We all know it dominates the shoe market.

The company owns 38 percent of the total market share and it's outpaced competitors for years.

But with sales falling in Q1 this year, Nike is facing its worst performance since the late 1990s.

And this past February, Nike announced that it will lay off 2 percent of its workforce as part of its plan to cut $2 billion in costs.

So many challenges that Nike has to face right now.

Today there, in my opinion, has never been a better time to be a small brand.

While newer brands have been gaining ground and longtime rivals have seen their sales soar, Nike's shoes are continuing to stack up on clearance racks.

The pressure's on and Nike is trying to recover from the crucial missteps it took in recent years and pick back up in the areas it used to own in.

Now that the company is shifting priorities, Nike might be getting the boost it needs.

Let's first take a step back and identify one of the biggest factors that led to Nike's current state.

During a management shakeup in early 2020, Nike bid adieu to veteran CEO Mark Parker, who started at Nike as a footwear designer in 1979.

Under his 16-year leadership, Parker led the company through some of its biggest wins.

But when Nike announced John Donahoe would replace him as the company's fourth-ever CEO, the company entered a new era.

Donahoe's background was quite different from Parker's.

A lot of his experience came from leading tech companies.

He and other new management members played a big part in advancing Nike's consumer direct acceleration strategy in 2017.

This prompted Nike to drastically shift focus in its business model, including a big emphasis on direct-to-consumer channels.

You see, back in 2019, Nike saw a lot of growth in e-commerce.

By the end of that fiscal year, its Sneakers app doubled its number of monthly active users, and sales on the app accounted for roughly 20 percent of Nike's digital business.

Which put Nike in a good strategic position when the pandemic hit, and e-commerce became key for many companies' survival.

At this point, Donahoe doubled down on the company's ongoing initiatives.

And in one earnings call, Donahoe said, The consumer today is digitally grounded and simply will not revert back.

But if this year has taught us anything, it's that betting on yourself might not always be the right move.

Nike invested heavily in developing its digital presence, including global store concepts and four mobile apps, all in hopes for customers to move to Nike's DTC channels.

The shoes are much, much more margin rich at selling via DTC.

This shift away from retail was an aggressive move.

For context, Wholesale brought in revenue of $25 billion for Nike in 2019.

So this was a huge decision.

But ultimately, Nike severed a third of its relationships with sales partners and cut back on the amount of merchandise it sold to remaining clients.

At least at the start, things were looking good.

Membership to Nike's digital platforms grew to 160 million users.

And by May 2020, digital channels accounted for 30 percent of Nike's sales, which was about three years ahead of schedule.

But that's as far as it got.

Nike never reached that 50 percent goal that Donahoe initially anticipated.

Once lockdowns lifted, consumers started to go back to brick-and-mortar stores.

And that's when Nike's direct sales started to see a change in course.

To add to the matter, Nike was one of the many companies that faced significant supply chain headwinds during the pandemic.

Come the latter half of 2022, several seasons worth of products finally arrived at Nike's warehouses.

And the company was suddenly hit by an inventory tsunami amounting to nearly $9.7 billion.

This marked the company's highest inventory level in history and resulted in a 14 percent drop in share price.

It became more and more evident that Nike overshot its DTC potential and needed to re-strategize.

They pushed way too hard and fast on trying to grow their own DTC business at the expense of their wholesale partners.

Stuck managing its own inventory, Nike attempted to protect its brand value by selling many of its products through widespread discounting, but not just on their own.

At the time, there was a strong demand for Nike products from wholesale channels.

I think they've come to a realization that they need those partners to bring products to consumers where they can't reach them otherwise.

So Nike, like the Sorry X, came crawling back to some of its wholesale partners.

And while these companies welcomed Nike back with open arms, this rekindling of sorts wasn't a fix-all solution.

Nike definitely deprioritized some of their opening price point footwear during the pandemic and during this push to DTC.

It's starting to come back.

I would not tell you that they're back anywhere close to where they had been.

Still, Nike generally has strong pricing power, which is largely due to how much thought the company puts into managing the marketplace.

I think most brands use a much more channel segmentation, which is a much more blunt instrument.

Nike, I think, takes a much more detailed approach and says all the way down to the doorfront, this is where we're going to put the product for this particular release.

To hit revenue goals, Nike decided to churn out some of its top selling products.

Like these, the Pegasus and the Air Force Ones, but not quickly enough because fashion is a fickle industry.

And sales are weakening due to fluctuations in consumer demand and competitive pressure.

In fact, retailers are continuing to slash prices on Nike sneakers at a rate that's nearly double the amount two years ago.

Nike looks really tired at retail.

Living on a new colorway of an old established shoe is not a formula for success.

Matt goes on to say that the turnover rate for fashion shoes is shorter than five years.

But brands can extend the time span of a product line through scarcity, the lure of a product, if you will.

The Jordan line, for instance, is a multi-billion dollar brand that was built on this model.

Nike releases often sold out within seconds.

For example, in 2021, demand on the sneakers app grew by 70 percent compared to the year before.

Nike only met 7 percent of that demand, meaning it was leaving profit on the table.

So the company tried to meet more of the demand.

But this turned out to be a double edged sword.

In making the product more widely available, the hype behind its product simmered.

And now Nike announced that it, too, will go back to its OG approach and pull back on some of its big franchises.

But really, these limited supply shoes are coveted by sneaker heads, and they only make up a small portion of Nike's total consumers.

I think Nike's greatest emphasis right now is on the innovation side.

The company's brand identity is so connected to its innovative culture, especially in one of Nike's legacy categories, performance running.

Think of Phil Knight, the co-founder of Nike, who sold these shoes out of the trunk of his car.

Nike's origin story was rooted in running shoes.

When Nike dropped the ball on this front, it provided space for competitors to start eating at its market share.

So while they have some innovation at the very top end of the market, that sort of real sweet spot of $100 to $150, where Hoka, On, Brooks, A6 are all winning.

Many consumers shifted their interest to newer brands that boast unique, techie designs, like those thick foamy insoles from Hoka or On Running's patented cushioning system.

I do not see Nike's No. 1 share position in jeopardy.

Where companies can currently tap into Nike's vulnerability is in the sports lifestyle section.

Think of the New Balance 990s or Adidas, Sambas or Gazelles that everyone seems to have these days.

That's where I would expect Adidas to have its greatest impact on Nike if they are able to grab some share from them.

And Nike recognizes that.

Back in September, Donahoe reiterated that the company is focused and mobilized to address areas where we need to raise our game.

Remember, this is the company that has created some of the most cutting edge pieces of shoe technology.

The Air Max Bubble, Nike Flyknit and even those shoes that could tie themselves.

The big issue, though, is that this product takes months and months and months to bring to market.

So while it's absolutely the right thing to do, it's not a quick fix.

In a recent statement, Nike announced a new lineup of footwear and apparel products to kick off a multi-year innovation cycle.

It's got to come season after season after season.

It's not just one product or one platform.

It's going to be continuous.

Products that, according to them, will bring the innovation, performance, style and comfort consumers will be excited about for years to come.

Even though Nike expects revenue to grow just 1 percent for fiscal 2024, the company is still unmatched within the footwear industry.

During Donahoe's time at the helm, sales have grown.

Just between 2021 and 2023, Nike saw revenue growth of about 15 percent.

Nike is massively dominant, four times the size of Adidas.

Meaning Nike can make big swings without taking too much damage.

Nike is so big today, they can do whatever they want.

Just take a look at how it's recently handled its endorsement deals.

After losing Tiger Woods, a partnership that lasted for more than 27 years, Nike didn't just sit idly by.

It went hard, outbidding competitors and landing a deal with Caitlyn Clark.

Nike also signed the German national soccer team to a kit partnership that ended a 70-year run with Adidas.

The Olympics also is a potential catalyst for Nike, although it generally hasn't been a visceral driver in footwear.

Where the Olympics have been important over the years is when brands have new products to introduce free advertising, if you will.

And while it hasn't been Nike's year, or years really, many experts still aren't betting against them.

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