Nike replaces CEO with veteran executive Elliott Hill in revival bid

Author of the article:

Bloomberg News

Kim Bhasin and Lily Meier

Published Sep 20, 2024  •  5 minute read

Pedestrians pass a Nike Inc. store in the Wangfujing shopping area in Beijing, China, on Monday, July 11, 2024. Bloomberg

Nike Inc. ousted beleaguered Chief Executive Officer John Donahoe, bringing longtime executive Elliott Hill out of retirement in a bid to return the struggling athletic brand to its glory days.

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Hill, 60, originally joined Nike in 1988 and served as president of consumer and marketplace before he retired in 2020. He will take over on Oct. 14. Donahoe, 64, will retire and remain an adviser through January.

Nike shares jumped as much as 7.4% in trading before markets opened in New York on Friday, while its chief rivals, Adidas AG and Puma SE, fell in Germany.

Nike has tumbled 25% this year as the sneaker giant struggled with falling sales and customer defections to upstart athletic brands such as On and Hoka, as well as to its more established competitors. Donahoe, a former eBay Inc. chief and Bain & Co. consultant who took over in 2020, has largely been the face of the downfall.

“We are all aware we have faced challenges in the past year, but our foundation remains extremely strong,” Executive Chairman Mark Parker said in an employee memo Thursday. “Now more than ever, we need to come together to accelerate and fulfil our potential to build what’s next for Nike Inc.’s growth.”

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Investors will be looking for the new regime to speed up product development and release more of the groundbreaking sneaker technology that once defined the brand. The decision to bring back a longtime executive, rather than tap another outsider less steeped in Nike’s culture of innovation, points to the company’s desperation in reversing a sales slump that has hurt shares, employee morale, and the brand’s global cachet.

In a message to staff after the announcement, Hill said he knows “things haven’t been easy.” He urged employees to rally as a team and act with a sense of urgency, saying the company needs to both deliver results now and set itself up for future success.

Within the company, there were signs of enthusiasm: Some employees celebrated the news of the CEO switch with bottles of prosecco littered on a desk in the office, according to a photo seen by Bloomberg News.

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“Employees are looking for a fresh start after blaming Donahoe for pandemic-era missteps,” said Adam Calamar, a portfolio manager at Jensen Investment Management, which has held Nike shares since 2011. “Hill represents hope for a strategic reset and cultural revival.”

Cost-Cutting

Donahoe came to Nike as only the second outsider to lead the company in its half-century corporate history. Parker, who was CEO for 14 years, helped recruit him as his successor with the hope that the former consultant could help infuse the brand with better technology and a more modern digital strategy.

Donahoe arrived at the Beaverton, Oregon, headquarters knowing very little about sneakers and streetwear. But he did know about cost cutting.

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His plan announced last year for $2 billion in cost reductions, along with layoffs across 2% of Nike’s workforce, dented morale and left employees questioning if Donahoe was the right person to meet the moment. He has been on the hot seat since Nike slashed its revenue forecast in December and warned in June that sales for the new fiscal year would be below expectations.

Demand was waning for the brand’s lifestyle sneakers as fewer people were shelling out for Nike Dunks, Air Force 1s and Air Jordan 1s. As Nike withheld products to prioritize its own stores, website and apps, relationships with retail partners also suffered.

The phased job cuts began in February, affecting corporate staff in Oregon and at other offices around the world. The company even fired people from its sneaker archive department, or DNA, as it’s referred to internally.

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Calls from Wall Street for a change in management at Nike grew louder after the sales warning in June, which led to the stock’s worst day since the company went public. Shares fell 20%, wiping out more than $28 billion in market value.

“Nike is a mess and is deflated, as is any confidence we may have had,” Sam Poser, an analyst at Williams Trading LLC, wrote in an unusually personal and direct note to clients. “The Nike talent today does not, in our view, hold a candle to the talent at Nike seven years ago.”

At the time, Nike co-founder Phil Knight released a statement backing his CEO: “I am optimistic in Nike’s future and John Donahoe has my unwavering confidence and full support,” he said.

Since then, Donahoe called on help from retired Nike executives. The company rehired Tom Peddie as vice president of marketplace partners to help mend the frayed retail relationships. It also reshuffled senior staff by moving longtime executive Thomas Clarke, the head of innovation, to an advisory role.

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The company tried to change the narrative with extra marketing during the Paris Olympics, but sales didn’t bounce back. This month, Nike skipped its annual “Just Do It Day” celebration at its headquarters — an employee event that in the past has boasted guests such as Drake, Travis Scott and Serena Williams.

A new CEO “breathes new life and hope into a semi-abandoned blue-chip company in an environment where investors are looking for exactly that,” said Simeon Siegel, an analyst at BMO Capital Markets.

Hill had been part of a coterie of former Nike executives that advised Donahoe while he was CEO, according to a former employee who asked not to be named speaking publicly on the matter. Hill, who has had a long-standing relationship with Knight, had previously been floated as a potential successor to Parker back in 2019.

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“Leadership changes are never easy, they test you, they challenge you, but this transition has been handled with remarkable thoughtfulness and an unwavering commitment to Nike,” Knight said in a statement Thursday. “We’ve got a lot of work to do but I’m looking forward to seeing Nike back on its pace.”

Hill is set to receive a base salary of $1.5 million as CEO, while he could receive annual bonuses of 200% that amount for meeting targets, according to a regulatory filing. The company also offered him an annual target long-term incentive award of $15.5 million, and he’ll receive a one-time cash payment of $4 million and equity valued at $3 million.

Speaking in a video message to staff on Thursday, Hill said it was time for employees to “come together.” Dressed in a black shirt bearing a Swoosh, he spoke about his journey from a Nike intern in Memphis, Tennessee, to a 32-year career with the company.

One of his key takeaways: “I learned to always put the consumer at the centre of everything and every decision.”

—With assistance from Julia Fanzeres and Katrina Compoli.

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