Nike’s Decade in a Nutshell: An Inevitable Cycle

History has a way of coming full circle. On February 7th, 2025, Nike's stock price whispered a tale of déjà vu, revisiting the price level it hadn't seen since December 2015.

Nike's 10-year Journey in a Nutshell

Nike has always held a special place in my heart. I began my consulting career working on Sports Retail projects, and devoted nearly a third of my consulting journey to this industry before pursuing my MBA. I've lost count of how many times we've presented Nike as a "best-in-class" case study to our clients. In fact, Nike was featured in the opening line of my application essay to Columbia Business School…

After spending considerable time studying this industry, it occurs to me that all the business strategies we passionately discussed, whether successes or failures, were merely business cycles.

The sports industry is particularly fascinating due to its unique dynamics: an 18-month product development cycle on the supply side overlapping with evolving consumer aesthetic preferences on the demand side. This creates a distinctive cycle in the sports industry - roughly three years of expansion followed by two years of contraction. At market peaks, brands are crowned kings; at market bottoms, they become everyone's punching bags.

Even Nike can't escape this pattern. In fact, this isn't Nike's first time facing such challenges.

At the end of 2015, Nike's business and stock performance soared, driven by the rising global middle class and increasing awareness of sports and personal wellbeing. However, 2016-2018 brought a shift as Sports Casual became the dominant trend, and adidas capitalized on this with its Originals and Yeezy lines, aggressively capturing market share from Nike. Nike's stock price suffered for two full years.

In 2017, after maintaining a low profile for almost two years, Nike announced its ambitious transformation strategy - Triple Double (2x Innovation, 2x Speed, 2x Direct). Shortly after, Nike's stock price began to rebound, ushering in a new era of dominance. In the following years, professional athletic brands regained popularity, distribution channels were revolutionized by digitization, and luxury brands competed to collaborate with Nike. Even COVID-19 couldn't halt this momentum. At the cycle's peak in 2021, a Nike x Dior collaboration sneaker sold for nearly $50,000. Nike had reclaimed its crown jewel status.

Then the tide turned again. Starting in 2022, boutique brands like Lululemon, On, and Arc'teryx quickly gained market traction. Consumers began losing interest in Nike, and the company once again fell from its throne. Despite a brief recovery in 2023, it never fully rebounded and faced deeper challenges in 2024. The December earnings report not only showed worse-than-expected results but also projected even weaker performance for the next two quarters. Even the return of Nike veteran Elliot as CEO couldn't restore market confidence. While wholesalers continue clearing inventory at steep discounts and consumers abandon their once-favorite brand, Nike appears to be approaching a critical juncture. But is this really the end of the story?

adidas's Transformation Story

adidas provides an interesting counterpoint, as it typically moves in an opposite cycle to Nike.

Following its tremendous success during the Sports Casual trend, adidas began aggressively expanding its store footprint, heavily promoting key franchises, and pushing wholesalers to accept more inventory. The familiar pattern then emerged: consumers tired of repetitive designs, products became harder to sell, discounts deepened, and new inventory piled up in warehouses. The company entered a vicious cycle: excess inventory led to discounts, which led to shrinking margins and sales, ultimately causing business deterioration. Coupled with the controversial split from Kanye West, adidas faced widespread criticism. Its stock price plummeted to one-third of its peak value, with pessimists predicting the brand's demise.

However, 2023 marked a turning point. After implementing a series of transformative changes, adidas gradually returned to prominence. The recovery began with improving discount and margin metrics, followed by viral hits like the Samba and Terrex lines. Almost miraculously, adidas's business performance turned around. The market quickly forgot its criticism and embraced the new adidas. To date, Adidas has more than doubled its stock price from its bottom.

The Sports Industry Cycle and Market Blindness

This cycle stems from the unique 18-month product development timeline in Sports Apparel. For a shoe to move from design to retail, it must navigate a complex process: design - sampling - merchandising - open-to-buy - procurement - manufacturing - distribution, among others. This means the products available in stores today were designed a year and a half ago, making it nearly impossible to predict market trends accurately.

This creates an interesting cycle. During successful periods, wholesalers increase orders for popular products, brands allocate more resources to manufacture and promote these lines, and retailers open more stores to drive sales, leading to rapid growth... until it stops working. Consumers, being naturally fickle, quickly tire of even the hottest products. However, since these products were designed and planned 18 months in advance, manufacturing plans can't be easily adjusted. Companies must then resort to promotions and discounts to move inventory. Consumers begin purchasing based on price rather than desirability, damaging brand perception. This initiates the notorious downward spiral: rising inventory → increasing discounts → shrinking margins → store closures → weakening sales → brand deterioration.

Companies then seek transformation strategies. However, they need another 18 months to bring newly designed products aligned with current consumer tastes to market. In the interim, they can only clear inventory, optimize channels, and manage discounts. During this period, companies face declining financials, falling stock prices, and mounting consumer criticism. Only when new products successfully launch can the company regain momentum. Finally concludes a full cycle.

Viewing brands through this cyclical lens reveals that none have escaped this pattern. All business success stories and strategic plans ultimately crumble to ashes in the face of this inevitable cycle. The market only amplifies these swings - celebrating brands during upswings and criticizing during downturns. During upswings, analysts and commentators praise company strategies and generously raise projections. During downswings, the same people join consumers in criticizing the company's failures and rush to issue pessimistic forecasts.

Therefore, when market excitement peaks, we've likely reached the top; when criticism and negativity dominate, we've likely hit bottom.

What stage is Nike at now?

I believe Nike's current situation mirrors its 2017 position and adidas's 2022 state - approaching bottom before a market reversal. Nike's FY 2025 Q2 earnings transcript, presented by its newly appointed CEO, offers a textbook level of sports brand transformation strategy - returning to core sports, elevating the brand, re-establishing the brand-pull model, connecting with communities, and integrating the marketplace. The new management clearly understands the challenge. The only thing they lack is time.

This transcript stands out as one of the most impressive I've recently encountered (would definitely recommend everyone interested to read). It reveals a leadership team capable of withstanding short-term market pressures while strategizing for long-term growth. Despite facing significant challenges, they maintain focus, strategic clarity, and transparency about their shortcomings. They openly acknowledge the likelihood of worsening financial results in coming quarters. I interpret this as respect for both the industry and facts. It also demonstrates their fundamental confidence - confidence rooted in the Nike brand built over 60 years of market presence through collaboration between the company, channel partners, and consumers. This, in my view, represents Nike's fundamental margin of safety.

While predicting the exact bottom for Nike or any company is impossible, I believe, for many people, it’s already time to get excited and greedy.