What Fashion Brands Can Learn from Nike’s Product Innovation Mistakes

What Fashion Brands Can Learn from Nike’s Product Innovation Mistakes

For years, Nike has been everyone’s Louis Vuitton — building an exclusive fashion business around a logo, a great passion — in Nike’s case, for sport — and a huge advertising budget.

The active giant spent $4.3 billion on “demand creation” last year — spending 10 figures to cover “sponsorship deals, free merchandise, TV, digital and print ads, and media costs, brand events and retail brand exposure.”

Nike’s formula is powerful—scouted by competitors and partners looking to grab market share or get in on the action. But competition is heating up. It’s particularly fierce in running, where brands like On, Hoka and Brooks are on the rise, but there are also plenty of others coming after Nike, including Adidas, which has recently found success with its more casual Samba style.

Nike still has the lead — with sales of $51 billion last year and a market capitalization of nearly $110 billion — but its lead is shrinking, and the company is becoming a case study in how a company that has the benefits of scale, brand recognition and passion can still run into trouble.

John Donahoe, who has served as chairman and CEO since 2020, told analysts last month that Nike was “rising through challenges and regaining its advantage.”

But it’s still a work in progress.

“Fiscal 2025 will be a transitional year for our company, but we continue to make real progress in our return to the market,” the CEO said.

Nike’s revenue fell 2 percent to $12.6 billion in the fourth quarter ended May 31. The company expects revenue in the first half of its fiscal year to fall by a high-single-digit percentage as it struggles to manage deliveries at its classic footwear franchises.

That caused Nike’s shares to fall nearly 25 percent over the past month — pushing the company’s stock value down 17 percent over the past five years while the S&P 500 index is up 86 percent.

The brand simply failed to deliver what gives fashion and sports brands their impressive name: novelty.

“They’ve become so focused on where they sell their products that they’ve lost sight of what they sell,” said Tom Nikic, an analyst at Wedbush.

In 2017, Nike began to realign its business toward direct-to-consumer sales, cutting back on its wholesale accounts and focusing on — shifting attention away from the product.

“No brand has the resources that Nike has,” Nikic said. “No brand can spend more money on research and development than Nike. No brand can spend more money on marketing than Nike. The combined revenue of Hoka and On ($3.8 billion) is less than Nike’s annual advertising budget.

“Product is king,” he said. “If you have a great product, you can win. If you don’t have a great product, if you neglect product innovation, no matter how big you are, no matter how powerful you are, the customer will look for something else.”

As innovation slowed, Nike began to focus on products that were previously lacking.

“They just started selling more and more retro Jordans and retro Dunks,” Nikic said. “And when there were a lot of them, they lost some of their special sauce. Sometimes we’d see retro Jordans discounted, which had never happened before.”

The company’s problems in some ways mirror those of Vans, which fell too much in love with its traditional look and then declined as trends changed, leading to a CEO change at parent company VF Corp.

Nike’s problems have cast a negative light on Donahoe, the former eBay CEO who served for a long time on the company’s board before taking the top job.

“If John Donahoe is going to stay in this position, I think a few things need to happen,” Nikic said. “First, he needs to change his mindset. That might be hard for him because he comes from a technology background, not a shoe background. But he’s going to have to become more product-oriented and realize that the consumer is in the driver’s seat.”

Nike CEO John Donahoe

Meron Menghistab/WVD

There are signs that Nike is now starting to understand this.

Jessica Ramírez, senior research analyst at Jane Hali & Associates, said the company has recently been working to “recalibrate its platform” and “highlight the sneakers that actually resonated with consumers.”

She pointed to the Nike Vomero shoes and the more casual Killshot silhouette.

“If they had executed that plan a year ago and woke up and thought, ‘Hey, we may be the biggest in the industry, but that doesn’t mean we’re untouchable’ — because they kind of overslept (and waited to reorganize) — it would have hurt them more than they expected,” Ramírez said.

“Nike has been going through a tough year, and we know in retail, it’s usually been two quarters — and a year — so there needs to be a change (at the CEO level) because things are going in the wrong direction,” she said.

That Nike is going through a “year of transition,” that Donahoe seems to be skating on thin ice, that a powerful brand has to change its strategy so dramatically, sends a message of “pride endures before the fall” to other brands also navigating a difficult market and fickle consumer.

“You can’t be comfortable,” Ramírez said. “You always have to be future-proofed, and you have to do that through your retail strategy, through your product, through your operations. You have to be one step ahead of where you are if you want to be a winner. And you can’t lose sight of what the consumer is interested in and what the competitive landscape is, how it’s changing, because the competitive landscape is changing as consumers’ lifestyles change. The consumer is the one who’s telling you, ‘This is where I’m going to spend my money.’”

The Bottom Line is a business analysis column written by Evan Clark, deputy editor in chief, who has covered the fashion industry since 2000. It appears every other Thursday.