Can Nike Make Its Shoes Cool Again?

0:05When Elliot Hill took over as the CEO of Nike about a year ago, he went viral on LinkedIn because of his resume. Everyone was just sharing his, you know, job descriptions for the past 37 years, which is all Nike. He just started as an intern at Nike. In interviews, he has said that he basically started like moving boxes around and taking calls from customers. And, you know, he rose through the ranks to become an executive. Last month, our colleague Nti Pacheco flew to Nike's headquarters in Beaverton, Oregon, and sat down with Hill. I mean, I've certainly, my job has changed now as a CEO, and I've had to learn how to be a CEO, which has been, you know, frankly, a bit of a transition, more time with investors, more time with media.

0:55He says that he has an irrational love for the company. You know, when I was talking to people who know him, they would say that, you know, he gets emotional every time that he talks about the company and the employee base. There are even podcasts where he's like, they ask him about the company and he really just starts like weeping. For Nike's investors, you could say that there's also been some weeping, but for a completely different reason. The stock is only worth about half of what it was three years ago. Nike's had five quarters of consecutive sales declines. Elliott Hill is the person who has to turn that around.

1:40How critical is this moment for Nike? I think it's an important moment. And I think, you know, the company is starting to show signs of improvement. But it is like, I think, the point where things could keep improving or maybe things don't work out the way they were expecting. We'll have to wait and see.

2:07Welcome to The Journal, our show about money, business, and power. I'm Ryan Knudsen. It's Tuesday, November 18th.

2:20Coming up on the show, Nike's CEO and his game plan to turn the company around.

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3:49billion dollars. But it's been all downhill since. When they hit that mark, executives knew that sales were about to start declining for the next couple of years. They could see in their forecasts that they weren't going to sell as many shoes in the coming quarters. And that's exactly what happened. There's a few reasons why things have gone south. The first is that Nike bet big on e-commerce. It broke ties with longtime brick-and-mortar partners like Macy's and DSW and tried to sell primarily on its own website. Nike's former CEO, when he saw that people were buying a lot of sneakers online, they decided that they could increase profit margins by selling directly to consumers rather than selling, you know, in bulk to like retailers like Food Locker.

4:47But instead, it resulted in fewer sales. The second issue was that Nike made way too many retro shoes, like Air Jordans and Nike Dunks. For years, these lines of sneakers sold really well, especially among sneakerheads. That happened especially with the Nike Dunk, a shoe that, like, really blew up. Basically, Nike hadn't sold it in decades and all of a sudden brought it back in, like, the 2020s. It blew up, especially a colorway called the Panda Dunk, which is like a black and white shoe that people consider very versatile. Can't argue with the beauty of the sneaker, one of the most popular sneakers that we've seen in a long time.

5:29And I'm all for the Panda Dunks. Nike invested in making a lot of shoes like the Dunks. But the company overestimated their staying power and buyers eventually lost interest. literally everyone had that shoe and i wrote a story in 2023 about how you know sneaker heads hated that shoe because they said that you know what they thought was like a very niche cool culture that they owned was being taken away from them what's the worst sneaker of all time panda give me something else panda dude there's no one sneaker that's worse than a panda Panda.

6:11As Nike was focused on more fashion and casual footwear, other shoe companies, particularly ones focused on running, saw an opportunity to eat into Nike's dominance. That's where we saw the rise of like Hoka and On, which are these like super thick mid-soles that you see everywhere now. And at that time, Nike wasn't seen as the brand that had that totally comfortable or cushiony shoe. While running is really taking off and social media, there's a running boom at the same time. All these run clubs start popping up everywhere. And Nike's kind of absent. A couple years ago, Nike started working on a turnaround plan.

6:58The idea was that the company needed to get back to basics and focus more on creating products for athletes. Nike hired a new CEO to help carry out that plan. And that's when Elliot Hill came onto the scene. So he clearly loves Nike. Does Nike and its employees, how do they feel about him? Do they love him back? I think so. I mean, you know, I think a lot of people still think there's a lot of work to do, but they feel that with someone like Hill in the driver's seat, they feel that it has a lot more direction. I think people know that I care deeply about this place, and they respect the years of experience that I have here.

7:43When Inti and Hill spoke last month, they discussed the CEO's plans for Nike. How do you try to even reinvent a company that you know so well? Yeah, it can overwhelm you, anybody, if you try to go, hey, we got to fix everything all at once. But what I tried to do is go back to what is essential to Nike, and that is putting the athlete back at the center of everything that we do.

8:15What does that mean exactly, to put the athlete back at the center of what Nike does? You know, they used to create products for men's, women's and kids, and they're reorganizing the company to focus on sports. So in running, in soccer, in basketball, training was another category. they say that it's easier for them for teams to like you know think about running as the category rather than you know by gender make like all kinds of products for men and that they also say that when people go to a store they will you know look at like the basketball section or the running section and that's how they've like redesigned their stores across the country thinking of the the shopper you know going in and trying to find like a section for runners.

9:13I think it's without question has helped us get sharper on the product and the storytelling but it also makes us more competitive and so I think the the alignment around the sport offense is absolutely going to make us more competitive and help us drive revenue and certainly market share gains. Another area of focus for Hill is reestablishing the company's relationships with big name retailers like Foot Locker and also Amazon. Our strategy is to make certain that wherever the consumer chooses to shop for our product, that we show up in a really thoughtful way in terms of the assortment for that specific consumer, because there are different consumers that shop different retailers.

10:00The final piece of Nike's turnaround plan has to do with innovation. After the break, Inti gets to see some of the new products Nike is betting on.

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11:13At Nike's headquarters, our colleague Inti went with Nike's CEO, Elliot Hill, to check out one of the company's newest buildings. It's named after one of the world's best basketball players. We were inside the LeBron James building, where if you get on the elevator and you hit a button, LeBron James talks to you. Well, he's actually there. Like, he's just standing in the elevator pressing the button. Yeah, that would be amazing. enough. It's just a recording where he says fourth floor and then you get to the fourth floor. But this is Nike's sports research lab building they call the NSRL. So we're here at the LeBron James R &D lab and it's our advanced R &D center.

11:59We opened this up in 2020. This is really the heartbeat of our innovation. They have like engineers, scientists, designers, all the kinds of people that you wouldn't expect work at a footwear and apparel company are in this building trying to design, you know, new solutions for problems that athletes might have. Some of those solutions are pretty out there. Like there's a puffy coat that inflates and deflates to change temperature, puff it up to get warmer, and release air to get cooler. And then there's this little machine that straps around your calf and connects to a special pair of shoes. They call it an e-bike for your feet.

12:45An e-bike for your feet. Right. It's a motor, actually, that you can attach to a specific shoe. And it really does push you. Like, I don't know that if it gives you more energy, but it really pushes your feet up. And so it helps you move faster. Why would that need to exist? Because presumably runners aren't going to be able to use that in competition. Yeah, that's true. They were saying that, you know, it could help people with mobility issues. It could help older people. But their bet is that kids are also going to want to wear this. There's also a new technology they're calling Nike Mind It's these special bumps on the inside of a shoe That basically massage your feet while you're moving In such a way that it's supposed to make you relax They spent years developing it Looking at brain waves Looking at how they could help athletes focus more Ahead of the game How they can get in the zone What?

13:52There's a shoe that's going to help you like chill out? Yeah, relax. Yes, correct. So you wear these shoes before game time and then it'll help relax and calm you down and then you can go perform well. Yep. Can I wear them before I go into a podcast interview? Yeah, I think that would be really helpful, actually.

14:14A lot of these products haven't been released yet. But one product from the Innovation Lab that is for sale now is a new running shoe called the Vomero Premium. It has a super thick two-inch midsole. It's a really chunky shoe. I believe it's, you know, the thickest midsole out there right now of any running shoe. It's supposed to be their most comfortable shoe. It adds a lot of, you know, cushioning to your stride. Six and a half miles done in the Volmero Premium. So here are some of my first thoughts. I would say these are good for like shorter to mid distances. I would never do a long run in these.

14:56It is a wild pair of sneakers. I think it's the softest shoe I've ever worn. The cushion in these shoes is actually insane. For Nike, there's something else that's innovative about this shoe. It was designed much faster than normal in just eight months. Usually shoe development at Nike takes like around 18 months from like when they start designing it until they actually have the shoe, you know, produce it at scale and they can send it to wholesalers. So in this case, they had a team of designers and engineers travel to South Korea to work directly on the shoe as they were developing it and give it to the factory people so they could modify it on the spot.

15:42And they say that that brought down the development process by a year. Does it seem like Nike's back on the right course? A lot of investors are happy with what they see. There are some that, you know, think that it's a complicated time to be in this situation because the market is so fragmented. People are buying on. They're buying Hoka. They're buying Asics. They're buying New Balance. All those companies, you know, six years ago weren't as big as they are today. It feels like Nike, like, is oscillating so far. The pendulum is swinging so far in the other direction. Like, they, for several years, leaned so heavily into the retro throwback Jordan, Nike, Dunk, these old shoes that had this cachet.

16:36They milked that for all it was worth until it kind of blew up in their face to some degree. And now they're swinging hard in the other direction, which is like, no, no, look. we can think about the future and we can innovate and we can come up with a new mobile exoskeleton thing for your feet that's going to help you you know run like marty mcfly or whatever in back to the future too well you know what i think is like from my reporting the thing about like the pendulum swing if you do it too hard it might backfire there was this bad on e-commerce and it just you know, never happened. People went back to stores and, you know, now they're betting on this idea of like focusing on sports.

17:23But is that, you know, how they're going to make their money or are they working on a new Nike dunk that can deliver billions in sales? Like, you know, it's hard to tell whether shifting focus so hard, you know, so quickly is the solution. Mm-hmm. Sounds like there's no idea that's a slam dunk. Exactly. But we're just going to have to wait and see once Nike gets across the finish line. Right. Oh, my God. You had those ready? Nope. It just came to me just now. Nice.

18:07That's all for today. Tuesday, November 18th. The Journal is a co-production of Spotify and The Wall Street Journal. This episode has been updated to correct the date of the week in the credits. This episode was published on Tuesday, November 18th, not Thursday. Apparently, I need more sleep. Sorry about that. If you like our show, follow us on Spotify or wherever you get your podcasts. We're out every weekday afternoon. Thanks for listening. See you tomorrow.

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