Nike is making a major shakeup

By Nathaniel Meyersohn, CNN

New York (CNN) — Nike, struggling from rising competition and its own strategy mistakes, is making a major shakeup.

The athletic giant announced Thursday that CEO John Donahoe will retire next month and will be replaced by Elliott Hill, a veteran former Nike executive.

Nike’s stock rose 9% during after-hours trading Thursday. Nike’s stock has dropped 24% so far this year.

Nike faces a consumer slowdown and tough competition from upstart running brands like Hoka and On. Customers are changing their behaviors, passing up discretionary purchases of expensive sneakers and athletic clothing for basics and experiences such as concerts and travel.

Many investors and analysts had been clamoring for changes at Nike and welcomed the CEO change.

The company’s sales were flat last quarter and the retailer predicted sales would drop another 10% next quarter as Nike’s classic brands slow down. Nike has been criticized by analysts for a lack of innovative new sneakers.

Nike “turned more lax on product innovation, particularly in running, as up and coming brands started to resonate,” Brian Nagel, an analyst at Oppenheimer, said in a note to clients Wednesday.

Nagel said in a note Thursday that the selection of Hill “signals a much more significant commitment” from Nike’s board to undertake a turnaround.

Meanwhile, Nike’s effort to change its distribution strategy has backfired.

The company in recent years has slashed the number of traditional retailers that sell its goods, while attempting to shift customers to its own channels, especially online. Nike has said it can make more than double the profit selling goods through its own website and physical stores than it can through wholesale partners.

Nike has executed a strategy to focus its resources marketing and top products on just 40 select retail partners, such as Dick’s Sporting Goods and Foot Locker.

But the change was made too abruptly and hurt Nike’s sales. Nike has since brought back some of the retailers it initially cut out.

“Nike took it too far and underestimated the importance of third-party retailers,” Neil Saunders, an analyst at GlobalData Retail, said in a note to clients in June.

Other major sportswear brands like Lululemon and Under Armour are under similar pressures to Nike.

Lululemon’s stock has dropped 46% this year, and Under Armour shares have lost 8%.

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