Analysis: How Nike’s new boss will accelerate its digital transition

Last Tuesday, the US sportswear market was rocked by the news that long-serving Nike chief executive Mark Parker would be standing down from his role in the new year after more than 13 years at the helm.

Parker will stay on at the business, taking the role of executive chair of the board, and will be replaced in January by John Donahoe.

Parker’s successor has big shoes to fill. Since taking the helm in 2006, Parker has overseen Nike’s market value more than triple. He has also worked for the brand since 1979, when he joined as a footwear designer.

Donahoe is also taking the reins at the brand at a time when it is looking to speed up its strategic focus on direct to consumer and digital, while scaling back its wholesale business by as much as 50% over the next five years.

Donahoe ‘ideally suited’

Succeeding Parker is a significant undertaking – but one that Donahoe looks well-placed for, having sat on the board of directors since 2014. 

Donahoe began his career with management consultancy Bain & Company where he worked for more than 20 years, eventually becoming chief executive in 1999. He subsequently took the top job at eBay for five years, before becoming president and chief executive of Silicon Valley-based cloud computing provider ServiceNow in 2017. He is also currently chair of the board at PayPal.

Parker has described Donahoe as “ideally suited” to replace him in the Nike top job, due to his “expertise in digital commerce, technology, global strategy and leadership combined with his strong relationship with the brand”, which will help drive “our digital transformation to build on the positive impact of our ‘Consumer Direct Offense’ [its direct-to-consumer strategy]”.

However, several US analysts expressed surprise at the timing of Parker’s departure, particularly given Nike’s recent set of financial results.

Nike profits surpassed $1bn earlier this year, and it posted revenues in excess of $10.7bn (£8.3bn) in its most recent first-quarter results for FY20. The business’ market capitalisation of $143bn (£111.1bn) puts it in the top 50 of US companies. 

Senior retail analyst at asset management firm Needham, Rick Patel, says “it’s disheartening to see Parker step down” from Nike, praising him as the key architect of its “significant growth in sales, margins and earnings per share”.

“Donahoe’s deep background in technology and strategy should serve the company well as Nike continues to elevate and expand its digital platforms”

Cristina Fernández, Telsey Advisory Group

Patel also notes that Parker has very much been the driving force behind Nike’s pivot towards digital sales channels and direct-to-consumer routes. Under his stewardship, Patel says Nike is on track to exceed its goal of deriving 30% of sales through owned and partnered direct channels by the end of the 2023 financial year.

He estimates that direct to consumer already accounts for circa 20% of Nike sales, and says “this could eventually be in excess of 50% in the long term”.

Managing director of luxury and fashion at Coresight Research, Marie Driscoll, says, however, that Donahoe’s background in understanding consumers makes him the right man to drive Parker’s vision forward.

“It takes a new person with different skillsets to move a company in a different direction. When I talk to headhunters in the retail space, more and more they say they want someone who knows the consumer, and Donahoe has that,” she says.

“It used to be that you had merchant kings running big brands, and they were fantastic at what they did, but at some point, some lost touch with what the consumer wants. Now, with digital, if you have a powerful brand and the consumer is searching your brand on your website or app, you know what they’re looking for and what they’re buying”.

Donahoe has form in driving a retailer’s business model forward in response to changing consumer habits. After joining eBay in 2005, Donahoe was the driving force behind its push towards focusing on mobile compatible technology and a rapid expansion of its ecommerce offering following its acquisition of PayPal.

In his time at ServiceNow, he has worked closely with a diverse portfolio of international businesses – including Virgin Trains, Experian and Flight Centre – on digitalising both internal and external, customer-facing platforms, which will serve him well as Nike increasingly embeds technology into its bricks-and-mortar stores. 

Telsey Advisory Group’s Cristina Fernández says Donahoe’s “deep background in technology and strategy should serve the company well as Nike continues to elevate and expand its digital platforms and further integrates technology into different facets of the business”.

She also believes that any brand and product shortcomings Donahoe might have will be covered by Nike’s “deep leadership bench which should help smooth the transition, with many senior executives having long tenures”.

The sportswear brand’s chief operating officer Eric Sprunk and president of categories and product Michael Spillane have been with the business since 1988 and 2007 respectively and can carry the brand on day-to-day while Donahoe thinks about the big picture for the business.

Wholesale changes

With Donahoe being brought in to ramp up Nike’s D2C strategy, the brand has also been explicit in saying that it will look to reduce its wholesale arm and end supply arrangements with a number of independent retailers over the next two years.

In 2017, Nike brand president Trevor Edwards unveiled this switch in distribution strategy and warned that “mediocre” retailers would not survive the cull. The brand said it wanted to grow direct-to-consumer sales from $6.6bn in 2015 to $16bn in 2020.

Coresight’s Driscoll says Nike has long worried about its brand equity working with several independents in the US, a number of which have since gone out of business as the American retail sector struggles to deal with many of the same issues blighting the UK high street.

“He has the chops that are needed to take the brand on to its next iteration”

Marie Driscoll, Coresight Research

However, she believes that Nike will continue to work with “relevant” independent retailers.

“Nike have said they want to have a strategic relationship with their best partners,” she says. “Nike is going to pull out of retailers that are becoming less relevant to their brand and are not allowing the products to really flourish.”

However, it’s not just the brand’s wholesale strategy that is changing. Nike is increasingly becoming a retailer in and of itself. A retail focus allows for Nike to grow its margins while cutting out discounting middlemen and has already seen gross margins increase 44.7% year on year.

It has also increasingly focused on opening experiential flagship stores in key markets, including its Nike Town store on Oxford Street, or its ‘House of Innovation’ flagship on New York’s Fifth Avenue, which opened last year. 

Global retail research director at GlobalData, Maureen Hinton says “sportswear is about the only thing in apparel that’s doing well at the moment”, a fact that Nike is exploiting with its own push into bricks and mortar.

Although one senior analyst says there is “no chance” that Nike will stop working with retailers of scale in the UK such as Sports Direct, the business’ focus has undeniably shifted away from wholesale to D2C, and Donahoe will be tasked with driving this focus forward.

Navigating the whims of irate wholesale partners will be new territory for Donahoe, as an executive without extensive retail experience. However, he has form steering through changing consumer appetites and a strong team to support him as he executes Nike’s strategic shift from brand to retail behemoth in its own right.

“He has the chops that are needed to take the brand on to its next iteration, [which is] direct to consumer and digital but not necessarily with lots of stores. Nike is about a $40bn company, it takes a team to do this, it is not just about one person’s vision,” says Driscoll.

He may not be a big name or a retail lifer, but Donahoe is a seasoned team player for Nike, and one that his predecessor Parker is confident can lead from the front.