When Nike said on Thursday that John Donahoe was stepping down as chief executive officer, his exit from a rocky tenure offered a brutal reminder to corporate boards: Focus on what a company's core business is when looking for a new CEO.
As Donahoe took over the top spot at Nike in early 2020, the company touted the former Bain management consultant and eBay CEO's extensive tech industry chops and Silicon Valley touch. He had been at eBay between 2008 and 2015, and his job just before Nike was as CEO of a cloud computing company. At the time, the sports gear maker claimed it was becoming something of a tech company. Nike was launching its own apps, and wanted sell more of its products directly to consumers on its web site and own stores, a push that was priority for co-founder Phil Knight.
But with Donahoe, they chose a CEO who lacked any deep knowledge about sneakers and sneaker culture, and no retail experience in stores, leading to the current disaster. He underestimated the importance of partners like Macy's, DSW and Foot Locker in selling its running shoes. And as a former management consultant, cost-cutting proved to be his go-to tactic, but one that only worsened Nike's problems.
It's telling that Donahoe's replacement will be Elliott Hill, a longtime Nike veteran who in 2020 retired as the company’s president of consumer and marketplace. The shoe company's choice of Hill, who will start on Oct. 14, seems to be a return to form—Donahoe was only the second outsider CEO in Nike's history, although he had served on the board for five years.
To be fair, Donahoe handled the COVID pandemic, which hit two months into his tenure, deftly thanks to his tech prowess, which helped the company handle a surge in demand cause by e-commerce's boom. But that saving grace wasn't enough to save him when the mistakes started piling up.
Early in his term, Nike launched highly-popular "lifestyle" versions of its Dunks, Air Force 1s and Air Jordan, intended to be more mainstream streetwear rather than shoes for athletes, who have historically have been at the core of Nike's business. And with the intention of squeezing out more wholesale middlemen and selling directly to consumers, Donahoe decided to stop selling Nike apparel to retailers like Dillard’s and Urban Outfitters, and reduced how much merchandise sold at partners like Macy's and Foot Locker. On top of hurting sales, that left an opening for rivals from Hoka to On Running to New Balance to take up the newly-freed shelf space and gain market share.
What's more, Nike's lifestyle shoes, which had yielded strong sales gains initially, started to fizzle amid consumer boredom. But Nike got hooked on those brisk sales, and didn't have enough new innovative product to pick up the slack. Earlier this year, Donahoe acknowledged that innovation at a company reliant on a constant flow of new products that pushed the envelope had slowed. However, he chose to blame the rise of remote work and Zoom.
By December 2023, Nike had slashed its revenue forecast for the first time ever. Donahoe, reverting to a tactic familiar to him as a former management consultant, announced a three-year, $2 billion cost cutting plan that involved laying off 2% of workers. But that created a sense of crisis at Nike and undermined workers' faith in him. That focus on cost cutting also contributed to unforced errors such as paying less attention to constituencies like local running groups, which are key to stoking grassroots interest, according to a recent Wall Street Journal article.
In June of this year, the company cut its revenue forecast again, leading to its biggest ever stock decline and a $24 billion drop in market cap. By July, criticism of Donahoe was coming from all sides. Former Nike marketing executive Massimo Giunco posted a long indictment of Donahoe on LinkedIn. "The CEO of Nike doesn’t come from the industry," he wrote. "At the end, he is a poorly advised, ‘data-driven guy.’ ”
With its new leadership pick in Hill, Nike once again has a CEO who is not only from the industry but a Nike lifer who has intimate knowledge of the company and its culture. On the announcement that Donahoe would be leaving and he would be stepping in, stocks jumped by 7%.
