Has Nike lost its magic?

This week we're talking about the global sports brand Nike. For decades it wasn't just any sports brand, it was the sports brand. A global symbol of winning with 26 pairs of shoes still sold every single second. What a number that is.

Athletes wore it to dominate their sport, kids wore it to dream to be athletes, but somewhere along the way things have started to slip. And once market, Dominator slowly turned into a laggard. This year alone, its stock price has dropped by 35%. So this week we're asking, how did Nike, the company built on winning, become the one everyone thinks is losing?

Welcome back to Business Daily. I'm Rahul Tandon here in the studio in the UK. I'm Michelle Fleury in New York. And I'm Will Bain in the UK as well alongside Rahul.

I know Will's very excited. We can see him there with his England football top on. Part prop, part ready, because we are recording right before the England DRC World Cup game. So by tomorrow, you might know whether I'm crying or cartwheeling through Piccadilly in central London, all that kind of stuff.

And whether you have any fingernails left or whether they're all bitten down. I think those are definitely gone one way or another, regardless of the result. I can promise you all, if Will cartwheels anywhere in London, we will post it on some video everywhere. We're not going to discuss who's going to win the World Cup.

I think we all know it's going to be France. Sorry about that, Will. It's looking likely. But of course, when you think of a big sporting occasion, you do think of big sporting brands, and none bigger than Nike.

Founded in 1964 by former athlete Phil Knight and his coach Bill Bauman, they started bringing in shoes from Japan and selling them out of the back of the car at Athletics meeting. They rebranded as Nike in 1971, which of course, named after the Greek goddess, and the rest is history. It's become the biggest sports clothing brand in the world. Here's a question to start off for both of you.

You know the famous swoosh on the Nike shoes that I know Will is wearing today. Other brands are available, of course. How much do you think they paid for that bit of iconic marketing? Oh, my God, I'm terrible at quizzes.

I'll start with $500,000. Oh, I'm going under that. I think, you know, with inflation and everything else, $70,000. OK, let's hear the answer from the founder of Nike, Phil Knight.

There was a graphic art student at Portland State that had done some work for us. and she charged $2 an hour, and we said, how about coming up with a logo for the shoe? And she spent 17 and a half hours on it, so it cost us $35. There we go.

My future on TV game shows is also crossed off now, as well as my cartwheeling. Actually, Will, you weren't that far away. You weren't that far away because they gave her 500 chairs, which I think now are worth probably a lot more than the amount that both of you quoted there. And so that's the swoosh.

But for those who haven't followed the history of the brand, this has changed the world that we live in, hasn't it, Michelle? Yeah. I mean, you know, if you think back to every decade since the 70s, Nike has been associated with some of the biggest names in sports. So back when it was started, there was Steve Prefontaine in the US, the first athlete to sign with Nike.

He was a runner. Then in the 80s, of course, that's when you got Nike going into basketball. So Michael Jordan, of course. And then, you know, the 80s, 90s, aughts, that's when you start to see figures like Tiger Woods, Serena Williams in tennis, you know, all of the kind of big names.

And of course, now we were just talking about the football. You know, Cristiano Ronaldo was one of their first big football signings back in the day. So here we have a company that managed to dominate sportswear along with Adidas for many, many years. We, across the world now, whenever I go to India, everybody's in a gym, everybody's trying to get fitter, everybody's running.

So results out on Tuesday, I presume with the fitness boom, this is a company that should be booming. Well, look, you know, the reason you and I, all three of us are talking about this today is the company is in a bit of a funk, to put it mildly, and they're trying to kind of turn things around. So that's the context here. And against that, no surprise, you know, the earnings were a bit of a stinker, not as bad as they could have been.

But they were boosted by a huge tariff refund in the last three months. Still, they are struggling, despite the fact that they are still the world's biggest sports shoemaker. And not a short term funk either, Michelle, we should say. I mean, that's the whole point that Elliot Hill, who will come on to talk about, I'm sure, the chief exec now, was brought back, right, to try and sort of get him out of this funk, put the jump leads on this company and get it going again.

So was there a moment or was there a person that suddenly meant that Nike wasn't cool anymore, that it was beginning to struggle? What's caused this? Well, you started to get rumblings of trouble back in 2006. And back then it was a guy called Mark Parker who was the boss.

and you know that was the period when Tiger Woods was having his personal problems you had Lance Armstrong going through the doping stuff then Nike was also hit with a discrimination scandal and accusations of being too much of a boys club and so ultimately that that led eventually to kind of the company losing a bit of focus taking its eye off the ball to keep with the football metaphors And by 2020 they sort of brought in this guy called John Donohoe to sort of try and refocus the company again or revive its fortunes But you know here someone who had never worked in retail never sold a shoe who came from eBay and was sort of said right, here are the keys, here's Nike, go at it.

And the eBay bit is really important, right? Because that was their two bets, Rahul White. We talked about this last week. One of those bets was kind of play the hits, sweat the stuff that you think people really like.

So they made loads and loads of versions of shoes that they thought were popular. The other half of it was this direct-to-consumer model. So as Michelle says, John Donoghue coming in from eBay, they thought, we need to skip the retailers, cut them out. We don't need to see them take any of our margin.

We'll sell it direct to all our customers. All people want to do is shop on the internet anymore. And they turned out to be wrong about that bet too. Yes, they did, didn't they?

So what do you do in those situations? You probably bring somebody else new in and they had that experience of bringing in a tech guy to run a shoe company. When we say it aloud, it doesn't seem like the best idea. They've gone back to tradition now, haven't they?

Well, but just to push back a bit, remember 2020 was the year of the pandemic. And so initially it did look like a smart bet. No one was doing physical shopping. So for a period, it actually looked like a genius move.

The problem is, you know, we all started going back out in the world and wanted sort of physical experiences again and tactile and shopping in person. And that's really when it all started to go wrong. And of course, it kind of came to a head. And wasn't it 2024, Will, when the stock plunged?

Yeah. And also to amplify Michelle's point, it wasn't like they weren't making money off some of these bets. It was almost like they were storing up problems down the track. So they made tons of money playing the hit, selling Nike Dunks, Nike Air Force Ones, Air Jordans, really sweating that kind of sort of 90s IP, as Michelle was joking about before.

And we should be clear in the recent results, yes, disappointing in their own context. This company still made a billion dollars. We're not talking about a thing that's going bust here. So it's more that it's got stuck in the mud and lost its way rather than necessarily like completely losing any ability to understand at all what consumers wanted, as Michelle says.

And if you go into, say, a footlocker today or, you know, a kind of sneaker retailer today, that shelf space that used to be Nike, when John Donahoe kind of pulled the brand out of those stores, they didn't sit empty. They got filled with other brands. And I think that's part of the challenge that Nike faces now today is they've ceded ground to competition. As you said there, lots of challenges.

And they have a new man who's trying to sort out those challenges. Quite a big job from what both of you are saying. Tell us a little bit about him, Will. Well, I think he's...

Michelle did this great rags to riches, bottom of the ladder story with Josh DeMiro and Disney last week. Can I have a crack at this? I'm not sure how many minutes of this podcast this is going to take up, but you guys have probably seen this and maybe some of our listeners did too. When Elliot Hill, the new chief exec, got his job as the chief exec of Nike, his CV on the sort of business networking site LinkedIn went viral.

And here we go. I'm going to try and read some of these from the top. 1988, intern, apparel sales till 1990. Sales, sports graphics, 1990.

Team sales, 1991. Sales representative in 1994 till 1996. He then became a manager in that division, went to another division there, vice president of Europe, vice president, general manager. You're getting the kind of sense here, aren't you?

We're in 2004 at this point. Then he was vice president for the entire US in 2005. Then he has a little break on his LinkedIn. Doesn't tell us what he did.

Perhaps he sat on the beach for a bit, but only between 2005 and 2006. And he goes on from there again to have another five different jobs in the intervening 14 years before going off to work for the barbecue company, Weber. and then being brought back in again there as well. So in terms of a sort of climbing the ladder, as Michelle says, I mean, that is a long ladder.

That's like those ones, if anybody's old enough to remember, the kind of things at the side of school gyms that you've got to climb up with ridiculous numbers of rungs on them. It feels like Elliot Hill's been up that one. When I looked at the figures yesterday, and this was what struck me the most, were the China figures. Sales down 17%.

That's actually better than what they expected, 20%. And let's bring in a very famous basketball player now, Steph Curry, because I think he sums up one of the problems facing Nike because he recently announced his new shoe deal. The future of Curry brand will be powered by a company truly rooted in sports and innovation. A partner dedicated to creating quality products with sneakers that I believe in that will continue to deliver at the highest level.

The future of Curry brand is with Li Ning. A lot of people may not have heard of that company. They've taken a lot of Nike's customers in China. Now they're looking at the rest of the world as well.

And that is one of the problems, isn't it? They are losing numbers at a rapid rate in China. Michelle, why is that? This is, or was, the fastest growing market for Nike, He certainly back in 2021, generating eight billion in annual revenue back then.

Now that revenue is on the downward trajectory. And Elliot Hill basically made clear he you know recognizes the importance of the market He was quoted speaking to investors when the company released earnings saying we got to get back to growth in China. We have to be more premium and culturally relevant. And that's part of the problem they had.

They had too much inventory. Typical, you know, US company to clear old inventory, you start discounting. But here's the thing for a luxury conscious Chinese customer, You start doing that. I mean, the message it sends is, well, how luxury is this?

And so that was one of the missteps they made that kind of alienated customers. And I think I can say this further away from the United States than Michelle is as well, that there's clearly some politics at play here too, Rahul, right? If you have a trade war with a country for the best part of a decade at this point, you are going to push people at home. And we've seen it in other countries, right, in Canada about buying American alcohol or whatever.

You are going to push people to make perhaps more what they would see as patriotic or nationalistic choices. And we're seeing that in loads of sectors in China where, OK, tariffs are coming. We're going to try and make Western brands really expensive to sell. They're not just American ones, but they could be anything else.

And the Chinese consumer is gone. You know what? Actually, we'll turn to homegrown companies, whether they be in cars, whether they be in tech, whether they be in energy. and it turns out that fashion is no different to all of those sectors.

Yeah, and they've got a name for that, Guo Chao, which means more national pride. So they actually have put a name on it for Chinese buying more local brands. That is very true. Now we've seen guests shut down in China, all its stores.

We've seen Starbucks having to sell to a Chinese company there. Phil Knight said one billion people, two billion feet. That was his idea of the size of the Chinese market, not quite working out as well as he hoped at this point in time. And one of the things on Elliot Hill's plate to deal with, what has he been saying?

Let's hear what he said to the Wall Street Journal. I think people know that I care deeply about this place, and they respect the years of experience that I have here. It can overwhelm you, anybody, if you try to go, hey, we've got to fix everything all at once. But what I try to do is go back to what is essential to Nike, and that is putting the athlete back at the centre of everything that we do.

I listened to that and I know you like your sports Will and it sounds good but what does he mean? That they felt that they got a bit too fashion conscious when I was talking about sweating the hits just becoming a retro fashion retailer that you might see on any high street or shopping mall anywhere you are in the world rather than being a go-to for if you're serious about your sport if you want some new trainers to play tennis as Michelle was talking about the great tennis players they've sponsored or to play basketball with your mates or perhaps some new football boots, you weren't thinking of the company in that way.

You weren't thinking of its great links to its great star talent in the pro athlete division. You were thinking they sell cool trainers in my local shopping mall, perhaps cheaper than anybody else, and I want to wear them when I go out with my mates. And so trying to move back from that, I suppose, being a sort of mid-market fashion brand to be more of a, well, this is a high-end sports brand that also happens to do cool stuff because you like the kind of athletes that we work with.

Yeah, I mean, innovation was what they were founded on. I mean, it started with those sort of flat-soled, rubber-soled shoes. Then they added some cushioning. They kind of kept working on that idea.

And then somewhere along the way, it became about the latest colorways and not sort of actual technical innovation. And that is something that Elliot Hill is trying to get back to. So, you know, I sort of listened to the investor call last night. and there was so much talk about you know trying to bring that back to the dna of the company and it's focused specifically around trail shoes where we've seen this massive growth in the industry right now and if you look you know last time i was back in the uk the popularity of solomon trainers speaks directly to that trend other brands that have come up hoka on brooks you know these are now big names.

They've come up with this new technology, cloud tech technology, which is good for ultra marathoners. And that is the idea. Get back to focusing on that. And Nike has a brand called ACG, which is all conditions gear.

And I think that's their attempt. That's where Elliot Hill is focusing his energy on that particular brand to try and reinvest in product and get excitement again going around Nike. You're listening to Business Daily here on the BBC World Service we're asking the question can Nike become cool once again now if you are a big sporting company like Nike big sporting events like the men's football world cup we'll use the word soccer because we do have Michelle with us as well should be an important moment we touched on this at the beginning it's like a film isn't it it's a little bit tell us who's in it well there's like every footballer that's sponsored by Nike that you can think of Erling Haaland Kylian Mbappe all those kind of people but then also like non-footballers Channing Tatum, as Michelle was saying a minute ago, the American actor, spends a lot of time sat next to Erling Haaland in the advert.

A Rocky the singer is in there Kim Kardashian makes an appearance at some point I not quite sure what she doing She sort of watching on It was definitely through everything It was the kitchen sink approach. Let us ask then, that ad, lots of big stars in it, football stars, entertainment stars. Is it working? Is Nike having a good World Cup?

Are they having a France-style World Cup at the moment, Will? Well, it helps that they make France's shirt, doesn't it? it's a nice shirt i like it and particularly the away one the mint one's nice and they make the norway one as we were saying with erling harland as well so yeah they're having it but it looks like they're in a in a downhill race that the two big kind of companies adidas and nike again with argentina and spain made by adidas and perhaps france and maybe you'd say portugal or brazil on the other side made by nike but it's just a huge huge moment isn't it these kind of ones forgetting people it's a lot of it unfortunately for you guys with kids it's a lot of it is about selling it to small people.

Boots for the new season here in Europe when you come back up again. I must have every jersey and every colourway. Exactly. New boots that the players are wearing.

Whilst the adverts are fun, there's a serious bit to it. It's a massive, massive shop window, the World Cup for these brands. That's why they spend tens of millions of dollars, literally between the two of them, well over $100 million that they've spent on their campaigns just for this World Cup of what, six weeks or so. I mean, look, I think that's what Elliot Hill would certainly say.

Well, he'd agree with you. But that being said, how successful is it? I don't know. There's been a couple of embarrassing moments, you know, talking of the jerseys or the shirts, whatever.

When they first started with the kit in March, fans were complaining there was a mysterious bulge in the way the shirt was designed. Then now we've got, you know, ahead of a crucial U.S. game coming up, complaints that there aren't enough supply.

and fans are irate saying, look, you've had four years to prepare for this event. What do you mean you've run out of shirts? So these things can work in your favour, but they can also work against you if fans are upset by how things are going. And a little bit of it speaks to the challenges too, Rahul.

Just before we came on air, I was talking to the kit maker that had made Cape Verde's kit. They're playing Argentina in the knockout rounds, a company that I confess, and I'm a big sports fan, I'd never heard of that is now called Castelli that are now making shows. So there's more competition than ever in that space too. And also you're seeing kind of the industry change where stories become viral.

Before this tournament began, who would have thought that Cape Verde's kit would be the hot ticket? Now it is because of their performance on the pitch. And companies need to be able to respond very quickly, very nimbly to the sudden demand that can pop up. And we are seeing that, as you both said there.

So here we are. We started this conversation by talking about the challenges facing Nike. I think it struck me as we've had this conversation, what Nike needs to do is to become cool again. How does it do that?

And do you both think it's going to be able to do that? Well, that's the massive issue, isn't it? When you want to sell lots of things, most things that are cool, right, are kind of counterculture. They're niche.

it's very difficult to be cool and mass market and yet your shareholders would like you to sell lots of that thing and i think they've really struggled with that don't you think michelle the balancing yeah i mean you were talking about michael jordan earlier you know it was a disruptor at the time they invented a special sneaker for him you know it got turned into a movie uh air and they at the time the shoes had to be white and they introduced it with color and nike paid the fine at the time.

You know, it's this idea of being a disruptor, a rule breaker. It's very hard to be a rule breaker when you are the biggest shoe seller, sportswear shoe seller in the world. I think where it's interesting, Rahul, that Michelle pointed out this element, ACG, so where they're trying to get on land that other people have got. So they're saying, OK, we've got all the sports stars and you know what we are.

We're the establishment, if you like, but we're coming in other areas. So taking on North Face and Patagonia and Colombia and that kind of active wear that Michelle was chatting about. And also, I think, I don't know, Michelle, you spend a lot of time in the financial district, in Wall Street, in New York, right? I spend a lot of time in it here in London.

You see so many people in the brands that you mentioned earlier, Hoka shoes, Brooks shoes, you know, with their suits or what. Surely at some point, if you're a 24, 25-year-old, and we are much, I'm afraid, out of that demographic of the people who are shaping trends, but surely you look at people like that, a guy in a suit in the city or in their gilet in the city and go, you know what, I don't want to be wearing the same shoes as him. And that was the problem that Nike and Adidas had the first time around.

You feel like these things like fashion, it's always cyclical, right? Well, let us see. I suppose one of the things here, to be honest, is this is still a brand that sells 26 pairs of shoes every single second, is they've set the bar so high. So what is success for them is a lot higher than it is for many other companies.

What is cool? That is a different question, a difficult one to answer. Thank you to Will. Thank you to Michelle as well.

Thank you for listening to Business Daily. Of course, you can go to wherever you get your podcasts and download Business Daily and have a good listen to it. I'm off to India for a couple of weeks. It's going to be Will and Michelle guiding you through every Thursday here on Business Daily.