Nike's new CEO said the company messed up 3 key areas that he's trying to fix — and it's bad news for customers who like cheap stuff

• Nike's CEO Elliott Hill said that there are three things he wants to fix at Nike.
• One mistake was being "too promotional" and offering too many discounts.
• The company will also focus on five areas: running, basketball, training, football, and sportswear.

Nike's new CEO said that two months into the job, he's working hard to fix three key mistakes that the sneaker maker has made in recent years.

Hill rejoined the company in October as chief executive after retiring from his post as president of marketplace and consumer in 2020. He's a true insider, having worked his way up from an apparel sales representative intern in 1988.

His post came at a crucial time for Nike, which has been struggling with lackluster sales and dealing with the backlash of trying to sell directly to consumers instead of through marketplace retailers. The company's stock is down more than 36% in the last year.

On Thursday, the company reported revenue of $12.4 billion, down 8% from the year before, for the three months ending November 30.

On Thursday's earnings call — Hill's first in the new job — he highlighted three mistakes he's trying to amend:

1. Becoming "far too promotional"

Hill said that the retailer has been offering too many discounts and becoming "far too promotional."

"Entering the year, our digital platforms were delivering roughly a 50/50 split of full price to promotional sales," he said. "The level of markdowns not only impacts our brand but it also disrupts the overall marketplace and the profitability of our partners."

To counter this, Hill said that Nike would rein in the number of sales.

"Being premium also means full price," he said. "We'll focus promotions during traditional retail moments, not at the consistent levels we are today, and we will leverage NIKE Value Stores to profitably move through any excess inventory."

2. Losing its "obsession with sport"

Hill also highlighted a big-picture reorientation.

"We lost our obsession with sport," Hill said on the call.

"Moving forward, we will lead with sport and put the athlete at the center of every decision," he said, adding, "We will get back to leveraging deep athlete insights to accelerate innovation, design, product creation, and storytelling."

Hill said Nike is focusing on five categories: running, basketball, training, football, and sportswear. Training refers to performance wear for sports training-related activities, while sportswear refers to more casual athleisure apparel.

Analysts have previously slammed Nike's innovation stagnation.

Jim Duffy, a Nike analyst for Stifel Institutional, told BI's Lloyd Lee in September that the company had fallen behind, relying too much on its retro line.

"From a product standpoint, there's been kind of an air pocket of innovation," Duffy said. "The brand, the revenue base, and the profit pool became overly dependent on a short list of retro styles. As they will do, consumer preferences have changed."

3. Souring relationships with marketplace retailers

The third mistake that Nike has made, Hill said, was to sour its relationships with marketplace retailers.

Pre-pandemic, the company started pushing direct-to-consumer sales and cut ties with small sporting goods stores and sneaker boutiques. And it reduced product allocations for sneaker giants like Foot Locker and Dick's Sporting Goods.

"The final action we prioritize is building back and earning the trust of our key wholesale partners. Some partners and channels feel we've turned our back on them and we stopped engaging consistently," Hill said.

He added that he personally connected with the top executives of retailers like Dick's Sporting Goods, Foot Locker, and JD Sports, and named them on the call.

Duffy, the Nike analyst, previously told BI that Nike had "de-emphasized some of the wholesale distribution," which had "created oxygen for some competitors to gain shelf space and recognition."

Wholesale revenue was down 3% in the last quarter, to $6.9 billion, from a year ago. Bloomberg Intelligence analyst Poonam Goyal wrote that out of the last quarter's results, "better-than-expected wholesale and apparel revenue were the standouts, with each besting consensus by a wide margin."

Hill's comments come shortly after Nike and Foot Locker announced that they would deepen their partnership by expanding Foot Locker's interactive Home Court basketball section.