Nike's Crisis and the Economics of Brand Decay

Summary

What it sounds like is that the CEO has the wrong people making the wrong decisions across the strongest brand or one of the strongest brands in consumer history.This quote by Scott Galloway on his podcast is from July 2024. In March 2025, Nike reported its worst revenue decline in nearly five years: an 11.5% drop to $11.01 billion. Digital sales fell 20%, app downloads decreased 35%, and store foot traffic declined 11%. The company that once captured roughly half of the US athletic footwear market now faces a crisis that reveals how competitive advantages work, and how quickly they can disappear.Nike spent decades building dominance through complementary assets: product development, athlete partnerships, and marketing that reinforced premium positioning. These three worked together to create what Porter would call a sustainable competitive advantage. When all three are strong, you can charge premium prices and maintain gross margins above 40%. When you systematically weaken each pillar simultaneously, the advantage collapses. Nike’s gross margins peaked around 45% in the mid-2010s. By fiscal 2025, margins had compressed to 42.7%, a decline of 190 basis points, primarily due to higher discounts and unfavorable sales channel mix. The direct-to-consumer shift that was supposed to improve margins actually made things worse because it reduced retail presence at exactly the wrong moment. Competitors filled the shelf space Nike vacated.The most significant strategic shift came in 2020 when Nike hired John Donahoe, a former Bain consultant and eBay CEO, to replace Mark Parker. Donahoe accelerated the direct-to-consumer transition, terminating hundreds of wholesale accounts. The theory was sound: wholesale margins are 30-35% after retailer markups, while direct sales can reach 50% or higher. But retail shelf space is a zero-sum game. When Nike pulled out, competitors immediately filled the void. Running brands like On and Hoka, which had been developing new sole technology ...