that the corporate culture could be negatively impacting Nike’s ability to remain culturally relevant and forward-thinking.

Data-Driven Lack of Soul

In July 2023, former Nike marketing executive Massimo Giunco publicly criticized John Donahoe’s leadership in a 3,000-word LinkedIn post, describing his tenure as an “epic saga of value destruction” that might take years to undo. Giunco, who had worked across multiple leadership regimes at Nike, pointed out that Donahoe’s data-driven, tech-centric approach had eroded much of the brand’s cultural equity. “At the end of the day, he is a poorly advised, ‘data-driven guy,’” Giunco concluded, summing up his indictment of Donahoe’s leadership.

While data and algorithms have become crucial in today’s business landscape, Giunco’s critique underscores a broader issue: Building an iconic brand requires more than analytics. Think of it akin to playing jazz. You can’t rely on sheet music alone or follow a set formula—there’s too much improvisation, rhythm, and feel involved. It’s about knowing when to break the rules, when to hold back, and when to let the music flow. Algorithms might get the notes right, but they miss the soul of the performance.

On Running’s Lightspray tech exemplifies the brand’s recent success, as it leveraged its proximity to cutting-edge manufacturing equipment in Europe to create the material.

In the world of brands, that soul is cultivated through intuition, something that comes from living, breathing, and immersing oneself in the brand’s culture and ethos. Nike’s success wasn’t built solely on data, but on the instincts of visionary designers and marketers who had a feel for the streets and sports fields. The people who made Nike culturally resonant, like Sergio Lozano, designer of the Air Max 95; Nate Jobe, who oversaw the hugely successful The Ten collaboration with Virgil Abloh’s Off-White; and Tom Rushbrook, global senior design director, embodied this intuition. Yet, unsurprisingly, all of these key figures were part of the mass exodus of talent that occurred under Donahoe’s leadership.

It all started when Donahoe took over as CEO and made the controversial decision to restructure Nike’s product and marketing departments, eliminating long-established categories such as running, football, basketball, fitness, and training in favor of simplified, gender-led labels such as “men,” “women,” and “kids.” This shift not only alienated a core group of designers and marketers, many of whom left en masse, but also muddled Nike’s ability to speak authentically to specific athletic communities, diluting its competitive edge in innovation and niche marketing.

Under Donahoe’s leadership, Nike centralized its marketing efforts and pushed for a digitally led strategy. This resulted in the abandonment of the bold, emotionally charged campaigns that once defined the brand—like the iconic “Failure” ad from 1997, featuring Michael Jordan reflecting on his missed shots and losses, and the “Find Your Greatness” campaign from 2012, which celebrated ordinary athletes pushing their limits. These campaigns struck a chord with audiences because they tapped into universal themes of human struggle and triumph.

Instead, Nike pivoted to a more clinical, algorithmic approach, which Giunco referred to as the “infamous editorial strategy.” The aim was to churn out micro-targeted content optimized for digital platforms, but this approach backfired.

Rather than creating compelling narratives, Nike flooded its social media channels with a deluge of content that was both costly and ineffective. These posts, designed to drive traffic to Nike’s ecommerce platforms, did little to convert visitors into customers. Worse yet, they eroded Nike’s once-powerful storytelling ability, leaving a void in emotional connection with its audience.

Can Nike Regain Its Cultural Edge?

Despite all this, Nike is still one of the most famous and popular brands in the world. It is still the market leader of its industry, and still makes $5 billion of earnings before interests and taxes every year ($5.7 billion in fiscal year 2024) without a dollar of debt.

Nicoline Van Enter suggests that Nike could benefit from focusing on local manufacturing and innovation hubs, similar to how On Running has leveraged its proximity to cutting-edge manufacturing equipment in Europe.

“The LightSpray that they have produced is possible to do because On Running is in Switzerland and the producer of LightSpray manufacturing equipment is in Germany,” she explains. The Covid-19 pandemic exposed the vulnerabilities of global supply chains, and Nike’s reliance on Asian manufacturing has proven to be a bottleneck.

Of course, such a shift cannot be done quickly, which Nike is well aware of. “A comeback at this scale takes time,” chief financial officer Matthew Friend said during Nike’s call with analysts last Thursday. “In the short term this is a marketing fix,” agrees Van Enter.

Another one of Hill’s immediate tasks will be to rebuild relationships—not just with retailers, but with athletes, influencers, and creatives who helped shape Nike’s image over the past decades.

There’s already talk of rekindling key collaborations, revisiting partnerships that once brought Nike unparalleled street cred, and bringing back some of the design and marketing talent that departed during Donahoe’s tenure.

“If Nike can create that emotional connection again—if they can make their products feel aspirational, limited, and desirable, rather than overproduced and commodified—they’ll have a real shot at reclaiming their crown,” says Ropes. Whether they’ve got the heart (and stomach) for this undertaking remains yet to be seen.