Nike's anticipated layoffs have commenced this week. It is estimated to affect around 1,600 employees or about 2% of its workforce. Among those affected are several senior leaders in technology and marketing. This includes vice presidents in technology, innovation, and marketing, as well as senior directors in Nike's technology innovation office.
Following a decline in Nike's stock prices, which have fallen by 13% year-on-year, and a slowdown in revenue growth, the company has initiated layoffs.
In December 2023, Nike reported a modest 1% increase in sales, failing to meet expectations for the second consecutive quarter. Additionally, Nike has revised its sales projections for the year downward and announced plans to reduce costs by $2 billion over a three-year period.
External factors have contributed to Nike's recent challenges, including reduced consumer spending and heightened competition from smaller footwear brands. Analysts also attribute some of these struggles to a series of missteps that have diverted the brand from its intended course.
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Implementing layoffs is often a swifter approach to restoring revenue than focusing solely on sales growth. Notably, the recent substantial layoffs in Nike's technology and marketing sectors occurred after the company welcomed new Chief Technology Officer Muge Erdirik Dogan, formerly of Amazon Fashion, and Chief Marketing Officer Nicole Hubbard Graham late last year.
This week's workforce reduction is expected to be followed by a second round of layoffs, scheduled to conclude by the end of the fourth quarter, which for Nike ends in May. It's important to note that distribution centers, Nike Air manufacturers, and store employees are not affected by these layoffs, according to the company's statements.
Nike, a longstanding pioneer in sportswear, has been at the forefront of digital innovation as well.
In recent times, the company has shifted away from wholesale distribution in favor of its proprietary channels, pioneered various apps like the Snkrs app for exclusive product releases. It also has ventured into high-tech retail experiences, and embraced Web3 technologies. Nike's proactive approach in Web3 includes the early acquisition of Web3 brand Rtfkt and the subsequent establishment of its own Web3 studio, Nike Virtual Studios (NVS).
In an internal memo, CEO John Donahoe emphasized that Nike has historically excelled when it delivers innovative products, compelling storytelling, and unique marketplace experiences. He suggested that these areas should be prioritized for renewed attention and focus.
"Speed and end-to-end execution is critical to win. To compete, we must edit, shift and divest less critical work to create greater focus and capacity for what matters most."
- John Donahoe, Nike CEO
"Nike's always at our best when we’re on the offence. The actions that we're taking put us in the position to rightsize our organisation to get after our biggest growth opportunities as interest in sport, health and wellness have never been stronger. While these changes will impact approximately 2 per cent of our total workforce, we are grateful for the contributions made by all Nike teammates."
- a Nike representative
Amidst ongoing turbulence within the company and the broader industry, Nike has witnessed a shift back to wholesale partnerships.
Additionally, the brand has experienced the loss of several athlete relationships in recent years, including multiple British football players, Tiger Woods, Simone Biles, and Roger Federer.
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Analysts anticipate a continued recalibration in where Nike directs its investments in innovation. During its September earnings call, company executives acknowledged a lag in innovation within its running product line.
"The innovation needs to sit in product. That's where the money needs to be pumped in. The customer always wants to see newness, and that is where Nike has become stale."
- Jessica Ramirez, senior research analyst at Jane Hali & Associates
While the cuts in the tech and innovation team affect various departments, not just NVS, the new strategy raises questions about the prioritization of digital innovation.
NVS was established in January 2022 to oversee the brand's experiments in Web3 and the metaverse. In November 2022, it introduced "Dotswoosh" (.Swoosh) as a means of enabling participants to co-create phygital products using Nike's intellectual property, aiming to generate ongoing secondary revenue for Nike. This approach mirrors the successful strategy employed by Web3 trainer startup Rtfkt, which Nike acquired in December 2021.
As the hype around NFTs has subsided and cryptocurrency values have declined, the revenue generated from secondhand sales is no longer a lucrative strategy. Towards the conclusion of the NFT sneakerhead craze, Nike sold an estimated $3 million worth of its initial Web3 trainers. However, considering the substantial cost associated with building and developing the NVS business unit, this return is relatively modest. (By the way, Nike's total revenue in 2023 exceeded $50 billion.)
Nike has shifted its focus from NFT collectibles to gaming skins and other in-game assets, some as digital twins and others as digital-only. However, this strategy is still in its early stages. Due to existing contractual obligations, significant changes in strategy may take some time to materialize. Nike has forged partnerships with gaming giants Electronic Arts and Epic Games, and following a mixed reception to its virtual world in Roblox, it launched an Airphoria experience in Fortnite, guiding players to Nike-owned platforms.
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Being deemed a victor in Web3 at this juncture presents a challenge for any brand. Despite Nike's status as a frontrunner, many participants in the Web3 sneaker realm have scaled back their involvement. Companies like Adidas, Puma, and even Rtfkt have tempered their releases and announcements.
"They thought Web3 would be a revenue-driving machine, but that was a bubble and once that popped, there is no revenue."
- Matt Maher, founder of research and development firm M7 Innovations
Despite the cleverness of the Dotswoosh strategy, Maher observes that its initial implementation has been marred by several "odd mishaps." These include the absence of a Web3-friendly communication platform, like a Discord server, to address customer inquiries.
That’s not to say that the race is over. The Nike Web3 innovation strategy is still “directionally correct”, Maher says. Rtfkt still enables Nike to test and learn in a safe way, and the Dotswoosh strategy keeps fans within the Nike ecosystem while standing to provide access to valuable zero-party data.
While challenges persist, the race is far from concluded. According to Maher, Nike's Web3 innovation strategy remains "directionally correct." Rtfkt continues to offer Nike a platform for experimentation in a controlled environment, and the Dotswoosh approach retains fans within the Nike ecosystem while potentially granting access to valuable zero-party data.
Presently, industry analysts anticipate a shift toward prioritizing immediate revenue gains over long-shot ventures, both within Nike and throughout the technology and fashion sectors. Maher highlights recent actions by Amazon, which closed its Amazon Go stores as part of cost-saving initiatives. And Meta also carried out layoffs to reduce expenses. Nike finds itself in a similar narrative.
"Dotswoosh might help in five or 10 years, but [right] now the focus is on what drives revenue."
- Matt Maher