Nike Have Made Mammoth Comebacks Before, and They’ll (Just) Do It Again
On Thursday, September 19, 2024, big news emerged from Nike headquarters in Beaverton, Oregon. Nike’s , criticised for the company’s questionable business moves and slumping sales, would be stepping down and replaced by , a 30-year vet who is coming out of retirement to ostensibly pull the Swoosh out of their slump. In response to the news, almost 10 per cent by the end of the day.
If Hill does manage to reverse the Swoosh’s finances, this wouldn’t be the first time Nike got out of a major money jam. Things have been rough at times for the footwear giant in the past, even before the brand was officially called Nike. The first two decades for Phil Knight and company were especially rocky, but they always battled through it. Winning isn’t for everyone, but Nike have proven time and time again that coming out the victor is just what they do.
Legal Blues With a Tiger (1972–1974)
Before Nike were Nike, they were Blue Ribbon Sports, a distributor for Tiger running shoes manufactured by the Japanese company Onitsuka (now ). BRS was founded by , who had the ‘Crazy Idea,’ as he calls it in his memoir, Shoe Dog, to import affordable running shoes from Japan to cut into the American running shoe market – which was then dominated by pricier adidas models. After travelling to Japan in 1962 to meet with Onitsuka executives who agreed to send him samples of their Tiger shoes, Knight set up a 50-50 partnership with his old track coach at Oregon, the legendary Bill Bowerman, to import and distribute the Tiger shoes to the Oregon team and other runners along the west coast. Knight placed an order for 300 pairs of shoes and Blue Ribbon Sports was officially born. By 1966, BRS had signed a contract with Onitsuka to be the sole distributor of Tiger track shoes in the USA.
Despite selling $1.3 million worth of running shoes in 1971, Knight faced increasing demand from Onitsuka to sell even more. On top of that, Knight found out that the Japanese brand was going behind his back to meet with potential new distributors across the US, even though they had renewed their exclusive partnership with BRS just a few months prior. Two Onitsuka execs travelled to Oregon to meet with Knight, essentially telling him he would have to give up his exclusive distributorship rights in key states, including California and New York – one-fifth of their business – or agree to become a joint venture with Onitsuka who would own 51 per cent of BRS. Knight, unwilling to give up the company he built, decided he wasn’t going to join Onitsuka and instead he’d have to beat them. Forget importing Tiger shoes, he’d manufacture his own and his new brand would be called Nike, named after the Greek goddess of victory.
Because of his familiarity with Japan by that time, Knight got his foot in the door at Nippon Rubber factory, one of the most technically advanced shoe manufacturers in the country, and started manufacturing the Cortez, a model that Bill Bowerman had designed. In 1972, Onitsuka found out about the Nike shoes and sued BRS for breaching the non-compete clause in their agreement. BRS then filed their own lawsuit against Onitsuka in 1973, claiming breach of contract for setting up deals with other distributors and trademark infringement of eight model names. After a fierce legal battle with multiple countersuits, Blue Ribbon Sports won the dispute in 1974, and they were even awarded $400,000 in damages from Onitsuka. This left Knight the freedom to continue building Nike, and in 1976, the Blue Ribbon Sports name was dropped, officially transitioning Knight and Bowerman’s burgeoning footwear empire to Nike, Inc.
Everything Was on the One Line (1977)
Nike had another big problem in the 1970s. Amid the turmoil with Onitsuka, Blue Ribbon Sports received a notice from U.S. Customs in 1974 stating that additional import duties were owed on the Nike shoes manufactured in Japan. In total, US Customs claimed that Nike had to fork over approximately $25 million, which would have sunk the Swoosh for good if they had to pay up. Customs was citing an arcane Depression-era statute called the American Selling Price (ASP), which was created to protect American companies from being undercut by cheap imported goods. The clause protected three totally random products: benzenoid chemicals, canned cherrystone clams, and athletic footwear with synthetic uppers.
The ASP statute required importers to pay 20 per cent of the manufacturing cost in taxes, but if there was a similar shoe being manufactured in the States, then the tax would be 20 per cent of the competitor’s selling price. The law hadn’t been enforced in years, but jealousy is what ultimately landed the Swoosh with this $25 million bill. A few of Nike’s competitors in the US – , Keds, , and – ganged up against Nike to try to sabotage the emerging competitor by manufacturing similar shoes to Nike models and proceeding to price them sky high, effectively raising Nike’s import tax. They then lobbied Customs to enforce the once-forgotten law.
As Nike realised they would need to buddy up to Washington politicians and bureaucrats to get out of paying the taxes, they also came up with another idea: they would ‘American Selling Price’ themselves. Knight explained in a 2014 Stanford Graduate School of Business commencement speech: ‘What if we created a second line? Knocked off ourselves, selling to discount retailers at a very low but marginally profitable price. No one could copy us closer than we could copy ourselves. When this first came up in a brainstorming session, everybody laughed at its absurdity. Then we looked at each other. The whole law was absurd. And it evolved into, eventually, “Let's try it.”’
So Nike’s discount brand ‘One Line’ was created and sold just above manufacturing price to discount stores. According to Knight, One Line sold enough pairs to help reduce the duties Nike owed significantly. ‘And after three years of fighting, we settled the great ASP customs battle for $9 million or approximately one-third of the former demand. In those three years our sales had grown to $440 million and we could actually pay the bill.’
One year after the settlement, Nike’s lawyers and lobbyists got ASP eliminated entirely from the US Customs rulebook.
Reebok: Nike’s Enemy of the 80s (1981–87)
In the 1970s, the sports and fitness world experienced the ‘running boom’, a time when jogging became the new trend and more running shoes were being produced and sold than ever before. Suddenly everyone was running, not just track and field athletes. Running became (and still is) a sport that everyone could do as long as you had a pair of decent shoes. This spelled success for Nike, the upstart brand who by the end of the decade was firmly established in running culture. But by the early 80s, the boom was over and Nike’s sales began to struggle. They needed something new, but they didn’t yet have it and someone else already did: Reebok.
Initially founded in 1958 and based in England, began selling footwear in the USA in 1979 when Paul Fireman bought the rights to distribute their shoes in America. After struggling with sales in the running shoe market, Reebok got their big break in 1981 with the introduction of the Freestyle aerobics shoe. Aerobics, a dance and callisthenics routine set to music, was trending in the late 70s and early 80s, mainly with women who joined health clubs or worked out at home. Not only did aerobics get Americans in better shape, it kickstarted a new industry of leotards, leg warmers, home videos, and shoes, which Reebok cornered the market on with their Freestyle model. Defined by Reebok as ‘simple elegance’ in advertising, the Freestyle was indeed quite stylish for an athletic shoe, as the plush garment leather upper and thin outsole made it look and feel something like a ballet slipper. Aerobics participants and casual sneaker buyers alike loved the Freestyle’s flattering fit and functionality, and from 1982 to 1983, Reebok’s revenue grew from $3.5 million to $12.8 million.
Fireman assumed Nike would soon drop an aerobics shoe of their own, but by 1983 there was still no sign of a Freestyle-like sneaker from Oregon. Instead of jumping on the bandwagon, the men at Nike were stubborn and dismissed aerobics as a passing trend. Nike marketing exec Rob Strasser was even quoted saying that aerobics was ‘nothing more than a bunch of fat ladies dancing to music,’ according to the book Swoosh: The Unauthorized Story of Nike and the Men Who Played There. Yes, clearly Nike needed more women playing in the corporate offices in the 80s. The higher ups at Nike felt that to come out with an aerobics shoe would be chasing Reebok, and they only wanted to lead.
Instead of making an aerobics shoe, Nike opted to go with a line of women’s casual footwear akin to Keds and other non-athletic sneakers, which proved to be a total flop. Nike was still struggling financially by the end of 1984, despite a strong showing at the 1984 Olympics in Los Angeles where they dropped the commercial featuring the brand’s high-profile athletes competing in the games including Carl Lewis, John McEnroe, and Mary Decker. In Nike’s first financial quarter of 1985 to the second, $10 million was cut from the budget and over $27 million worth of unsold shoes were dumped for as little as $1 a pair. When Strasser first saw men’s white Reebok tennis shoes while he was walking through LaGuardia airport, he said to himself, ‘We’re fucked. They’re hot and we’re not.’
But despite his missteps on the aerobics shoe, it would be Strasser who would become ‘The Man Who Saved Nike’ according to an October 1985 headline in Portland’s newspaper, Willamette Week. He’s the Swoosh’s exec who made the decision to sign an NBA rookie named to a contract in 1984. After giving Jordan Nike’s first-ever signature shoe and apparel line, the company’s profits tripled from 1984 to the end of 1985.
The Air Jordan’s success in 1985 coupled with the Air Max and Air Trainer lines in 1987 to give a big-time boost to Nike’s profits and pop culture appeal by the end of the 80s. The world got its first look at Nike Air in the , and the created an entirely new cross-training category of versatile multi-sport shoes. Instead of Nike chasing the Freestyle, it would ultimately be other brands copying Nike to make their own cross-trainers. In the September 1987 shareholders meeting, Knight announced that Nike had its best quarterly income performance in company history and per share earnings were up to 65 cents, compared to 39 cents from the previous quarter. Although Reebok won the aerobics shoe battle and later gave Nike another touch of anxiety with The Pump system in the late 80s, one only has to look at the status of both brands today and it’s obvious who won the sneaker war.
A Possible Early Demise of the Air Jordan Line (1987)
There’s no doubt that Nike wouldn’t be quite what they are today without the brilliant work of their most famous sneaker designer, . The man’s resume is impressive to say the least. Here’s just a few of his greatest hits: Air Max 1, Air Trainer 1, Air Huarache, , Air Talaria, and most of your favourite Air Jordans, beginning with the in 1988. And it was that third Air Jordan model that would be a major factor in convincing Michael Jordan to stay with Nike in 1987 instead of signing with adidas, or perhaps even starting his own brand, when his first contract was expiring.
By the end of 1986, more than 500 employees – nearly 10 per cent of the workforce – were laid off from Nike. On December 5, about 200 were let go in a day known as ‘Black Friday’ in Nike lore. Even though Nike’s cash flow was on the up by the end of 1987 thanks to visible Air and the new cross-trainers, things were still rocky behind the scenes in Beaverton. The two men most responsible for the Air Jordan line, Peter Moore and Robert Strasser, had both left the brand due to professional differences with Knight. And it seemed that Michael Jordan may be next to leave the Swoosh behind. Despite the success of the , Jordan’s signature line had been put on the backburner as Nike focused on the ‘Nike Air Revolution’ campaign. Jordan, unhappy with the look and feel of the , was ready and willing to jump ship.
Although Moore and Strasser had left Nike, they were still working with Jordan independently on a plan to start his own company and met with Knight to pitch the idea. Jordan would sign a new contract at a reasonable price and continue wearing Nike shoes and apparel, and Nike would help fund ‘Michael Jordan, Inc.’ where Jordan would be the majority owner, Nike the minority owner, and Moore and Strasser the managers of the business. Knight didn’t bite, reportedly saying ‘Michael Jordan without Nike won’t mean anything’.
After Moore left, it was Hatfield who was tasked with designing the next Air Jordan. Along with then-new Nike marketing exec Howard White, Hatfield met with Jordan in Chicago to pick Jordan’s brain and find out exactly what he would like in a basketball shoe. His want list included a shoe with a mid-top cut, for it to feel broken in right out of the box, and for it to feature a material that hadn’t been seen on a basketball shoe before.
Although insulted by Knight’s remarks and dismissal of his plan for his own company, Jordan eventually re-upped with Nike, but not before making them sweat a bit. As Nike legend has it, on the day that Jordan had a meeting in Beaverton to get a first look at the Air Jordan 3 sample, he left Knight and company waiting for four hours as he opted to hit the golf course instead. When he finally arrived, Tinker presented his finished design for the third Air Jordan.
Jordan’s requests were achieved in the Air Jordan 3, as it had a mid-top height, a broken in feel thanks to a soft full-grain leather construction, and an ‘exotic material’ that is now known as the iconic elephant print. And the icing on the cake: the introduction of the Jumpman logo (which was designed by Moore prior to his departure from Nike). Jordan loved the Air Jordan 3 just as much as the rest of us, and his past disagreements with Knight were deemed water under the bridge. Nike sold $162 million worth of Air Jordan 3s in its first year after releasing, and Hatfield’s process of designing the shoe with Jordan’s input changed the way brands collaborate with athletes. Tinker is credited as the man who saved Nike… well, the one who saved them in 1987, anyway.
Along with the shoe’s outstanding design, for its ad campaign Nike also dropped the first of many now iconic featuring Spike Lee as ‘Mars Blackmon.’ With catch phrases like ‘Do you know, do you know, do you know?’ and ‘It’s gotta be the shoes’, the commercials helped cement the Air Jordan line into the forefront of pop culture and fashion, where Jays have been ever since. And Jordan, Strasser, and Moore’s idea for Jordan to have his own brand turned out to be a good idea after all. Today, Jordan Brand, a subsidiary of Nike, has revenue of over $6 billion, which is good for roughly 15 per cent of Nike’s total sales. Yep, it’s gotta be the shoes.