The Battle for the Sports Shoe Market

Fashion market experts and economic analysts predict a decline in sales of Nike and Adidas. The leadership positions of the unsinkable sports giants may be seriously shaken in the coming years, as they are being pushed out by young, bold and active competitors – challenger brands.

Why is this happening, and what are the main reasons for such changes? Daniya Tkacheva, a fashion market expert and practitioner with 20 years of experience in sales management, and 13 years of experience in the Nike Russia team and fashion retail, shares her view on the situation on the market in the sportswear and footwear segment.

Denmark Tkacheva -

business consultant on sales management and strategic development for fashion brands. 21 years of sales management, 13 years in fashion retail, ex-regional sales manager for Nike Russia. Author of articles for Forbes, Kommersant, RBC.Pro, speaker of the business program of the CPM, Textillegprom, Interfabric exhibitions, and the Tinkoff conference. My business", Fashion factory School. Member of the Council for Electronic Commerce of the Russian Chamber of Commerce and Industry. https://t.me/DaniyaTkacheva

In 2024, global sportswear market competitors such as Deckers (owner of Hoka) and Asics were expected to generate more than 50% of the segment's value, surpassing the sportswear brands known as the "Big Four" (Nike, Adidas, Puma and Under Armour) in economic profit for the first time, according to the McKinsey Global Fashion Index.

Challenger brands grew revenue by 2020% per year between 2024 and 18, 14 percentage points higher than giant brands, and they increased profitability by 4 percentage points over the period, while giant brands have already seen profitability decline by 2,4 percentage points.

What are the main reasons for this shift? 

1. The first reason is the prioritization of DTC (direct-to-consumer) sales over wholesale, a strategy pursued by market giants. Nike, Adidas, and Under Armour prioritized direct sales from 2015 to 2019, accelerating the decline of wholesale retail from 2021.

During this time, Nike reduced its presence in major shoe chains - Footlooker, JD and Dick's sporting goods.

At the same time, emerging brands like Hoka, On, Asics were actively increasing their shares on the shelves of the world's largest sports retailers, accumulating traffic in the industry. Then retailers were forced to actively search for new brands themselves and expand their brand portfolio at their expense. Since then, for example, Foot Locker plans to reduce Nike's share of sales from 70% in 2023 to about 55-60% by 2026.

2. The second reason why challenger brands are growing so rapidly is visible innovation. While Adidas and Nike were heavily exploiting their retro models and focusing on increasing sales and profitability, while reducing innovation costs, small but nimble challenger brands were actively investing in innovation.

For example, Hoka's oversized midsole provides the shoe with unique cushioning and is instantly recognizable, while On's CloudTec soles use a distinctive capsule-like design to provide runners with support. In recent years, giant brands have seen fewer breakthrough technologies and innovations, with patents granted falling by 55% between Q2021 2023 and the end of XNUMX.

3. The third reason lies in good old-fashioned marketing tools. Challenger brands aggressively invested in athletes, celebrities, and marketing. For example, New Balance and Alo Yoga attracted American rapper Jack Harlow and American model and reality TV personality Kendall Jenner. Hoka attracted running clubs and partnered with HyperBeast (hypebeasts – people who fanatically follow fashion trends and buy the latest releases from popular clothing, footwear, and accessories brands). On and Puma focused on popular actors and singers, signing long-term partnerships with American actress and model Zendaya and K-pop star Rozh from the super-popular South Korean girl group Blackpink.

At the same time, the giants continued to optimize costs, yielding in authenticity to challenger brands.

4. The fourth reason is diversification. While giant brands have been working on productivity and optimizing their product ranges, challenger brands have been actively diversifying their offerings. Sport performance and athleisure brands are actively entering each other's territory. Alo Yoga (a yoga and fitness apparel brand headquartered in Los Angeles, considered one of the best in its niche), known for its high-quality training apparel, released its first running shoes in 2024. Meanwhile, Swiss brand On, known for its focus on running, is boldly entering the training and tennis categories, aiming to double its share of apparel sales in the next three to five years.

US-based Lululemon, which started as a women's sportswear and activewear brand, plans to double its men's business by 2026 from 2021, adding golf and tennis.

The On brand, a leader in running, enlists the help of blogger fkatwigs with 2,5 million followers - and now organizes a day of training and "self-expression." The theme of the launch is "Body as Art," and it is all about training and related sports categories: warm-up, dance, yoga and gong meditation. On today fills other spheres, recalling the speed and strength of Nike 15 years ago.

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In 2023 and 2024, Nike faced unprecedented declines in sales and gross margins. In addition, Nike began to rapidly lose market share, while challenger brands such as On, Hoka, Alo Yoga, Lululemon and others grew aggressively. News reports were full of headlines about Nike’s warehouse inventory piling up and the action plans that the company was trying to implement internally.

So what did Nike do in response to these changes and challenges from the market and young competitors? First, in September, the company fired the previous CEO John Donahoe, who had previously been on Nike's board of directors but was not in the sports industry. John Donahoe is great at building business processes and optimizing business, which he did during the pandemic and the height of the lockdown, and at the same time fired Nike "veterans", on the one hand, Nike's most expensive employees, and on the other hand, the bearers of the Nike spirit, the creative heart of the brand, who created Nike's "golden years".

In addition, trying to increase profits in the difficult post-pandemic period (let me remind you that the lockdown in America and Europe lasted much longer than in Russia), Donahoe practically abandoned innovations and used commercial franchises, the so-called Nike icons: Nike Dunk, Nike Air max, Nike Air Force1, Nike Jordan. In the short term, this led to an increase in profits, but in the long term, consumers began to lose interest in Nike. To maintain sales, they had to make discounts, but even this did not save the company from accumulating stocks and further falling shares.

In addition, he began to more aggressively implement the DTC (direct to consumer) policy, which, to be fair, it should be noted, he did not develop. It began to be implemented in 2017, but no one was in a hurry to bring it to completion before. You already know about the consequences.

However, recently the company's CEO Elliot Hill (who was vice president of consumer affairs before stepping down in 2020) proposed an ambitious plan to revive Nike. As he noted on a call with investors, in the short term it may have a negative effect on the business, but in the long term it will lead to positive changes. What is planned to be done:

First, sports are once again becoming the brand's primary focus. After visiting key cities where Nike is present, Elliott noted that "Nike has lost its passion for sports." (Adidas, by the way, plans to do the same.) Nike is returning to a category-based organizational structure. This means the company's organizational structure will primarily be based on divisions by sport: Running - Training - Soccer - Tennis, etc., rather than by gender (Men - Women - Kids), as John Donahoe introduced. This division will lead to sports once again becoming the number one priority. This category-based division means that each category will once again have its own director, who will develop a strategy for its revival. The company will also increase investments in sports marketing, renewing its agreements with the NBA and WNBA (National Basketball Association and Women's National Basketball Association).

Secondly, Nike is regaining control of distribution and retiring tired, iconic models (the Air Force 1, Jordan 1, and Nike Dunk) from the lineup, intending to reintroduce them within a few years. This measure will lead to a short-term decline in sales. However, since these best-selling models were the ones that were heavily discounted, it's crucial for the brand's health to remove these models from the assortment, freeing up shelf space for new Nike models.

Thirdly, a return to sales at full price, that is, without discounts.

Hill said that about half of Nike's products sold in its own sales channels were discounted at the beginning of the fiscal year (starting with the Fall season), including during the Winter 2024/25 season. This also negatively affected the wholesale sales of partners selling the same product. Elliott Hill's task is to clear his own warehouses of old stock and begin to produce and sell as much product as possible at the undiscounted price.

Fourth, Nike will change the balance in wholesale sales.

Despite Donahoe's aggressive push to move to direct sales, it turns out that consumers didn't follow the brand into direct sales channels, but switched to competitors, particularly challenger brands that retailers, left without key brands in their portfolios, began to actively attract. Now Nike will work to firstly restore wholesale partners' trust in Nike, and secondly, not just ship the product to wholesale partners, but help them sell it.

Elliot Hill did not specify how exactly. But managing wholesale sales at Nike Russia, I remember from my own experience what activities are included here. This is, of course, training of wholesale partner personnel, joint projects aimed at increasing secondary sales, working with commercial terms of partners, as well as access of wholesale partners to the commercial product. Previously, wholesale partners were deprived of this.

To keep the end consumer coming to the brand's own stores, Elliot Hill plans to make them a point of sale with a premium service, where consumers will receive the so-called pinnacle product, the most trendy, innovative and expensive product.

Of course, Elliot Hill plans to do this with human hands, and that means beefing up teams in the regions. In China, for example, where the company is currently struggling, there is a research lab that analyzes the differences in the way Chinese people walk and the shape of their feet, in order to better design products for the end consumer in that local market.

Fifth, the return of brand power.

Nike's reputation has always been built not only on its product, but with equal focus on marketing. According to Elliot Hill, the company took a wrong turn at some point. Nike invested heavily in performance marketing, driving traffic to its website, instead of investing in brand promotion.

Nike will cut its performance marketing spend and redirect those resources to sports and brand marketing. The brand’s goal is to create emotional impact, not just generate clicks, and athletes will be key to creating that impact. “It won’t be easy, but we’re up for the challenge.”

Finally, good old Nike is coming back, I understand that it will take time and I am waiting in anticipation of positive changes.