Analysts say Nike's new CEO choice signals a direction that should worry some mom-and-pop and department stores

Nike named a new CEO on Tuesday. Its longtime leader, Mark Parker, is stepping down from the role after more than 13 years and will be replaced by tech veteran John Donahoe.

The news of his departure sent shockwaves around the market, not only because Under Armour's longtime CEO and founder Kevin Plank also stepped down earlier in the day, but also because Parker had recently said that he planned to stay on beyond 2020. 

Nonetheless, Parker reassured employees in a memo viewed by Bloomberg that he wasn't leaving the company completely. He will stay on as executive chairman of the board of directors. 

"To be clear, I'm not going anywhere," he wrote, according to Bloomberg. "I'm not sick. There are no issues I'm not sharing. I strongly believe the best way for us to evolve and grow as a company is to bring in a phenomenal talent to join our team who has long been part of the Nike family."

While his sudden departure has left many speculating as to whether it's connected to a recent doping scandal at Nike, the company's new hire is a clear nod to where the brand is headed, and analysts say it should concern some of Nike's retail partners.

The 'Consumer Direct Offense'

Donahoe, who has been on Nike's board since 2014, is currently the president and CEO of ServiceNow, a cloud-computing company based in Santa Clara, California. Before that, he was president and CEO of eBay for seven years. 

"He's absolutely the right leader for Nike and what we are looking for moving forward," Parker said in an interview with CNBC's Wilfred Frost on Tuesday, explaining that Donahoe would be helping the brand to accelerate its digital transformation.

This "digital transformation" has been front and center of Nike's brand strategy for several years and is centered around its push to grow its direct-to-consumer business by improving its digital marketplace and cutting back on certain parts of its wholesale business. 

"Through the Consumer Direct Offense, we're getting even more aggressive in the digital marketplace, targeting key markets and delivering product faster than ever," Parker said in 2017, when the company announced this strategy. 

As part of this, Nike said it would look to focus on 40 key retail partners among its sprawling, 30,000-strong wholesale network and cut out the "mediocre" retailers. The idea is to grow its direct-to-consumer business and focus on retail partners that deliver the best experience for the customer or that provide access to the customers it wants to reach. While it never released the full list of the 40 lucky retailers, Nordstrom, Foot Locker, Asos, and Amazon were reportedly among them, according to Forbes, which cited Euromonitor. 

"A more aggressive direct-to-consumer move at Nike would be disruptive as it means 'undifferentiated' retailers would see cutbacks in product offerings," NPD sports industry analyst Matt Powell wrote in an email to Business Insider.

"Smaller retailers are already hurting," he said, adding, "Retailers who do not elevate presentations of Nike brands are vulnerable."

This could also impact some of the larger wholesalers, such as department stores, if they don't offer a good brand experience. 

Sandra Carreon-John, senior director of communications at Nike, told Business Insider that the brand and business have "never been stronger."

"The Consumer Direct Offense is working and we've only just started to scratch the surface. This is the perfect time to fast track the work we've begun around digital transformation and John is the right person to lead this shift. This is definitely a win-win for Nike and the thoughtful transition will help unlock the next stage of our growth," she said in an emailed statement.

Carreon-John did not respond to Business Insider's request for further comment on how this would impact its wholesale partners.

Earlier this year, The New York Times reported that mom-and-pop stores were already suffering from being cut out by bigger shoe manufacturers, such as Adidas and Nike, that now require some of these stores to place a minimum order that might be thousands of dollars. 

"In some cases, small businesses are required to make large yearly purchases of $20,000 or more. That outlay can amount to at least 500 pairs of shoes, far too many for a one-room shop to carry and sell in a year in addition to its other brands," New York Times writer Murray Carpenter wrote. 

And as a result of not being able to stock these key brands, some of these shops told The Times, they were forced to close. 

But for Nike, this new strategy makes "good business sense," Powell told The Times. This is because Nike is able to sell its products at a higher price without going through the wholesale channel and is able to keep a handle on how these items are displayed and what levels of discounts are offered.

Credit: Mary Hanbury Oct 23, 2019, 10:55 AM