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The Glossy Podcast
Week in Review: Nike's strategy shift, US recession signs and the deterrence of international travel to the US
00:28:22
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- [00:05]
A
Hello and welcome back to the Glossy Week in Review podcast. I'm your host, senior fashion reporter Dani Parisi, and I'm here with our international reporter, Zofia Zviglinska. Hello, Zofia. Thank you for being here.
- [00:16]
B
Lovely to be here.
- [00:18]
A
We have a little bit, we have kind of a grim episode. A little bit. We're gonna be, I normally, I'm like, we have a fun episode and then it's like climate change is destroying the world. Now this time I'm aware that it's a little bit of a grim episode. First, we're gonna talk later, less grim. We're going to talk about Nike, which released some results this week and they've been kind of shifting their strategy under their new CEO, Elliot Hill. So we'll take a look at that. The second two topics are a little bit more depressing. First, we're going to talk about the state of the American economy. There is some strong recession indicators blaring, as one headline put it, and kind of talk about where that's headed. And then a related topic, we're going to talk about the effect that the various new policies that have been instituted in American politics are affecting international travel, people being turned away at airports and the brain drain that may be happening because of that. All sorts of fun stuff. It's going to be a good one. Let's start with talking about Nike. Nike's in a weird position. I feel like we've touched on this a couple times on the podcast. Despite definitely still being one of the most dominant sneaker sportswear companies in the world, it seems like every quarter for the last year or two, their earnings come out and it's kind of doom and gloom a little bit. Their market share keeps dropping. The stock price I think just hit a seven year low or something. Maybe not quite seven year. I think it's almost as low as it was like the 20, in 2020 or something. And there's a sell off happening. And like they've had a bunch of leadership changes and layoffs and all sorts of stuff. They announced this week that they're expecting a sales decline this quarter in the mid teens range, which is a lot worse than I think they had indicated and analysts had expected. I think the maximum decline people were expecting was like 11% and now they're saying it's going to be like 15, 16%, something even higher. It's weird. They're in, it seems like they continue to slip, but then it's like relative. Obviously they're still a humongous humongous company. But I don't know, it just feels like they're trying to turn things around and it keeps kind of going down. So I have some more thoughts. But what do you think behind this Zofiya? What do you make of their situation?
- [02:27]
B
Yeah, I mean, I think that Nike's been on a kind of reinvention journey for about a year now and they've been trying to push other categories. They've been going, you know, more into performance, kind of trying to carve out I guess this like very performance focused, I guess like campaign and imagery last year. But I don't know if it's been very effective because obviously the relationship that people are having now with sports but also with exercise is changing. And I'm not sure if Nike is adapting to what that looks like in 2024 and 2025. So I think that there's been some changes in how customers think about what they're wearing for like sports and athletic activities. And I'm not sure if just Nike's been catching up with that respect.
- [03:17]
A
Yeah, and you're so right. The de emphasis on lifestyle sneakers in favor of more performance footwears is really interesting because one of the other big sort of narratives around this has been Hoka and On are the two big ones. Two other footwear companies that have taken up a lot of the market share lost by Nike. And those are both very performance focused brands. Like on is like traditionally has been for very serious runners. They make expensive but very high performing sneakers for athletes, which Nike does too. But Nike obviously has a huge, huge business that's lifestyle shoes. And then on and Hoka have been slowly going from this performance side of the market into more lifestyle stuff. They're partnering with, I just talked with Hoka actually about how they're partnering with Marnie high fashion brands. You've got those brands starting from the performance space and slowly kind of encroaching into lifestyle. Meanwhile, Nike's doing the opposite. They're like trying to get out of the life, not out of it, but they're trying to reduce their reliance on lifestyle sneakers and putting more of an emphasis on performance. Maybe that's because they see the success that on and HOKA are having or something, I'm not sure. But as part of that, they have been trying to reduce the amount of Nike dunks that they sell, which is probably most people listening know what a dunk is. But just for clarity, very popular, skinnier skateboard shoe. It makes up like. Wait, wrote this down. It makes up like 18% of their sales. It's a huge part of their assortment is the dunk. And their new CEO, Elliot Hill has said that they're trying to reduce the reliance on any one specific product, like diversify a little bit. And so they're expecting in the next two years the sales of dunks to drop by 70% intentionally because they just don't want to be reliant on this one model and kind of like spread out there. But that's a lifestyle sneaker for sure and it's a huge moneymaker for them. But also they see some indication to not rely on this one specific product so much. So I don't know. What do you think of that?
- [05:21]
B
I don't know. It's kind of weird, I think when a company tries to be all. And for a long time I think Nike had pretty separate performance sections and lifestyle sections. And the fact that it had so many cults sneakers, like things that, you know, you go back and like really popular in like the 80s and the 90s and like you have all of this history and then to get away from that and like instead not focus on all of those sneakers that then ended up becoming like these lifestyle items, you know, collectibles, like the, the. Basically the whole resale market started because, you know, Air Jordans, like without all of those, I guess, like links. I'm wondering if there's really kind of like a way forward for Nike to just focus on performance like that. That for me seems really weird and also just like there's no continuity in terms of what they've done in the past and what they're going to be doing going forward. I think obviously if there are competitors, you're going to want to watch what they're doing in the space. But if Nike tries to become an on or hoka, I don't feel like that will work. They're completely markets and Nike's got a bigger market share internationally. I feel like maybe it's not quite as cool anymore compared to those brands because of that novelty aspect. But that doesn't mean that it doesn't have a lot of staying power in terms of all of these classics. I think that have basically made up the whole sneaker industry.
- [06:58]
A
Yeah, I think you're totally right. A lot of their products are such icons and I say that that's completely true. Like the Air Jordan is an iconic sneaker. So on the one hand it's like why would you want to pull away from that? But then also it's like just having something be a Classic doesn't necessarily, that doesn't necessarily translate into ease of everyday inventory management and selling it. It's like just because people recognize it, you know, does that always mean it's the right business move? So I don't know. One other thing to say about Nike is a couple years ago they had this big like TTC transformation we're going to do. We're going to cut a bunch of our wholesale partnerships. We're going to focus on our direct to consumer relationships. We're going to build big expensive stores and build an expensive app and all these digital tools and stuff. I think that a little bit backfired for them. It didn't lead to. I think it did actually lead to the growth that they were expecting for a time. If you look at sort of the, the line chart of their sales, it really went up in 2021. So it was like low in 2020. Like everybody, because of the pandemic, then 2021, a huge spike. And then since then has just been slowly going back down and now it's almost as low as it was in 2020. Like right at the beginning of the pandemic, they have sort of been reversing a lot of that. I think they've been trying to reestablish their wholesale partnerships that they cut off. And it's kind of like a slow. It's like they'd made this big move in one direction and then it's just like a slow pullback. I, I think the new leadership, Elliot Hill, is definitely wanting to pull away from that previous strategy and big investments in direct to consumer, like that huge store in Manhattan that's expensive. Going away from wholesale and towards dtc, you're supposed to be cutting out the middleman. You're not sharing the revenue, et cetera, all great things. But it's like you're also not sharing any of the costs. That's like you have to sell it. So it's not always the right move. And I think Nike, at least the current leadership of Nike, has determined that they're moving away from that again.
- [09:01]
B
Yeah, definitely. And I think that that's something to focus on as well. Obviously, like Elliot Hill was kind of key to this turnaround strategy and he's been at Nike since an intern in the 80s or 90s or something. And he's been with the brand previously. He's been a CEO previously. So coming back to take Nike into a new chapter, I'm wondering if it's just like a period of surgery and cuts and reinvention which might obviously affect all of these sales. And then there will be a kind of a new plan going forward and a new look at what Nike can be in its next phase, I guess.
- [09:42]
A
Yeah. Cool. Let's move on to our next topic. I want to talk about the U.S. economy. So here's an illustrative example. I was doing some research and there's two Financial Times articles you sent me. One of them that were like a year apart or a little less than a year. One was from August of last year and one was from this week. The one from August, the headline was, is the US heading for a recession With a question mark? And then the one from this week, the US Is heading for a recession, period. It was a question last year and now it seems much more certain. So I'm not an economist, and to be clear, I think I know a good, a good bit about the fashion industry and like, general kind of business stuff. I'm not like an economic science major or anything like that, but from my perspective, it seems like in the US We've got a spiraling kind of confluence of crises. On the one hand, you've got stuff like tariffs. The tariff start and stop has been extremely disruptive to a lot of people. It's been disruptive to business operations. It's raising prices and putting pressure on consumers. Wallets. Cost of living is already very high in many parts of the country. I feel it in New York City. It's extremely expensive and groceries are expensive, etc. Etc. You've also got things like the Trump administration institutionalizing crypto and deregulating financial institutions, which just empowers, like, higher risk behavior financially. Like, crypto exchanges are infamous for collapsing and people losing money all the time with like, no insurance or backup from the federal government the way that, like a normal bank is. You've got a debt crisis where there's tons of stats out there about how the average American has like, way more credit card debt than in any time in history before. It's just like there's so many things that are all kind of threatening to tip over at the same time. Yeah, I mean, I don't know what to expect after this, but it definitely feels like the US economy is kind of not heading in a great direction. And then the other thing that I hear from business leaders and brand people that I talk to all the time is just how unpredictable things are. That's like the number one thing I've been hearing over the last couple months is just like, we don't know how to plan for this, the environment is changing constantly. We don't know if something that exists one day is even gonna exist the next day. So we don't know how to prepare for it. So it just feels, I don't know, the vibes are not good. The vibes are not good. So I'll stop there. What do you think, Zofia, especially cur from your perspective outside the US too, and how people are talking about it in the uk but it definitely feels off here.
- [12:21]
B
Yeah, the vibes are off. As a European living in the uk, it's very interesting to watch the way that the US is approaching its international kind of strategy, trade strategies, tariff strategies. I think a lot of things have changed over the last three months and a lot of economic stability and growth is built on stability. As you said, you can't make long term plans if everything is going to shift 180 within the next couple of months. And it already has shifted in many ways. I think the trade kind of situation has been particularly impactful. There's been talks of the Ukraine war, the assault on Gaza. There's been a number of international conflicts as well which have been affecting the perception of the US which is also I think implicating many of the European trade partners into thinking that the US is no longer trustworthy in terms of being a trade partner and also not worthy doing international strategies as well. I think that there's a lot of things that used to ride on the US in terms of economic prosperity. There was a lot of businesses, mostly outside of fashion, kind of consumer goods that relied on the kind of income coming from the US And I think now all of that is being shaken up on the consumer side of things. I think the biggest thing to note is just the lack of consumer confidence in the current government in I guess the stability long term. As you mentioned, the credit card situation is always a big indicator of how things are going to play out. And I think that there's also a higher rate rate of defaults, which was something that spurred the last recession. So I think there's definitely more happening within that. And if those rates keep going up, if people keep struggling to pay back loans and the rate of kind of national debt goes up, I think all of that ends up amounting to a perfect storm for a recession. But nothing's confirmed because obviously things do change over time. And I think that with the recession there's always ways of kind of getting around it nowadays that might not make it so catastrophic as what it was in 2010.
- [14:55]
A
Yeah. And I think perfect storm is a good way to describe it. There's just a lot of separate crises that are all kind of happening concurrently. Another one that is not quite a crisis yet, but I personally am very skeptical of it, is what seems to me to be an impending AI bubble. The amount of billions and billions of dollars that have been poured into generative AI by like every major American company, but also globally, that feels like it's just ripe to collapse. You know, there's been, There was this report a couple months ago from Goldman Sachs that a lot of the companies like Microsoft and Google and Meta that have poured a ton of money into AI have not really seen much return for it yet. But the valuation of companies like OpenAI is so high and the narrative around it has been like, we just need to keep pumping money into this and eventually it will like transform all of humanity. And then a couple weeks ago there was this Chinese company, Deep Seek, that released a AI model that did like exactly the same thing and it cost a fraction of the, the money that companies like OpenAI have put into it, which I think kind of spooked everyone and kind of like shocked everybody out of the, the stupor of, you know, the only way to win here is to pour tens of billions of dollars in. I feel like that is very much ripe for some real wake up call when people realize they poured all this money into this thing and it didn't really do much, you know, so if that happens again. I know, and I've said this on the podcast, that I'm much more skeptical of the AI world than I think a lot of people. I'm, I don't know, just like had a bad, speaking of vibes, had bad vibes about that whole kind of sector for a long time. If that happens, you can add that to this big pile of crises we've been talking about.
- [16:44]
B
Yeah, I mean, I'm definitely on the other side of the kind of AI conversation. And on the Deep Sea Update, there has been some news this week around it dropping like a second version which basically hasn't affected markets. So I'm assuming that whatever deepseek has been doing is not enough to Compare with what OpenAI has been doing or is planning to roll out. One of the big updates that happened this week with OpenAI is the integration for AI generation for imagery. And that includes things which have accurate text, which was a big thing before. Basically you weren't able to get imagery which had good text included. It always looked a little bit muddled, kind of like an alien language. But now the is live and it's being tested quite widely, and I'm very interested to see. There's already been so many jobs which have been affected by AI, and I have a feeling that this new image update is going to affect the content side of things quite strongly. And I think that there's more, I guess, incentive now for companies to cut the most expensive part of the business, which is usually people. So I'm wondering if that's also going to be a recession indicator, because obviously if people lose their jobs, that is going to end up with more kind of credit card issues as well. So I think that AI can definitely contribute towards the recession, but maybe not as a bubble, but more as a job buster, if that makes sense.
- [18:16]
A
No, I can see that for sure. I mean, there's also been tons of layoffs across the industry, some of them motivated by AI, but also just in general, like cost cutting. And that is yet another thing to add to the list of problems. I'll just say one more quick thing about AI and then we can kind of like move into our last topic. But I do. I'm like, even still, it's like, okay, they can put accurate text in an image, and I'm like, Is that worth $100 billion? I don't know. Like, that's. Sure, that's cool. I don't want to say that there's not, like, advancements being made, but I'm just like, does that. I don't know. That doesn't seem as earth shattering to me as it might need to be to justify the amount of money going into it. But I don't know, maybe I'm being overly critical. So let's talk about our last topic, which is very related, but the kind of chilling of interest or willingness to travel to the US there's been lots of stories. I mean, people being rounded up and sent to a prison camp in El Salvador is pretty terrifying. People with green cards and visas, having them unilaterally revoked kind of without explanation. And then the one I think is maybe most relevant to our listeners and to the industry, there was a story last week about a French scientist who was traveling to Houston for a conference. I don't know if you saw this. Zofia, who was denied entry to the country because they searched his phone and found text messages that were, like, critical of Trump. And so they just, like, sent him back. And I was like, in what way is this not deterring people who maybe we want, I don't know, like, to. To enter the country? I mean, I Don't know. Are they, do you. Are we only gonna accept people who are like, uncritical? I don't know. That just seems like a really, that seems like a really bad way to foster a sort of like healthy industry. And the French research minister, I think his name is Philippe Baptiste, put out a statement obviously condemning that and supporting the scientist who was denied entry. But he also put out a separate statement urging US scientists, if they've had funding cut or if they feel like their academic freedom is being impinged upon to come to France. And I think that probably if I was a scientist who had all of my funding cut and was facing sort of hostility from the government, I might take that offer. And you can apply that, that's in science and research, but you could apply that to any industry, including fashion. If you're living in a country or if you want to travel to a country, if you're an aspiring fashion designer, why would you come to New York and study at FIT when you could go to Paris or London and study Central St. Martin's or something where you don't have to worry about people searching your phone and seeing if you're, you know, texting anything critical of the President? I don't know. That just would. That seems like such an unforced error, like to just drive people away. I don't know. So I'm kind of rambling, but that just really kind of disturbed me. Again, you have the international perspective here. I mean, what's the feeling? What's your feeling on that?
- [21:20]
B
Yeah, I mean, I definitely won't be able to travel to the US anytime soon if that is the, the category that is going to get me barred from the country. I think you've seen that in February There was a 1% drop in Western European visitors to the US and I just searched it, but it's nearly $2.4 trillion contribution in terms of tourism spend. So when you're thinking about that, if tourism does get affected by the policies of the President, I think that it's going to have a very big impact on consumer indust. Which typically consumer products are something that a lot of tourists end up buying, especially if it's something that is very local to the market. There's a lot of US Brands that are maybe still not available in Europe and the rest of the world. So I think that for US Brands, it could also have a kind of knock on effect on their business, especially if they typically do have a lot of their customers come from international markets. I think the other thing is Obviously, as you mentioned, a lot of countries have issued warnings to be careful about traveling to the U.S. i think Germany, Denmark, Finland, U.K. mexico, and Canada have all issued travel warnings. So I think that there's a projection now that 9% is the estimated tourism drop this year, which I feel is quite significant if you look at that 2.4 trillion sum. And it definitely will have an impact on some of the brands that we're talking to as well.
- [22:56]
A
Yeah, no, you're 100% right. And, like, the tourism spend, especially in luxury, especially in fashion, like, we've got international travelers. I mean, I remember the talk has been for years that, like, the Chinese tourist is, like, incredibly valuable luxury customer in Paris and in New York. And, like, you know, because they're traveling around the world and they have a lot of money and they're gonna buy something from, you know, Celine, you know, when they're in Paris, or, you know, Valentino, when they're in Milan, something like that. No, I mentioned, you know, you can imagine it's not hard to imagine a million ways that this affects, like, the US Economy and the US Fashion industry. I mentioned, you know, it might drive aspiring young designers to go study in a different country instead of in New York. But also imagine New York Fashion Week, where we're just talking about how it's, like, sad that a lot of designers are leaving New York to go show in Paris. But I'm like, if you're not already based in the US Why would you want to show in New York now instead of any other. Of the three other fashion weeks where, again, you don't have to worry about some of this stuff. If you're a non American brand and you want to open a store in the U.S. like, you got to come here to look at the spaces and, like, you know, set stuff up. And I don't know, there's so many ways you can see, like, a brain drain happening, like, driving away the type of people that you might want to be invested in the American economy. So I don't know, I feel I. I fear sort of an isolating effect. And obviously there's a moral component, but I'm kind of trying to. I'm trying to leave that aside and just focus on sort of the business impact, since that's what this podcast is about. But, like, people. Businesses are made up of people, and the industry is made up of people. And if you're kind of scaring people off, I mean, there's. There's no way that doesn't have an effect on the industry.
- [24:44]
B
Yeah, exactly. And obviously in terms of our coverage, fashion is one sector, but luxury is the other. And I think that there was a couple of reports, one from HSBC that was published last week that did show that in spite of one of the trends last year being that American customers were buying. And one of the good things for a lot of the luxury brands was that they could rely a little bit on the American market to boost their sales. Now, I'm wondering if all of these policies, the recession, the kind of lack of international travel, whether that might also affect the luxury industry and as a result also the luxury brands and hiring practices in the US Because a lot of luxury brands are Parisian or Italian and therefore do rely on international staff as well, even if it's in another market like the U.S. so again, these kind of things could end up affecting the luxury industry as well as cooling the general spend sentiment as well.
- [25:51]
A
Well, we could probably go on about this for a long time and there's a lot of examples you could come up with, but I think we've made our point. Let's wrap it up there. Zofia, thank you as always for joining and participating and I'm particularly happy to have your perspective on this episode since we talked a lot about the perception of the US from outside the country. So thank you you for sharing.
- [26:12]
B
Yeah, definitely. Thank you so much.
- [26:14]
A
For those of you listening, don't forget to give us a rating and a review, whether that's on Apple Podcasts or Spotify, wherever you listen to this. That helps us out so much. Don't forget to subscribe to the glossy podcast to hear new episodes every week. Until next time, thank you for listening.