Nike Recalls Retired Exec Amid Workforce Cuts to Combat Declining Sales

Nike is cutting its workforce by 2% and recalling retired executive Tom Peddie to help combat declining sales. This move is part of a three-year cost-saving strategy aimed at addressing competition from emerging footwear brands and rebuilding relationships with retailers.

Nike Cuts Workforce by 2%, Recalls Retired Exec to Tackle Declining Sales and Rebuild Retail Ties

Nike is reducing its workforce by up to 2% as part of its three-year cost-saving strategy to combat declining sales and compete with a new generation of footwear brands. However, the company has discovered that certain personnel are indispensable despite severed ties with them.

A 30-year Nike veteran executive is being recalled from retirement to assist in the company's recovery efforts. After Nike's relationships with shoe sellers have faltered, former senior executive Tom Peddie, who retired from the shoe behemoth in 2020, will assume the position of vice president of marketplace partners. Peddie was the company's global sales leader before considering the general manager of emerging markets and overseeing Nike's North American geography.

“[Peddie] is a seasoned leader with a proven business track record and experience building high-performing teams,” Nike told Fortune in a statement. “We are excited to have him return to Nike.”

Nike has been bewildered by the competition from a new generation of footwear brands, such as Hoka and On, which have experienced significant growth during the pandemic by targeting casual runners. Nike has encountered challenges maintaining relationships with retailers and has yet to provide innovative products that appeal to Gen Z consumers. This was due to the company's significant investment in a direct-to-consumer strategy, which ultimately proved detrimental.

Nike has yet to observe substantial positive outcomes despite its efforts to restructure leadership, refocus marketing efforts, and restrict supply as part of its cost-saving strategy. The company's fourth-quarter revenue decreased by 2% to $12.6 billion last month, and it is anticipated that 2025 sales will decline by mid-single digits. The company expects a 10% decline in first-quarter sales despite analysts' expectations of a 1% increase in sales.

The June earnings call resulted in the company's most disastrous trading day ever, as its market capitalization declined by $28 million in a single day.

Nike's Digital Pivot and DTC Strategy Faces Challenges Amid Rising Competition from Casual Running Brands

Nike's accelerated transition to a digital platform, which the company once anticipated would generate 50% of its revenue, has been a significant factor in its struggles. In 2017, the company invested in its direct-to-consumer (DTC) strategy and severed its relationships with retailers, including Dunham's Sports, Urban Outfitters, Dillard's, and Zappos.

Jessica Ramírez, senior research analyst at Jane Hali & Associate, informed Fortune that this pivot was founded on logic. Nike has a history of recognizing consumers' interests and has garnered a substantial following from its sneakerhead audience.

“There is a beauty in having a strong direct-to-consumer channel because you're able to connect with consumers on what they want. You're able to have data from them,” Ramírez said. “And that's where Nike always excelled, in really understanding their customer.”

Nike's initiatives were initially successful, as evidenced by a 14% increase in DTC revenue to $18.7 billion in the fourth quarter of 2022. However, as running became a popular and affordable hobby during the pandemic, brands such as Hoka, On, and Brooks experienced a surge in popularity due to their allure for casual and beginner runners.

“Nike was always known for having the innovation and the technology, but it was for the runner that does a marathon—the very elite runner,” Ramírez said. “And they never looked at the everyday runner.”

Nike Shifts Strategy, Rebuilding Retail Ties and Introducing Affordable Footwear to Boost Sales

In April 2022, the company acknowledged the constraints of its direct-to-consumer (DTC) strategy, which was part of a broader trend in which DTC companies, such as Native and Quip, sought out retail partners to alleviate the burden of e-commerce responsibilities, including digital innovation and shipping.

“Nike thought they could do a lot of it themselves, but they aren’t as capable as they thought they were,”Sam Poser, equities analyst at Williams Trading, told the Wall Street Journal last summer.

Since then, the shoe manufacturer has endeavored to repair its relationship with retailers. In June last year, Designer Brands and Macy's declared their intention to sell Nike products. In February 2023, Footlocker began to sell basketball shoes and sneakers adorned with the brand's renowned swoop in greater abundance after its sales plummeted in 2022, partly due to its limited access to Nike inventory.

Nike also aims to attract price-conscious consumers and fortify its relationships with retail partners. Last week, it introduced a collection of shoes priced at $100 or less, considered comparatively affordable. This move was made to entice customers previously discouraged by the company's higher prices. However, CFO Matthew Friend acknowledged that increasing sales will be complex.

“It's going to be challenging over the next couple of quarters,” he said in the company’s earnings call.