TL;DR
Nike ended up here by leaning too hard on “yesterday’s hits”. This is the same bestsellers that drive volume, eventually turn into excess supply.
When the market moves on, those hits don’t disappear, but they reappear as markdowns, which is how a strong brand quietly trains customers to wait for discounts.
The situation is essentially a product-cycle + inventory discipline failure. What worked last season becomes a pricing and perception problem this season.
Nike’s response is framed as a “Reset” -→ i.e., a deliberate shift away from chasing short-term sell-through on old winners and back toward freshness and brand control.
The implied goal of the reset is to stop the markdown flywheel (because once discounting becomes the strategy, it stops being a tactic).
Snapshot:
Rule of 40: Revenue growth (1) + EBIT margin (8) = 9 (→ not a growth-quality quarter; it’s a repositioning quarter.)
Moat Scorecard (1–5 each): Scale: 4.5, Network: 2.5, Switching: 1.5, IP/Reg: 2.0, Brand: 5.0
Share price evolution (last 5 years): -54% (!)
1) About the Company & Its Moat
Nike sells footwear, apparel, and equipment through two engines: Wholesale (partners carry the inventory and provide physical reach) and NIKE Direct (Nike-owned stores + digital).
Nike’s real moat is not “premium pricing”. Premium pricing is an outcome. The moat is:
Brand (5/5): Nike is still the default cultural layer on top of sport. But brand is perishable by discounting and overfeeding Classics turns “aspirational” into “commodity|”. Nike is explicitly trying to reverse that.
Scale (4.5/5): Global demand creation, athlete partnerships, and a supply chain that can feed 190 countries. This is the scale that smaller challengers can’t match quarter-to-quarter. But scale becomes a liability when the assortment is wrong (you just mass-produce boredom).
Network (2.5/5): Not a classic network effect, but a soft network: athletes → moments → retail excitement → more athletes. This loop weakens fast if product and storytelling stall, especially in China:
Switching (1.5/5): Consumers switch shoes easily. Nike “wins” through emotional identity and product cycles, not lock-in.
IP/Reg (2/5): Helpful, not decisive—Nike wins more by design + marketing + distribution than by patents.
Concrete evidence the moat is being managed, not merely “hoped for”. Management says the Classics footwear franchises are being rightsized, with a $550M Q2 headwind from that reduction and Classics down >20% YoY. They’re choosing brand health over easy revenue.
But -54% share price in the last 5 years means that something big happened. Here is what I wrote one year ago:
1/ Nike is -30% Year-To-Date, erasing more than $60bn in market capitalization [1]
2/ A former Nike branding executive (ie. Massimo Giunco) has criticized three pivotal decisions made in 2020 under CEO John Donahue, blaming them for subsequent setbacks [2]
Firstly, Nike eliminated its traditional categories like running, basketball, and soccer, grouping products instead into “Women,” “Men,” and “Kids.” This change, advised by McKinsey, aimed to leverage direct-to-consumer (DTC) data for product decisions, resulting in the dismissal of many seasoned category experts. The move backfired, leading to a quiet reinstatement of categories by the end of 2023.
Secondly, Nike ended relationships with numerous wholesale partners, focusing on its own website. This strategy seemed beneficial during COVID-19 but proved detrimental as customers returned to physical stores, leading to lost shelf space for emerging brands like On and Hoka. Additionally, the absence of retailer feedback led to inventory issues.
Lastly, Nike shifted its marketing budget from brand advertising to digital marketing aimed at existing customers. This reduced the creation of new demand, slowing sales. Massimo Giunco, a former executive, criticized this move as an "impressive waste of money."
These decisions resulted in Nike's DTC business growing to 44% of sales (vs. 16% in 2011), but at the cost of brand perception and market position. Giunco believes a return to strong marketing could help Nike recover. [3]
Eric Seufert critiques the (viral) analysis from Massimo Giunco, challenging several key points:
1/ Firstly, the analysis unfairly blames direct response marketing for Nike's challenges, ignoring other factors like weak demand in China. Seufert argues that direct response marketing and brand-building are not mutually exclusive and should be part of a comprehensive performance marketing strategy. He also questions the assumption that Nike's brand marketing was optimal before the shift to direct response, noting the lack of measurement infrastructure to evaluate direct response contributions accurately.
2/ Secondly, the post broadly attributes Nike’s struggles to marketing failures, including product development issues, which Seufert sees as an oversimplification. He highlights the difficulty of proving the counterfactual and criticizes the assumption that both brand marketing and direct response marketing, when employed, are always executed flawlessly and are mutually exclusive.
sources:
2) Latest Investor Call — Key messages
Financially, this was a “stabilize the top line, eat the margin” quarter: revenue +1%, gross margin -300 bps, net income -32%, EBIT margin 8.0% (vs 11.3%).
The most investor-relevant admission wasn’t about product, but was about cost structure. Nike flagged $1.5B of annualized incremental product costs from higher U.S. tariffs, a 320 bps gross headwind in FY26, and claims actions underway to reduce it to a 120 bps net impact. That’s the difference between “temporary margin compression” and “a new, lower plateau”.
Segment-by-segment, the scoreboard is clear:
North America is the proof-of-concept: +9% revenue with wholesale +24%, while Nike Digital is being made “more premium” (fewer promo days, lower markdowns, more full-price demand).
EMEA is fine but messy - the management called out heavier promotions than expected. That’s not fatal, but it’s a signal that Europe still needs tighter marketplace discipline.
Greater China is the problem child - due to declining traffic, softer sell-through, aged inventory, and a vicious cycle of discounting that damages premium positioning across the entire integrated marketplace. Nike is taking write-offs/returns and cutting buys to break the cycle, but admits it will take time.
Converse remains a reset (down sharply, and management explicitly expects headwinds to continue).
The tone remains confident on North America and Running, sober on China and margins, and very deliberate about not over-guiding (“90 days at a time”).
What this call told us about the moat that the numbers alone don’t. Nike is intentionally rebuilding trust with partners and premium perception in digital, two things you can’t expense-capitalize, but you can destroy quickly with discounting.
3) Plans (Strategy & Catalysts)
Next 12 months
Concrete initiatives:
Detox Classics - to reduce discounting and re-open space for newness.
Re-premiumize Nike Digital (fewer promotions, tighter alignment with wholesale partners).
China reset - to scale the store pilot, elevate assortments, clean aged inventory, and adjust to a mono-brand + digital-first marketplace structure.
3–5 near-term catalysts:
Running momentum (management cites Running up >20% and taking share) continuing into new platforms/launch cadence.
Margin narrative inflection in Q3
Wholesale order book improvement for spring/summer (signal that partners believe in the lineup again).
China inventory cleanup (watch the discount cadence and obsolescence charges).
1–3 years
Nike wants the business to look like:
sport-led innovation engine → diversified portfolio → premium integrated marketplace, all with wholesale partners and Nike Direct acting as complementary channels, not enemies.
4) Challenges (Bear Case)
China brand degradation becomes structural (Probability: Medium | Impact: High)
Competition stealing mindshare cycles (P: Medium | I: Medium)
Tariffs harden into a semi-permanent margin tax (P: High | I: High)
Channel conflict whiplash (Wholesale vs Direct) returns (P: Medium | I: Medium)
Execution risk (P: Medium | I: Medium)
5) Verdict & Positioning
Verdict: Hold.
Nike’s moat is still fundamentally brand-led, but brand moats don’t disappear….they fade… and then show up as margins you can’t get back.
The bull case is straightforward. If North America’s playbook becomes portable and China stops being an off-price spiral, Nike gets back to double-digit EBIT over time (management explicitly sees the path).
The bear case is also straightforward. Tariffs + China + portfolio detox create a long valley where “brand rehab” becomes “permanent reset”.
Confidence: 3.5 / 5.
“Where is my moat?” is designed for individual readers, though the occasional forward is absolutely fine. If you’d like to set up multiple subscriptions for your team with a group discount (minimum 5 seats), reach out to me directly.
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