Where is my loved Nike?
As I watched the accident of a Boeing 737 departing from Portland Airport, I think that Boeing’s era is heading to the end. It seems challenging for Boeing to regain lost orders and reputation, already overshadowed by Airbus.
The downfall of Boeing, once thought to be an empire that would never crumble, can be expressed because of financial engineering and a culture focused on cost-saving measures. It’s almost coincidental that the plane departed from Portland. People, not just me, are looking at Nike with apprehensive eyes, hoping it doesn’t become the next Boeing.
1. Splitting the goose that lays the golden eggs
In the movie “MARS,” astronauts spend long periods in space, often seen wearing Nike Free while running on treadmills. Perhaps Nike Free is the only ones not affected by the space environment. Although Nike seems to sell sportswears, it extensively collaborates with various companies or conducts its own technological developments, consistently increasing its patent count every year.
However, as seen in the chart below, the current management, coupled with the effects of COVID-19, has led to a significant decrease in patent applications. It seems the current management perceives the costs of developing simple shoes and apparel as too high.
But such technological development is the cornerstone of Nike’s brand narrative. It’s the culmination of years of development, successes, and failures, forming the narrative that makes a brand desirable to everyone.
However, this narrative’s forge has been extinguished. For that reaseon, Nike weathered many issues during the COVID-19 period, such as rising development costs, raw material prices, and transportation expenses. The blind fatih to the wall street made Nike split the goose.
2. Direct to Consumer is just one of the ways, not all of the business
Previously, the focus was on reducing costs in technological development to increase gross margins. Now, the emphasis is on improving gross margins through the Direct to Consumer strategy. Direct to Consumer yields significantly higher margins at the same revenue scale compared to the wholesale model.
Consequently, there was a restructuring where wholesale partners, with whom Nike had long-standing relationships, were unilaterally notified of separations, and the organization was restructured as if DTC could handle all sales, both online and offline.
This strategy worked well online, where Nike concentrated consumer demand on Nike.com, freeing itself from the vulnerability of online market discount policies. The rapid growth of Nike.com was made possible by the 2016 separation from Amazon.
However, the offline world is totally different. A proper channel portfolio must be in place because people’s behavior isn’t easily changed. Many still visit offline stores to buy shoes, often returning to stores they’ve frequented for years.
Not all corners of consumer demand can be absorbed through Nike’s DTC house. Yet, Nike has directed the company’s direction as if it could do everything as Nike.com does, as if that were everything.
In recruiting external talent, many were hired from retail companies like GAP to portray Nike as a retail company. I wonder, if they were successful at GAP, would GAP look the same today? Was Nike’s retail strength and transformation into a retail company enough to justify such high-level decisions?
3. I love old Nike with spirit, and hate new Nike with tech
Approaches to products have also changed significantly. People buy $100 Air Max shoes to feel the heritage behind them, not just because they’re cheap. Through data analysis, it’s understood that consumers want Air Max shoes priced under $100; otherwise, they won’t sell but rather end up as excess inventory.
Nike implemented the Nike Fit technology to measure one’s appropriate shoe size through an app. While it’s great that consumers can find shoes that fit them well, was there really consideration for what to do with that information? Despite obsessing over insights through analysis, Nike has yet to truly embody what consumers want.
4. Nike is too big to fail
Lastly, “Nike is too big to fail.” It’s related to what was discussed earlier about technological development. Nike used to be a place of romance, a company that developed strange products, faced countless failures, and took on odd challenges.
Sandy Bodecker, the symbol of chanllenge, led the Breaking 2 project until the end. Breaking the two-hour barrier may seem meaningless, but that’s what makes Nike exciting for consumers. However, as the company grew larger, it became increasingly afraid of such failures. Ultimately, Nike became a giant coward.
With new competitors like On Running, Hoka, and Adidas, as well as existing competitors like New Balance, stepping up their game, Nike faces increasing competition. Just as Rome faced constant warfare during its imperial reign, Nike is engaged in an ongoing battle.
The hope isn’t for Nike to become like Boeing, but rather to see Nike emerge victorious once again.