Sharm Tank Vol. 37

Nik Sharma
August 02, 2024

Happy Friday,

Oh boy, I’ve got a good story for you today. It’s something I’ve wanted to write about for quite some time…I just wanted to wait until there was enough data to paint the full picture.

This week’s story covers a brand you all know, the challenges it is facing, and what this says about the current zeitgeist.

Let’s get into it!

Crisis in the Swoosh Kingdom

Brands are no longer just competing for market share—they’re fighting for relevance in a world where consumer preferences shift rapidly, and digital engagement is key. Companies that once enjoyed unchallenged dominance now face intense competition from agile newcomers and changing consumer expectations.

Nike is a massive example of this shift. Once the undisputed leader in sportswear, Nike now grapples with a significant brand crisis.

Despite its storied history of innovation and powerful storytelling, the company faces declining sales, fierce competition, and a loss of consumer trust.

Let’s dive into what's happening with Nike, why it matters, and what it means for the future of this sportswear giant.

A Stumble on the Track

Nike's troubles began to surface post-pandemic. After a significant boost in brand value during the fitness boom, things took a downturn. According to Kantar’s BrandZ rankings, Nike's brand value more than doubled between 2020 and 2022, rising from $49.9 billion to $109.6 billion. However, post-pandemic, it has slipped back down to $71.6 billion.

The company's June 2024 earnings report was a disaster. Revenue dipped 2% to $12.6 billion in Q4, with direct business falling by 7% and digital down by 10%. Nike expected sales to drop another 10% this quarter. The fallout was swift, with shares tanking 23% and 740 staff laid off at its Beaverton, Oregon headquarters. Additionally, Nike plans to reduce its workforce by 2% by 2025.

In June 2024, Nike’s stock had its worst day in its 44-year history as a publicly traded company, dropping 20% and hitting its lowest price since March 2020, aside from that month, its lowest price since January 2019. This came after Nike disclosed a 2% decline in quarterly sales and warned of a 10% year-over-year decline, far worse than the 3% drop indicated by analyst estimates.

From Wholesale to Direct-to-Consumer

Under CEO John Donahoe, Nike doubled down on a strategy to cut ties with many wholesale retailers and grow revenue from direct-to-consumer (DTC) sales. Initially, this strategy showed promise.

Nike’s DTC sales accounted for 35% of its total revenue by the end of 2021, and the company aimed to reach 50% by 2022. However, this pivot came at a cost. Nike invested heavily in performance marketing and programmatic ads to drive traffic to Nike.com and its apps, which diverted resources away from brand-building activities.

Massimo Giunco, a former senior brand director at Nike, highlighted this shift as problematic. He noted that the company's obsession with digital players came at the expense of its groundbreaking creativity and emotional storytelling.

Giunco described how Nike staffers suggested borrowing digital tactics from ecommerce businesses like ASOS, a move that was foreign to Nike’s traditional strength in inspiring emotional brand loyalty.

Losing Ground to Rivals

Nike's competitors have been quick to seize the opportunity. Adidas, for instance, has been making significant strides with partnerships and campaigns that resonate well with the next generation of star athletes.

Adidas’ UEFA Euro 2024 campaign featured English soccer star Jude Bellingham and a cover of The Beatles’ “Hey Jude.” The ad captured the national mood and went viral, earning a 3.8 Star rating from System1 out of a possible 5.9 among sports fans. In contrast, Nike’s Euro 2024 ad scored only 2.7.

Emerging brands like Hoka and On are also starting to make a significant impact. Analysts note that these young brands have managed to gain market share while spending significantly less on marketing compared to Nike.

Over four years, Hoka and On spent the equivalent of what Nike spends in just two weeks and added $3 billion in revenue during that period. This underscores a shift in consumer preferences towards new and innovative brands.

Hoka and On have effectively captured the market by focusing on specific niches and innovative products. Their ability to spend less while achieving substantial growth highlights Nike’s struggle to maintain its market share.

This rise of new competitors has contributed to what analysts call "lifestyle sneaker fatigue," with consumers becoming overwhelmed by Nike's over-distribution in the wholesale market.

A New Direction

Nike’s response to these challenges has been to revamp its marketing strategy. The company has separated its design and storytelling units, emphasizing brand storytelling once again.

Enrico Balleri, a 20-year Nike marketing veteran, has been brought back to elevate its storytelling. Balleri oversaw lauded campaigns like “Write the Future” for the 2010 World Cup and is now vice president and creative director of global brand voice.

Nike’s new Olympics campaign marks a significant shift. Featuring elite athletes in intense competition with a bold, controversial tagline, “Winning isn’t for everyone,” the campaign aims to recapture the edge and attitude that once defined Nike’s brand. This spot, despite scoring a 1.5 Star rating out of 5.9 among the general public, scored a 3.8 among sports fans, indicating its appeal to the core audience.

The Road Ahead: Can Nike Just Do It?

Nike’s path to regaining its former glory won’t be easy. The company is investing heavily in the upcoming Paris 2024 Olympics, hoping to revive sales and restore brand value. The campaign is a high-stakes move to regain its swagger and fend off competitors.

The stakes are high, as Nike has a lot riding on how it shows up at the Olympic Games Paris 2024 to revive sluggish sales and restore its declining brand value.

Moreover, Nike is backpedaling on its decision to sever relationships with retailers like Foot Locker and Macy’s. The company plans to reinvest $1 billion in consumer-facing activities in fiscal 2025, including sports marketing, increased design resources, in-store activations, and “bigger, bolder” brand campaigns.

A Marathon, Not a Sprint

Nike's current crisis is a complex mix of internal missteps and external pressures. However, with its significant investments in marketing and a renewed focus on storytelling, Nike is taking the right steps to regain its footing. The journey ahead is undoubtedly challenging, but if there's one brand that can "just do it," it's Nike.

Now let’s get into some fun stuff…

How Shapermint's AI Tool Is Driving Massive Revenue Growth

Shapermint is leveraging its proprietary AI ad tool, Altair, to streamline content production and boost customer acquisition. Developed by Trafilea Tech E-commerce Group, Altair has helped Shapermint generate over $300 million in projected 2024 revenue by optimizing user-generated content (UGC) ads.

With Altair, Shapermint conducts up to 200 ad tests monthly, reducing content creation time from weeks to days. This AI-driven approach has fueled a 35% annual sales growth, enabling Shapermint to acquire 200,000 new customers each month and expand its influencer network globally.

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Meta Faces $7 Billion Lawsuit Over Inflated Ad Metrics

Meta, the parent company of Facebook and Instagram, is under fire for allegedly inflating its Potential Reach metric, leading advertisers to claim over $7 billion in damages. The 9th U.S. Circuit Court of Appeals is allowing a class-action lawsuit, initiated by former advertisers DZ Reserve and Cain Maxwell, to proceed. They argue that Meta's metrics, which purportedly measured social media accounts including bots and duplicates, exaggerated reach by up to 400%.

This lawsuit, impacting millions of advertisers since 2014, highlights the tension between ad spend decisions and metric reliability, as Meta faces scrutiny over its transparency and accountability.

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Outbrain Acquires Teads in $1 Billion Deal

Outbrain has officially acquired Teads in a $1 billion deal, marking a significant move in the ad tech sector. The acquisition includes an upfront payment of $725 million and a deferred $25 million payment. Outbrain will issue 35 million shares to Altice, Teads' previous owner, and finance the deal with $750 million in debt from Goldman Sachs, Jefferies Finance, and Mizuho Bank.

This merger combines Outbrain’s performance advertising expertise with Teads’ strength in video and brand advertising, aiming to enhance their collective market position. The deal is expected to close in Q1 2025, with Outbrain’s CEO David Kostman leading the merged entity.

Learn More ->

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