Short-term pain vs. long-term growth: How can Nike change its fate?

The latest Nike financial report has shown the outside world and investors that this globally leading sports giant has made a choice between a "gradual decline" and a "decisive transformation." It has chosen to take the risk of short - term pain to create the possibility of renewed growth.

The financial report for the third quarter of fiscal year 2025 released by the Nike Group shows that the total revenue of the Nike Group reached $1.13 billion, and the net profit was $800 million. Although it exceeded market expectations, both figures declined to a certain extent compared with the previous fiscal year.

Notably, this is the first full fiscal quarter since Elliott Hill assumed the positions of President and CEO of the Nike Group. In a conference call, Elliott Hill said, "We are proud of the decisive actions and progress made in the past 90 days. We have met our expectations, but we are not satisfied with this. We will do better."

In September 2024, Nike brought back Elliott Hill, a veteran of the company, to replace the former CEO, Trevor Edwards, as the helmsman of this sports brand. In the past few quarters, during Trevor Edwards' tenure, his focus on marketing efficiency, DTC, and the sales of classic products had led Nike into a period of "gradual decline."

After taking office, Elliott Hill quickly proposed the "Win Now" strategy and began a series of transformation and reform measures. By taking rapid actions, he aimed to reshape the brand's competitiveness, focus on core sports fields, optimize operational efficiency, and re - activate market growth to cope with intensified market competition and changes in the consumption environment.

During the transformation period, Nike has shown the decisiveness and rapidity of an "entrepreneur." It has not hesitated in making the decision to endure "short - term pain" for "long - term growth," laying a solid foundation for a new era.

It should be noted that making such a decision is not easy given Nike's company scale and volume. The direct impact on the revenue figures is that both the revenue and profit of the Nike Group declined this quarter. However, in terms of inventory, which best reflects operational efficiency, the inventory assets of the Nike Group reached $7.5 billion in the third quarter, a 2% decrease compared with the same period last year. This precisely shows that the most - concerned inventory problem in the industry has been improved, providing shelf space for new products in the next few quarters.

After the release of Nike's financial report, Bank of America Securities specifically pointed out in its research report that "the financial report data of Nike's third quarter itself is not important. What matters is to focus on the management's description of the stage of the product reset cycle and the market feedback on new products." Therefore, Bank of America has set a target price of $90 for Nike, indicating that there is still about a 25% upside potential for the Nike Group in the short term.

It is certain that the Nike Group is now gathering strength to leap forward for a healthier and more long - term development.

Endure Short - Term Pain to Reserve Energy for Long - Term Development

The first pain that Nike has experienced in the past 150 days lies in optimizing inventory and restructuring partner relationships, reducing its reliance on the previous growth formula (classic products + DTC), and creating a healthier market ecological environment.

In this quarter's financial report, Nike revealed that the decline in its gross profit margin was mainly affected by increased discounts, increased inventory write - off reserves, rising product costs, and changes in the channel mix. Among them, Nike is consciously reducing its reliance on the three classic product series of "AF1, AJ1, Dunk" and making room for innovative products through reasonable inventory management. However, this transformation means that Nike must invest costs in the short term and sacrifice part of its gross profit margin to gain future growth potential.

According to Bloomberg, Nike has demonstrated excellent strategic execution in the management of its DUNK products. In the past few years, the classic Nike Dunk shoe has become a favorite on social media through digital channels. Its classic shoe shape, diverse color schemes, and co - branding have helped it become one of the most popular shoe models in 2023.

In the past year, the market demand for Dunk has continued to weaken. Therefore, in Elliott Hill's reform, Nike refocused on the essence of sports and strengthened its leading position in the sports market. Nike quickly reduced the product update frequency and inventory scale of Dunk. Chief Financial Officer Matthew Friend called it the "most radical action."

These measures by Nike will restore the balance of product supply in the current market and relieve the inventory pressure on supplier partners. Piper Sandler analyst explained that if a brand relies on successful old formulas for a long time, it will lose market share. The current Nike leadership team is working hard to correct this, and we believe this is a very correct approach.

In terms of restructuring the market ecosystem, Nike has started to sort out the relationship between its direct - to - consumer (DTC) channels and dealer partners. Ten years ago, Nike launched its DTC transformation strategy and vigorously developed its direct - sales business and digital channels. For its DTC business, Nike's long - term goal is to increase the proportion of direct - sales business to 60% of total revenue while directly reaching consumers.

With the advent of the pandemic and the global digital wave, Nike's online business has developed at full speed. The high - speed inventory turnover rate and high profits from full - price sales have promoted the continuous growth of Nike's business scale. However, in its excellent digital reports, Nike ignored the maintenance of offline channels. As the cost of online traffic remained high later, Nike once fell into the dilemma of "fighting on two fronts."

Elliott Hill's reform direction is clearer. At this quarter's financial report conference, Elliott Hill said, "The company's success is inseparable from its partners." Behind this statement, it is not difficult to see the key signal of Nike's efforts to repair its offline channels: Nike always hopes to achieve win - win results with dealers and jointly meet consumer needs to build a healthier and sustainable positive growth model.

He has re - positioned Nike's direct - to - consumer channels as the benchmark for brand services, which may include optimizing product displays in direct - sales stores, enhancing the consumer service experience, and reshaping online channel services. This will help Nike more clearly distinguish the positioning between direct - sales stores and partner stores.

At the same time, after Elliott Hill's return, leveraging his rich network and relationships with retail partners, he quickly strengthened direct communication with retailers such as Foot Locker in North America, JD Sports in Europe, and Topsports and Baosheng in the Chinese market, and showed them Nike's future product plans and strategic priorities.

These series of actions will put Nike back in a key position in the sales market. John Hall, the President of JD Sports North America, said in an interview with the media in March that we are very optimistic about our future partnership with Nike. Our cooperation is very close, and we believe that Nike's new management team has clear goals and focuses on innovation. We believe they can implement these strategies well.

Focus on Brand Differentiation: Sports is Nike's Language

How to understand Nike's concept of "creating consumer demand"?

In an interview with foreign media in February this year, Elliott Hill said, "Nike is good at using the passion and vitality of sports to inspire people's inner enthusiasm and motivation and to create unique brand stories from sports."

This view reveals one of Nike's core competitiveness, that is, "inspiring emotional resonance through sports."

Nike founder Bill Bowerman once said, "As long as you have a body, you are an athlete. As long as there are athletes in the world, Nike will continue to grow and expand."

It is almost certain that Nike's language is the language of sports.

However, in the process of continuous market expansion and rapid development, Nike may have deviated from its original "track."

In September 2024, Elliott Hill said firmly, "We had lost our dedication to sports." This statement frankly faced one of Nike's real challenges.

Since then, Nike has started to "return to sports," further strengthening the brand's uniqueness and differentiation. By deepening cooperation with core sports leagues, events, and athletes, Nike has reshaped its professional brand image and promoted continuous brand growth. This move has also become the key to Nike's transformation. In other words, Nike is refocusing on "professional sports" and finding back "Nike."

During the reporting period, Nike's brand marketing expenses rose to $1.1 billion, an 8% increase compared with the same period last year. The increase in marketing expenses indicates that Nike is increasing its brand marketing investment, reshaping its unique brand power with more bold and unique narratives, constantly entering the center of the public's view in the sports market, connecting with more consumers, and creating more consumer demand.

In February this year, Nike released a new brand promotional video, "No Arguments, Just Wins," on the Super Bowl stage and gathered its elite female athletes to inspire everyone to block out external noise and fully demonstrate the desire for "winning" in competitive sports. Almost at the same time, at the Grammy Awards, Nike also launched a commemorative film for the 40th anniversary of the Jordan brand, "Unbannable," reviewing the 40 - year legendary journey of the Jordan brand.

In the perception of more consumers, Nike is becoming sharp and cutting - edge again. In addition to thinking from the perspective of professional athletes, Nike is also continuing to leverage its leading advantages in various professional sports tracks.

Recently, Nike has extended its cooperation agreements with partners such as the National Basketball Association (NBA), the Women's National Basketball Association (WNBA), the National Football League (NFL), and the Brazilian Football Confederation. This shows that Nike is continuing to make efforts in key events and further consolidating its core position in the sports field.

In terms of product innovation, during the All - Star Weekend, Nike released several shoe models supported by leading technologies, including the "Black Label series, Nike KD 18, and the new G.T. Cut 3 Turbo."

In the most core running field, Nike has reshaped its road - running shoe matrix and launched innovative products to meet the needs of various types of runners, such as the super - cushioned Vomero 18 and Nike Pegasus Premium. The financial report data also shows that in the third quarter, Nike's running - related business showed single - digit growth, performing the most prominently among all professional sports categories.

From an industry perspective, Nike's innovation is at a critical window period. In the public context, "professional sports and technological innovation" have been brought to the forefront. If Nike wants to reshape its corporate brand image and strengthen its sports label, it needs to increase investment in "professional sports." Both product innovation and focus on professional sports are the core driving forces for Nike's long - term development.

Increase Investment in the Chinese Market and Amplify Women's Power

Meanwhile, as one of the most crucial markets in Nike's global transformation strategy, the group is actively optimizing its business ecosystem in Greater China and is committed to completing the transformation in this region as soon as possible.

Judging from Nike's performance in Greater China in the previous quarter, on the one hand, Nike has always been committed to optimizing its inventory in Greater China as quickly as possible; on the other hand, Nike has also continuously centered on sports to bring innovative and localized products to Chinese consumers.

David Zhang, Chairman and CEO of Nike Greater China, and Global CEO of the ACG brand, also said, "We are going all out in the Chinese market and actively accelerating the strategic transformation. We are full of confidence in Nike's long - term development in the Chinese market."

In the Chinese market, Nike is continuously investing in two major directions: the outdoor market and the women's market.

Nike can also keenly sense the enthusiasm of Chinese consumers for outdoor sports and regards the Chinese market as an entry point for its in - depth exploration of the outdoor sports field.

In February this year, Nike announced a new cooperation with the "2025 Chongli 168 Ultra - Trail Race," becoming the exclusive title sponsor, the only sports product sponsor, and the official designated equipment provider for this event.

This heavy - weight cooperation in the outdoor sports field is an important measure for Nike to accelerate the development of the ACG brand in the global and Chinese markets, demonstrating Nike's firm determination to promote the development of trail running and outdoor sports.

It is generally perceived in the industry that in the current sports brand industry, the outdoor and women's markets are among the few growth points. Nike is also continuously increasing its investment in the women's market.

In January this year, Nike officially announced the launch of the Women's Global Night Run Series and invited female runners in six major cities around the world to participate in a 10 - kilometer or half - marathon night run challenge. At the end of April, Nike will kick off the Shanghai stop of the Nike Women's Night Run.

At the beginning of April, Nike will also participate in Shanghai Fashion Week and launch the "Victory Lap - Leading the Show," paying tribute to the power of women's sports through an innovative fashion show format. More importantly, Nike will also showcase the expression and creativity of women's sports styles on the fashion week stage. In the past few months, shoe models such as the Air Max Muse and Nike Air Superfly launched by Nike have received good feedback in the market.

From Nike's current layout, it can be seen that under the "Win Now" strategy, the entire group has found the right track towards growth through breakthroughs such as optimizing inventory and channel management, strengthening the brand's sports attributes, accelerating product innovation, and deeply cultivating the women's market.

At the financial report conference, Nike's senior management also said, "In the future, the fourth quarter may be the period under the greatest pressure for strategic adjustment. However, it should be emphasized that when entering the fourth quarter, those unfavorable factors will gradually decrease."

It is certain that the Nike Group is reshaping itself to gain new