How McKinsey Helped Nike Lose $223 Billion

Growth Newsletter: https://levelingup.beehiiv.com/subscribe Need marketing help? Visit: https://www.singlegrain.com/ and https://npdigital.com/Want to recruit great marketers? Find them here: https://marketingschool.io/hire Nike's market cap peaked at $280 billion in 2021 and has lost $223 billion since. Eric walks through Trung Phan's breakdown of how it happened: McKinsey advised Nike to eliminate its running, basketball and soccer categories, the marketing budget moved from brand advertising to programmatic retargeting, and hundreds of wholesale partners were cut for a direct-to-consumer bet that collapsed when shoppers went back to stores. Neil on why consultants who never ran a business should not be running yours, and why a kid asking for Nikes is what good brand advertising looks like. Then LeBron James' Polymarket partnership and why both hosts call it brand eroding, and the shirtless YouTuber Eric calls the Sam Sulek of e-commerce. Key takeaways◾Nike cut what worked (categories, brand ads, retail partners) for what was easier to measure◾A brand is what people say about you when you're not in the room; retargeting does not build it◾It takes decades to build a brand and five minutes to erode it Chapters00:00 Nike lost $223B: McKinsey killed the categories01:32 Consultants who never ran a business04:06 Locked in: adapt or die04:34 Nike swapped brand ads for retargeting06:36 Why kids wanted Nikes07:59 Neil's Tesla09:16 Nike burnt its wholesale partners10:07 LeBron x Polymarket: a brand-eroding move13:07 The Sam Sulek of e-commerce15:22 What views actually matter

• 0:00Speaker 00

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• 0:45Speaker 00

  What's the market cap today, Neil? I feel like you're looking at it.

• 0:47Speaker 01

  54.91. The stock's at 37. Close.

• 0:51Speaker 00

  It went lower. Okay, it will be delisted from the S and P 5, S and P 100, okay? So former Nike branding exec, Massimo Yunco, wrote a viral post in 2024 laying it all out. I don't know if you remember seeing this on X. I kind of remember it. He was basically blaming all the effort they were putting into direct to consumer. Remember, he was talking about how everything's too trackable, and I think we did a marketing school episode on this. So he blamed the CEO at a time, John Donahoe, 2020 to 2024, for going all in on direct to consumer with a cameo from McKinsey. So I think he worked at McKinsey before, the consulting company.

• 1:27Speaker 01

  Oh, great.

• 1:28Speaker 00

  So handful of things over here, right? Like McKinsey advised Nike to get rid of categories, running basketball soccer, and reclassify everything into women, men, and kids. And so I think we can react to each bullet point. But let me finish off this point, okay? So the logic was that Nike was duplicating resources and a pivot to D to C would provide enough customer data to inform product decisions instead of relying on category experts, category experts, a basketball vet that spent 20-plus years at Nike. A lot of these experts were fired and then Nike lost their insights. This was a clear L because Nike quietly brought back categories at the end of 2023. So what do we think about this part, Neil?

• 2:05Speaker 01

  So they eliminated categories, they brought them back, and yeah, I think that's a smart move. My recommendation to them is just revert all the stuff that didn't work and just go back to the ways that were working. Nike got a little too creative with some of their campaigns as well, in just my personal opinion. And they got away with, they got away from a lot of the motivation and, you know, the just do it and pushing on the stuff that was doing really well for them for years. And a lot of these experts were helping them innovate the product line. It went from Nike was continually doing new stuff, pushing out new stuff to, oh, Nike's not really making any changes other than a new shoe design. Their apparel was very similar.

• 2:47Speaker 01

  And they were adapting to the times. And it's like, all right, sounds good. Not gonna buy Nike anymore.

• 2:52Speaker 00

  Yeah. And by the way, like, I haven't bought Nike for a long time, and I was a big Nike fan growing up. I think you were as well. And so I think they didn't, they didn't do enough. Like, if you're gonna make a big change like this, sometimes you might want to think about, one, talking to people. But second thing, maybe you roll it out in phases. Maybe you don't roll it out all at once. So I don't know if they did this all at once. It sounds like maybe they did. Because keep in mind, like, 2023, so this is towards the end of this, you know, John Donahoe's tenure.

• 3:22Speaker 01

  Well, here's a big issue here. In general, in business, if a consultant is trying to tell you how to run something and what you should do, especially in McKinsey or, you know, Bain and Company or Boston Consulting Group, I usually would recommend doing something else.

• 3:42Speaker 01

  Because a lot of these people have never operated a business, and they'll tell you how you should run your business. And then if you look at their track record, when they put a lot of these execs from McKinsey to be a CEO in a lot of these organizations, they tend not to do well. And then they got to go back to operators who are on the ground, who know how to run things, and who are actually talking to the consumers. Versus a McKinsey person who's just looking at spreadsheets and be like, if you do this and move this around here, you know, you can go from there. And I'm, I've dealt with it. We've done M and A a lot. And I've seen people do spreadsheets, like, you should just buy this company. Look at this. If we combine it, look at the numbers and how great they'd be. I'm like, cool. You, how about you do this with your money and you go try doing that? Because it usually doesn't work out the way it is in your spreadsheet or anywhere like that.

• 4:27Speaker 00

  And it's like, hey, have you done any integrations? Oh, you haven't? Okay, would you like to try it? Go try it with your own money.

• 4:32Speaker 01

  Yes. Oh, no, but we've seen it work. Look at these case studies from Harvard Business Review, and it works. Just follow that. Like, it doesn't work like that in real life.

• 4:40Speaker 00

  And that's a lesson, like, going back to what we were saying earlier. When you're in the trenches and you're locked in there,

• 4:48Speaker 00

  you're gonna do just fine if you keep going, right? I think a lot of situations, people kind of tap out or they get dis, unfocused, or they kind of go to do something else. That's when things start to fall apart. And by the way, again, like, going back to what we were saying earlier, like, adapt or die. That's kind of what it is. So hopefully Nike can bring it back, because Nike was a great story kind of growing up. I'm gonna move to the third point and come back to the second point over here, okay? So the third point here was they prioritize digital marketing. So Nike changed its marketing budget to focus on driving users to Nike, digital properties, and membership platforms. For decades, Nike spent 10% of sales on brand advertising to create an aspirational halo, which is what Neil was just talking about, right? The prioritization of programmatic ad spend meant Nike went from create demand,

• 5:31Speaker 00

  new customers, to serve and retain demand, retargeting existing ones. The result was a slowdown in sales. Because of that, writes Massimo, who spent 21 years at the company, right, long time. Nike invested a material amount, billions, into something that was less affected, less effective but easier to be measured versus something that was more effective but less easy to be measured. In conclusion, an impressive waste of money. The quality advertising was not so great. So without going into details, like, I can show you the creatives, because some of my other friends this week were showing me the creatives. We're not gonna talk about that. One thing I'll say here is, going back to what Neil said, once you start to get away from what you, what you were before and what you were known for, and you start going into whatever's trending at the time, people start to lose trust in your brand. And a brand is what people say about you when you're not in the room.

• 6:17Speaker 00

  And so for me, Nike before, growing up, like, Neil and I would share these commercials with each other. It's like, you see, uh, Lundt and Tomlinson, the running back, right? At the time, running into Troy Palamalu, right? That's inspirational, right? Or you see like, uh, like a, like a World Cup thing or something like that, right? Doesn't matter if it's, it's like women's sports, men's sports, whatever. I always looked at, I'm like, man, I want to be like that, right? But when you see stuff that doesn't make sense anymore, it's like, well, I don't want to be like that, and I don't want to be associated with that brand. Therefore, I cannot buy that brand's products. And therefore, whatever I'm saying behind the closed doors now is a negative thing, and that word of mouth travels very quickly, which is kind of what's related to this, this, this brand piece over here. So, again, like, I think Neil and I were big fans of digital marketing. It's what we do for people.

• 7:01Speaker 00

  But I think sometimes, you know, again, you want to make sure that you're, if something's working for you, like, why would you eliminate it?

• 7:09Speaker 01

  Yep. No, and this is what I was saying. It's like, Nike created a lot of people who love their products from their commercials. I remember my nephew, Jaden, would tell my sister when he was younger, I need Nike shoes. And she's like, why do you need Nike shoes? You have these Skechers. And he's like, I want Nike shoes. They make you run faster, right? I'm not saying the shoe actually makes you run faster. And my sister did teach her son that some shoes may make you run faster, but a lot of running faster has to do with dedication, training harder, you know, and other, eating right, getting enough protein, getting the right amount of sleep, than just purely the shoe.

• 7:51Speaker 01

  Of course, a really heavy shoe that weighs 10 pounds is gonna make you run slower than a shoe that is a pound. You know, I'm making up the weight, because I don't know actually how much shoes weigh. But you guys get the point. Running with a 10-pound weight in both your feet, you're not gonna run as fast.

• 8:07Speaker 01

  She did buy him the Nike shoes. He did end up learning the lesson. But that's a cool part about the campaign. And when I dug into why he wanted Nike shoes, it wasn't just because he believed they help you run faster. It was the TV commercials and how they push people, and people were successful and athletic and doing well, wearing Nike products, and he wanted to be like one of those people. To me, that's good brand advertising.

• 8:33Speaker 00

  By the way, when Neil buys a Tesla, it's because he just wants to be like Elon Musk. It's no different.

• 8:40Speaker 00

  Just kidding, just kidding, guys. That's me being facetious.

• 8:43Speaker 01

  It took Eric so long to convince me to get a Tesla.

• 8:47Speaker 00

  Dude, I didn't convince you anything, man. You just kept talking about it. And like, Noah was in the room too.

• 8:53Speaker 01

  No, no, no, no, but years before, when you had a Tesla, you told me you should get one. And I'm like, no, it's a crap car, and I give all these reasons. And then I was telling Eric, I don't know when this was, call it like six months ago to a year ago, maybe a year ago, I kept talking on and off about buying a Tesla. And they didn't say I should do it or not. They didn't really care. I eventually ended up doing it. And the reason I bought the Tesla was for one reason only, the self-driving technology. I do have to say, compared to a Mercedes, the car's not that comfortable. And you miss a lot of the, the perks that you would get in a luxury car over a Tesla Model Y, even a Tesla Model X or S or whatever they're called.

• 9:37Speaker 01

  I still believe like the Mercedes build better cars. But that technology of self-driving, for me, it makes up the lack of the other comforts.

• 9:49Speaker 00

  Yep. Well, it's, uh, like in life, there's no solutions, only trade-offs. So the last point over here, so they ended wholesale leadership, okay? So Nike ended hundreds of relationships with wholesale partners and prioritized Nike's website over retail. The change looked genius during COVID, but as customers returned to brick and mortar, Nike's products were nowhere to be found. It had burnt bridges with partners who were happy to give shelf space to upstarts. This wasn't covered, but I think On and Hoka, these are yoga brands or athletic brands, athleisure, took advantage of this for running, okay? So there was a lack of feedback from retailers, which led to inventory issues. The quote-unquote "data-driven insights" from online sales proved not to be a panacea. And so this is a situation, again, it seems like they kind of just ripped everything

• 10:32Speaker 00

  and, and tried to make these drastic changes. And when you do these changes with a big company, these drastic changes, it's, it's hard to kind of unwind these changes.

• 10:43Speaker 01

  On a side note, you have a topic in here. I think a lot of people have seen it. It's related to this because it's related to sports and marketing. Why LeBron James' Polymart partnership is a brand eroding move.

• 10:53Speaker 00

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• 11:37Speaker 00

  That is my ad agency, again, www.SingleGrain.com. Check it out, and if it seems like a fit, we'll get in touch and help you with a free marketing plan. Yep, so here, let me pull this up. So this is a, this is a guy I know named Bryson, so shout out to Bryson over here. So check this out. So, by the way, I'm a big fan of LeBron, right? I'm based in LA, and you know, I'm a Laker fan. Oh, guess what? They deleted it. Oh, look at this. Okay. So unless they paid Bron $100 million and gave him equity, I see no world where it even makes sense to partner with the prediction market. So what was the original post that LeBron put up? Was him doing a commercial with Polymart and him walking into Polymart, right? Just so everyone knows, Polymart is, they call it prediction markets. Guys, it's just gambling, right?

• 12:22Speaker 00

  You're just gambling on what the score is going to be. You're gambling on, by the way, I've tried it, right? I bet on the Spurs to beat the Knicks when they're down 3-1. And I was like, I was so confident, right? Lost the money. Clearly gambling, right? So anyway, I think he probably got a lot of blowback here. And so he was, he was doing DraftKings commercials before, and then the Polymart one, I think a lot of people started talking about it. But let's see what happened. The post is gone, Neil.

• 12:50Speaker 01

  I believe, I also am not a LeBron fan, so if he's eroding his brand, I don't really care.

• 12:55Speaker 00

  Yeah, but let's talk about why we think it's a brand eroding move. So you go first.

• 12:59Speaker 01

  So I haven't seen too much of it, other than he partnered with Polymart or created a hint. I didn't actually see the commercial or anything like that. I saw a message go out or people talking about it. Polymart is just gambling, straight up.

• 13:12Speaker 00

  Here, here it is, Neil. You see the commercial there?

• 13:14Speaker 01

  Yeah. Oh, yeah, I did see that part where he's getting off the elevator. Yeah, but I look at Polymart as a straight-up gambling. There's nothing wrong with gambling businesses, but if I was LeBron James, I would not partner with a gambling business when there's other opportunities.

• 13:32Speaker 00

  The way I see it, I'm like, man, you're already a billionaire, right? What more money do you need? And you're at the stage in your career now where you don't need to be doing this, right? Maybe you play with the Sixers for one, two years. Maybe you win a championship and you kind of ride off into the sunset and you go do more business deals. The money that you get from this is not worth it because, as Warren Buffett says, it takes you decades to build a brand. You can erode it within five minutes. You can lose it within five minutes, right? And so, you know, gambling is, by the way, like me, I played a lot of poker growing up. I love gambling, don't get me wrong. But I don't think it's something like I would want to be known for, right? Because I've seen it, going to the casinos, I see the people that bet their entire paychecks. I've seen people that, you know, lose their relationships over it. They lose their family over it. This is not the type of stuff that you want to be promoting. You want to be promoting healthy stuff, right?

• 14:18Speaker 00

  That's just my opinion. I'm not LeBron James. You can do whatever you want. But I do think it's a brand eroding move.

• 14:23Speaker 01

  Yeah. I didn't know you were a LeBron James fan. I never liked him.

• 14:27Speaker 00

  Why, why do you like him?

• 14:29Speaker 01

  I know too many personal stories.

• 14:31Speaker 00

  Well, I do too, because you told me. So, so, so that's fine, but, but, but I will say, he brought a championship to LA, right? You know, he's, he's, I'm okay with that, right? He's done his job. So that's what I say. By the way, this is, this is kind of related. So do you remember Sam Sulek, the really buff guy on YouTube that makes videos?

• 14:52Speaker 01

  Yeah, we used to talk about him like a year ago and he would share a screen.

• 14:57Speaker 00

  Okay, check this out. So I found, Neil, I found the Sam Sulek of e-commerce. Have you seen this guy? Here, check this out. Let me share my screen with you. So, here, check this out. Let me share my screen.

• 15:07Speaker 01

  That Sam Sulek guy must have been taking steroids or something. Maybe I'm wrong, though.

• 15:12Speaker 00

  I would bet that he probably is. I'm trying to pull this up for you real quick, so.

• 15:17Speaker 01

  That's my assumption. I have no proof, by the way, if anyone's listening.

• 15:20Speaker 00

  Sam Sulek YouTube. Let's just go to Sam Sulek's YouTube first. Okay, first, let's look at this guy, because YouTube's taking forever to load. Do you see my screen?

• 15:28Speaker 01

  Yeah, he has 4.5 million followers, tons of videos, tons of views on his videos, but yeah.

• 15:35Speaker 00

  Yep. And look, like 21 hours ago, he's uploading every day, right? The bulk rebirth. Look, look how huge this guy is, right? And like, he's just making long videos of him like working out. Basically, that's how it is. And I think he's just talking about life. So this is how it is, right? So bulking, the last pump, all these things, okay? So that's the context. This guy's buff, okay? So Mark builds brands YouTube. I found the Sam Sulek of e-commerce, okay? So it won't necessarily load right now, but if you can see this, this guy is basically, he's recording like screencast videos of him talking about dropshipping or funnels and things like that, and his shirt is off. He's like a buff guy with his shirt off, and he's just saying, here's how I made money, this and that. So, so here, check this out. All right, Neil, do you see this?

• 16:17Speaker 01

  Or something that's messed up. Uh, let's see. Okay, yeah, he even has a picture. You can tell he's buff.

• 16:23Speaker 00

  Yeah, so how to make F you money with branded dropshipping. So that got 430K views. So just look at this guy, right? Because Neil, I would say, to be fair, you and I, like, if we're getting, you know, I'll just speak for myself.

• 16:34Speaker 01

  He doesn't post that often, but he still gets a ton of views.

• 16:37Speaker 00

  If I'm getting 15, 20,000 views per video for the type of content I'm making now, I'm actually happy with that, Neil. I don't know how you feel. Like, what are you happy with on YouTube?

• 16:47Speaker 01

  I don't care about the view count. I look at how many customers or leads we generated per the video. So if we do a video and we get like three to four leads from ideal customers, I'm very happy with that.

• 16:59Speaker 00

  I think it's harder for me, the reason I'm saying, let me give you some context here. So the reason I'm talking about 15 to 20,000 views is because I know the content I make today and the content Neil makes today is much more focused on our target audience. So like, if I make an AI thing, it's like for business or for work, right? The content Neil makes is like, maybe he has some enterprise topics that he's covering. And so I know by default, we're going to get more of those people coming in. I also know it's harder to track because the funny thing is, someone came in the other day and it was like, it's like a startup that raised like, I don't know, like 100 million recently, so like decent funding. And they had, they had like left a comment on a YouTube video. I watch your stuff. How do we work with you, right? And then I'm like, okay, but like, you can have things like, you can have things find these people or, you know,

• 17:44Speaker 00

  also keep in mind, sometimes when they find you on YouTube, they'll go through like another channel and then, and then come through your website or something like that. So you never quite know, at least for me. So anyway, going to this guy, he's getting, you know, 59,000 views, 36,000 views, and he has this one over here, copy my landing page template, it may be $1.4 million in 30 days. So, you know, here's a template, you know, here's the result over like a time bounded period. And so his shirt's off, right? His shirt's off over here. And so my whole thing with the shirt off thing, Neil, is it's a pattern interrupt. It's just marketing. And you look at this enough, I'm like, this guy seems like he knows what he's talking about. And two, he's buff. Maybe I should listen to this guy, right? So.

• 18:21Speaker 01

  Yep.

• 18:23Speaker 00

  Isn't this interesting, though?

• 18:24Speaker 01

  Yeah, it works. It's interesting. I'm curious to see how he makes money from it.

• 18:30Speaker 00

  He's kind of like, I wouldn't say he's like Alex Becker, but Alex Becker is pretty funny, right? Like when he makes his videos. But it's, it's kind of like a similar style where they're just like screen sharing and going through stuff, which is actually what I really enjoy. All the other stuff bugs the hell out of me, so.

• 18:45Speaker 01

  Yeah, yeah.

• 18:46Speaker 00

  So that is it for today, and we will see you tomorrow.