The appointment of John Donahoe as CEO of Nike (NKE 1.36%) in January came as a bit of a surprise to the investing community. Even though Donahoe has been on the board of the iconic sportswear company since 2014, his tech background made him an unexpected candidate for Nike's top leadership position.
Since taking over earlier this year, Donahoe recently announced a management shakeup at the company, signaling a new path forward, but does the world's No. 1 athletic shoe brand really need a makeover?
Image source: Getty Images.
Where does Nike want to go?
Nike had a great 2019, with continued sales and earnings growth. It saw a particularly strong rise in digital, with sales from that channel increasing 35% in fiscal 2019, which ended May 31, 2019. Most recently, Nike saw 38% year-over-year digital growth during its fiscal 2020 second quarter, driven by the Nike and SNKRS apps. SNKR app revenue grew double digits during the period, and sales through the Nike app more than doubled, together contributing more than one-third of digital revenue.
And for the holiday shopping season, former CEO Mark Parker noted during the second-quarter earnings call, "For Black Friday, digital sales grew over 70% in North America, and broke records for the weekend across many of our metrics." This momentum is even more pronounced in China where digital makes up the largest share of business compared to the company's other geographic regions.
Parker's vision of continued success for Nike comes from focusing on the customer and being positioned to do so through the digital experiences of both retail and community.
The right man for the job?
Considering this focus on the digital business, Donahoe has a lot to bring to the table. He came most recently from ServiceNow, a cloud services company, and was previously CEO of eBay, so he has a long track record in the tech world. Parker said in December, "Proven experience and leading global strategy, digital commerce, and enterprise technology will be invaluable as we continue our digital transformation."
So what are the drawbacks? First, Donahoe has no experience in apparel. Nike's eager to redefine itself as a digital brand, but first and foremost, it makes and sells sneakers and other sportswear. Parker has also said that "innovation is Nike's greatest competitive advantage." It would be a big mistake to lose sight of the sneakers in these latest efforts.
Second, Nike has always had an insider corporate culture. Co-founder Phil Knight reigned as CEO from the company's beginnings in 1964 until he stepped down in 2004. Mark Parker took over in 2006 after being with the company for 27 years. In the middle, a company outsider named William Perez took the helm but left after differences of opinion with Knight about company leadership.
Making over management
Donahoe knows what he knows, which is tech, not sportswear and apparel, and he needs to provide the expertise that he does have while surrounding himself with proven insiders who can help him steer Nike in the right direction.
To support his endeavors, he promoted two Nike executives with a combined 33 years of experience at the company. Heidi O'Neill has been responsible until now for Nike Direct, one of the main revenue growth drivers, and she will take over in April as president of consumer and marketplace. Meanwhile, Andy Campion will bring his financial expertise as chief financial officer to the chief operating officer position.
Donahoe's choice to promote from within shows his understanding of the corporate culture and that despite his own status as an outsider, he's not turning a good thing on its head. Recognizing his own limits in this industry and handing the right people the right roles in the company will allow him to execute on what he does best and leave the rest to them.
With Donahoe's team in place, investors should expect to see further dynamic growth from both the company's digital and innovation pipelines, not to mention greater value from this top stock.
