The Coming War Over Digital Currencies—What It Means
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The Coming War Over Digital Currencies—What It Means

The war over money is heating up.

Tue, Sep 21, 2021 1:37pmGrey Clock 10 min

For the first time in more than a century, the dollar’s supremacy is being challenged. The rise of cryptocurrencies and “stablecoins” has spurred a rethinking of what a currency is, who regulates it, and what it means when it’s no longer controlled by a national government. The dollar itself may be getting an overhaul, transformed into a digital currency that can travel instantly around the world, holding up against Bitcoin or any other token.

The old battle lines between national currencies are being redrawn by an onslaught of crypto insurgents. These privately issued currencies are fragmenting monetary systems, banking, and payments. The landscape calls to mind the “wildcat” money era of the mid-1800s, when a scrum of banks supplied their own notes—prompting the Federal Reserve to establish a national currency. Commerce doesn’t run as efficiently without a “no questions asked” currency, and governments risk losing control over fiscal and monetary policies if multiple currencies vie for economic activity.

What kind of upheaval will the new currencies wreak? No one knows. And there are plenty of legitimate use-cases for cryptos and applications built on top of blockchain networks. But the technology is so disruptive that it’s triggering calls for a cascade of new regulations, and it’s spurring governments around the world to think about digitizing their currencies, at least partly to remain relevant and maintain control over their economic interests. The Fed itself is expected to weigh in with its own report in coming days.

“The advent of digital currencies may allow people and businesses to get around banks,” says Thomas Hoenig, a former president of the Federal Reserve Bank of Kansas City. “If cryptos become a substitute for the dollar, they could create a separate money environment that would make monetary policies more difficult to implement.”

Cryptos are now worth $2.1 trillion, doubling in value this year alone. Bitcoin, worth nearly $900 billion, recently became legal tender in El Salvador—a controversial monetary shift in the country, but one that may pave a path for other developing nations. Capital is flooding into companies that are building everything from trading platforms to exchanges for trading new digital assets like non-fungible tokens, or NFTs. Investors are also trading tokens on decentralized exchanges like Uniswap, and they’re earning high yields by “staking” their tokens to network operators.

Cryptos and other tokens aren’t (yet) close to denting the $19.4 trillion U.S. money supply or the 50% of international trade that’s invoiced in dollars. One measure of the dollar’s hegemony—its share of central bank reserves—has been declining for 25 years, but at 60% it remains three times that of its closest rival, the euro. Vast markets of global commodities are priced in the dollar. Trillions of dollars in sovereign and commercial debt are pegged to the “risk free” rate of Treasuries.

But challenges to the dollar posed by blockchain technologies aren’t so easy to dismiss.

Cryptos, stablecoins and NFTs are becoming the native tokens of gaming and e-commerce platforms. Virtual-reality platforms are being designed to incorporate NFTs or other private currencies. As economic activity shifts to these walled gardens, banks and government-backed money could wind up on the outskirts.

Challenging the Incumbents

Big money is at stake, especially for banks and other companies that effectively charge “rents” for moving dollars around. North American banks, card networks, and nonbank “fintechs” earn huge sums for payment and credit-card services—$500 billion a year, according to data from consultancy McKinsey. That amounts to an estimated 2% toll on U.S. gross domestic product—much of it in credit card fees.

Many banks and financial companies, including Visa (ticker: V) and JPMorgan Chase (JPM), are working to integrate cryptos and stablecoins, aiming to capture fees on brokerage, custodial, and payment services. But they face technologies that threaten their revenues—and, perhaps more important, access to data.

Solana, for instance, is a relative newcomer in crypto. Developed by a former software engineer at Qualcomm, the network claims to handle 65,000 transactions per second at a cost of $0.00025 per transaction, making it far faster and cheaper than bigger rivals like Ethereum. It’s taking off for stablecoins and NFTs—new digital playthings for art, video, and music. Solana’s blockchain network is also attracting high-frequency trading firms that see it as a platform for ultrafast data feeds and trading applications for cryptos, stocks, and other securities.

BTIG analyst Mark Palmer calls Solana the “biggest blockchain breakout of 2021,” noting that it’s powering a much-anticipated “metaverse” game called Star Atlas that uses NFTs for in-game assets. “The speed that Solana’s architecture facilitates is a literal game-changer in the NFT gaming world,” he wrote in a recent report. The network crashed this past week as usage surged, pulling its token down. But its fall may also reflect some profit-taking after a 9,166% rally this year, pushing the token from $1.50 to $139, giving it a $41 billion market value.

The Battle for a Digital Dollar

One of the biggest financial-policy battles that’s shaping up in Washington is over digitizing the dollar—turning it into a token that may be issued directly to consumers by the central bank. A much-anticipated report is expected soon from the Fed, outlining its perspective on a central-bank digital currency, or CBDC. Other countries, led by China, have already launched CBDCs in pilot programs, putting pressure on the Fed to develop a rival.

A digital dollar could take many forms. The basic idea is that the central bank would issue a new digital instrument for transactions and deposits, alongside physical cash or entries on a bank ledger (essentially deposits). Payments could settle in real time, proponents argue, and fees could fall sharply since the Fed doesn’t have a profit incentive. That could be a huge win for the 6% of the population that’s “unbanked” and pays steep fees for check-cashing. People sending money overseas could also pay much lower fees for “remittances,” cutting out middlemen like Western Union (WU) and MoneyGram.

International pressure is building as China and other countries take the lead in CBDCs. “The time has passed for central banks to get going,” said Benoît Coeuré, head of innovation at the Bank for International Settlements, in a speech in September. “We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design.”

Fed officials seem split on the idea, however, let alone the specifics. Governor Lael Brainard, who may be in line for Chairman Jerome Powell’s job next year, has indicated support for a CBDC. But governor Christopher Waller is a skeptic, describing a digital dollar as a “solution in search of a problem.” As he sees it, commercial banks and the Fed are already developing real-time settlement; stablecoins may put pressure on banking fees, he argues, and most of the unbanked don’t even want accounts, according to surveys. “The government should compete with the private sector only to address market failures…and I don’t think that CBDCs are the case for making an exception,” he said in a speech last month.

Politicians, not Fed officials, are likely to have the final word. A bill backed by Sen. Sherrod Brown (D., Ohio) envisions the Fed offering “digital dollar wallets.” Commercial banks would maintain the wallets, entitling owners to a share of the bank’s reserves held at the Fed. For consumers without access to branches, he sees the Postal Service turning into a digital-dollar bank.

None of this appeals to bankers, of course, who worry that the Fed could siphon away their deposits and undermine lending. “The drawbacks appear to be more pronounced than the benefits, at least in the U.S.,” says Rob Morgan, a senior vice president with the American Bankers Association.

JPMorgan is calling for “minimally invasive CBDCs,” according to a recent report by Joshua Younger, head of U.S. fixed-income strategy. CBDC deposits that are limited to $2,500 would mitigate the potential for the Fed to “cannibalize” deposits, he argues. He also says that U.S. banks are already “partially nationalized,” with 15% of their assets held as Fed reserves and Treasury securities, levels that may increase if the Fed got into commercial banking.

Taming the Crypto Wild West

Regulators aren’t sitting idly as digital currencies plant roots. Federal and state agencies are working on rules to keep tabs on the industry. Gary Gensler, the new chairman of the Securities and Exchange Commission, laid out an expansive agenda to regulate crypto tokens, trading, and lending platforms in a Senate hearing this past week. “Large parts of the field of crypto are sitting astride of—not operating within—regulatory frameworks,” he said. Automated exchanges could be in for more scrutiny, along with lending platforms like BlockFi, where investors can earn high yields on crypto deposits.

Congress sees plenty of opportunity to raise revenue by taxing crypto. Democrats in the House have included “digital assets” in their $3.5 trillion reconciliation bill, including a provision that would subject cryptos to “wash sale” rules, which prevent investors from claiming a tax loss if they buy the same security within 30 days (before or after) of the sale. That measure alone could raise an estimated $16 billion over a decade.

Still, it won’t be easy for regulators to tax or police the entire industry. Crypto brokerages outside the U.S. handle much of the trading volume. Exchanges like Uniswap use protocols and “smart contracts” to process transactions, operating independently of any centralized entity like a bank or brokerage firm. “The underlying protocol is operating on its own, and users can still trade the assets, irrespective of the SEC,” says Anthony Georgiades, a crypto investor with Innovating Capital. “It’s sufficiently decentralized so that even if they try to delist the assets, they couldn’t.”

Washington still can’t agree on whether to classify cryptos as a currency, security, or commodity. The Internal Revenue Service calls cryptos “property,” while the Commodity Futures Trading Commission has oversight over the crypto futures market, and a patchwork of agencies oversee the banks and exchanges.

A few states aren’t waiting around for more federal rules. BlockFi is in trouble with regulators in New Jersey and Texas, states where it could soon be illegal for residents to open an account with the company. BlockFi CEO Zac Prince says uniform federal banking rules are needed. “It’s gonna come down to federal regulators…creating a path for this type of activity to happen,” he said at a conference this past week.

Stablecoins pose perhaps the biggest regulatory conundrum. The tokens have a fixed value of $1, typically pegged to the dollar. More than $110 billion are in circulation, primarily in Tether and USD Coin. Investors use the coins as dollar substitutes to transact on exchanges; they’re also gaining traction for international payments and peer-to-peer, or P2P, transactions.

A game-changing “stablecoin” may be coming from Diem, a consortium of 26 companies, originally conceived by Facebook (FB). Diem is trying to launch a “regulatory friendly” version, says Christian Catalini, chief economist of the Diem Association. Its underlying network, backed by companies including Uber Technologies (UBER), Coinbase Global (COIN), and Spotify Technology (SPOT), will levy fees expected to be less than 0.10% per transaction, far below what banks and card networks now charge.

Diem could be a blockbuster. The token could quickly gain traction for things like Uber fares, Gucci bags on Farfetch (FTCH), or subscriptions on Spotify—cutting out payment middlemen with lower transaction fees. The network is also designed for P2P transactions, including remittances, and the underlying blockchain technology could move programmable digital assets in the future. The Diem coin itself, however, might be short-lived if a digital dollar launches. “We’ve committed to phasing out the token when there is a digital dollar,” Catalini says.

Diem has pledged to hold high-quality assets as reserves for its coins, backed at least one-to-one by cash or Treasuries. It might not have much choice: Regulators are starting to view stablecoins as a source of financial instability, and they may be close to issuing new rules on capital and reserve requirements for issuers.

The concern is that coin issuers aren’t backing their tokens with 100% cash reserves, using proxies like commercial paper, bank “repo” agreements, and other securities. That might be fine in normal market conditions, but it could be destabilizing in a crisis. Money-market funds have experienced runs that spilled over into other areas, prompting the Fed to stabilize the market, most recently in March 2020. “It’s a central problem that the Fed worries about from a stability point,” says Morgan Ricks, a law professor at Vanderbilt University and former Treasury official.

Tether, the largest stablecoin, has run into legal trouble over its reserves, agreeing last February to more disclosure in a deal with the New York attorney general. But its reserve composition remains opaque. Tether, backed by the Bitfinex exchange, holds only 3.9% of the coin’s reserves in cash and 2.9% in T-bills, according to its latest disclosure, with 65% in commercial paper. Tether says its tokens are “always 100% backed by our reserves.”

The Treasury Department recently convened a task force to develop a framework for regulating stablecoins. Some leading economists say it’s overdue. “Policy makers may view stablecoins as an up-and-coming financial innovation that does not pose any systemic risk,” wrote Yale University economist Gary Gorton in a recent paper co-authored with a Fed attorney, Jeffery Zhang. “That would be a mistake because this is precisely when policy makers need to act.”

The Dollar Won’t Go Away

The dollar won’t go down easily. It has deflected multiple threats since President Richard Nixon ended its peg to gold in 1971, turning it into a free-floating “fiat” currency. A bout of inflation in the 1970s, the rise of the Japanese yen in the 1980s, and the euro’s ascent in the early 2000s all failed to knock it down.

A common marketing case for Bitcoin, the largest crypto, is that it’s “digital gold” with a fixed supply of 21 million tokens; by design, it can’t be increased, unlike fiat currencies that may be depreciated by governments for political or economic gains. Central banks have embarked on a money-printing spree—the Fed’s balance sheet has ballooned to $8.3 trillion from $1 trillion in 2008. Crypto backers argue that the dollar’s purchasing power will diminish due to inflationary forces tolerated by central banks, while cryptos will hold more of their value.

Yet for all the carping about currency “debasement,” or an erosion of purchasing power in the dollar, the economics are far more complex. Inflation hasn’t proved deeply problematic in North America since the early 1980s. Before the pandemic, it was so low that policy makers worried about deflation. Rising labor costs and global supply-chain disruptions pose near-term inflationary threats, but their persistence isn’t assured. The forces that have kept a lid on inflation—including aging populations in developed economies and productivity gains from technology—aren’t going away.

History is also on the dollar’s side in the sense that governments have never allowed rival currencies to usurp their authority. Technologies make the job tougher but not insurmountable, and the greater the success of currencies like Bitcoin, the more governments may try to kill it.

What It Means for Investors

What’s the impact for investors in crypto-infrastructure stocks and currencies? For now, not much. Crypto stocks and prices for digital currencies have climbed for months, despite tighter regulatory scrutiny. Capital is flooding into the industry as use-cases for cryptos, stablecoins, and decentralized-finance, or DeFi, networks expand. New rules will take months or years to be written and implemented by regulatory agencies. A digital dollar could become a partisan battle that gets bogged down in Congress.

Clarity from regulators may be welcomed, since they could open the floodgates to investment products and services, expanding the market with advisors and institutional fund managers that oversee trillions of dollars in global assets. Banks also want a level playing field to cut down on “regulatory arbitrage” that may now give pure-play crypto companies an advantage.

The crypto industry, for its part, is also becoming a lobbying force. The industry exerted its influence in August as lawmakers added tax-reporting requirements on crypto companies to the Senate infrastructure bill. The lobbying blitz failed, but the battle isn’t over—it will probably shift to regulatory agencies.

As for the dollar, the very currencies that are nipping at its heels could help preserve it. Cryptos and other tokens haven’t been tested in a crisis when investors dump anything with a whiff of risk. The diciest currencies fall the hardest during panics, and cryptos could follow precedent. “If there is a crisis, all these parallel currencies will take flight into the sovereign,” predicts Hoenig. Digital or not, the dollar will live to fight another day.


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Tue, Apr 23, 2024 10 min

In late February, Nike boss John Donahoe led a virtual all-hands meeting where he delivered a message to his staff: The company wasn’t performing at its best and he held himself accountable.

Two weeks earlier, Nike had announced it would lay off more than 1,600 employees .

Now, as the CEO spoke at the meeting, critical comments started to fill the chat window on the Zoom call while more than 20,000 employees watched.

“Accountability: I do not think that word means what you think it means,” an employee wrote. “If this is cost cutting, how about a CEO salary cut?” another wrote. Soon a cascade of laughing emojis filled the screen.

Some colleagues warned others that their posts weren’t anonymous and the chat might be monitored. The attacks went on for several minutes. “I hope Phil is watching and reading this,” an employee wrote, referencing the retired Nike co-founder Phil Knight .

The virtual protest illustrated the depths of the dissatisfaction within the sneaker giant and concern for its strategy. “How did we actually get here?” wrote one product manager.

Since the pandemic, Nike has lost ground in its critical running category while it focused on pumping out old hits and preparing for an e-commerce revolution that never came. The moves, current and former employees say, have eroded a culture of innovation and edginess that made Nike one of the world’s best-known brands.

Donahoe had told The Wall Street Journal in 2020 that his No. 1 priority when taking over the company was “don’t screw it up.” Four years later, the company is unwinding key elements of the CEO’s strategy that have backfired as a growing number of upstarts nip at its heels.

Among the reversals: As Covid raged and more shopping moved online, Nike cut ties with longtime retail partners such as DSW and Urban Outfitters and tried selling more merchandise directly to consumers. It is now asking some of those stores for help clearing out its overstuffed shelves and warehouses.

“I would say we got some things right and some things wrong,” Donahoe said Thursday, in an interview at Nike’s Beaverton, Ore., headquarters.

Losing its roots

The strategic missteps have animated a debate inside the company about its identity. In its zeal to boost digital sales, some current and former employees say, Nike veered from its roots as a maker of cutting-edge footwear for serious athletes. It has opened itself to competition from newcomers such as On and Hoka, which have borrowed from the playbook that fuelled Nike’s rise—including focusing on sport over lifestyle, and taking risks on innovation.

Nike’s once torrid growth has stalled . Sales for the quarter ended Feb. 29 were flat compared with a year earlier, and shares in the company have declined 24% over the past year, compared with a 19% gain in the S&P 500.

Donahoe in the interview acknowledged the brand lost its “sharp edge” in sports and needed to boost its “disruptive innovation pipeline.” The CEO said the brand’s marketing got fragmented and that with people going back to bricks-and-mortar stores, it was clear Nike needed to invest in its retail partners.

Nike executives said in interviews that the company became too cautious after the pandemic and overly reliant on older products that were reliable sellers. They said the company has made significant changes in recent months to refocus it on putting out cutting-edge footwear.

“We were serving consumers what they know and love,” said John Hoke , Nike’s recently named chief innovation officer. “The job is to of course do that but also to show them something new, take them someplace new.”

Donahoe said Nike is going through a period of adversity and layoffs that has created uncertainty, but that the company will get through it. “Our employees have been through a lot,” he said. “Nike is actually at its best, like a great sports team, when our backs are against the wall.”

Knight, who is chairman emeritus of the board and the company’s largest shareholder, said in a statement that Donahoe has his “unwavering support.”

Donahoe said employees’ responses to the all-hands meeting reflected one of Nike’s biggest strengths: how much its staff cares about the company. “We welcome and encourage that,” Donahoe said.

Shift into digital

Donahoe took over Nike just before the pandemic, at a delicate time. Though he inherited a market leader and one of the world’s best-known brands, Nike was seeking a refresh after it dealt with complaints about its workplace culture that led to a management shake-up .

The Evanston, Ill., native had been CEO of eBay , where he doubled the e-commerce platform’s revenue during a seven-year stint that ended in 2015. After a sabbatical—during which he says he had a life-altering experience at a 10-day Buddhist silent meditation retreat—Donahoe went on to run cloud-computing company ServiceNow .

When he took the helm of Nike in early 2020, his marching orders from Mark Parker , his predecessor and current executive chairman, and Knight were clear. He was to turn the world’s biggest shoe maker into a tech company more directly connected to consumers through its own apps, which in turn collect valuable data from shoppers.

Parker said when he stepped down that Donahoe was the right candidate to lead Nike’s digital transformation.

Donahoe was just the fourth CEO in the company’s more than 50-year history. The only other outsider to get the job said he was ousted in 2006 after a short stint because he focused too much on the numbers .

Donahoe started out with a 100-day global listening tour that was cut short after a month when the pandemic hit.

Covid lockdowns fuelled a surge in online shopping. Digital channels accounted for 30% of Nike’s sales in May 2020, about three years ahead of schedule.

Donahoe saw it as an acceleration of an inevitable shift and adjusted Nike’s plans accordingly. A few months in, he redoubled the company’s bet that it could make more money by selling products directly to consumers through its stores and digital channels. He said he believed digital sales would reach 50% of the business, and Nike should transform faster to define the marketplace of the future. It was time to act.

By late 2020, Nike dropped about a third of its sales partners and sold less merchandise to clients such as Foot Locker , DSW and Macy’s . There had been a plan to phase out wholesale clients since 2017, but with digital sales growing quickly, Donahoe said there was a need for urgency.

Executives were divided over whether Nike’s own stores, which include both factory outlets and specialty shops selling higher-priced new releases, could fill the sales void left by the retailers the company was cutting out.

In meetings, finance chief Matt Friend and Nike president Heidi O’Neill supported the aggressive exit from retail that Donahoe was pushing, while others favored a slower transition, people familiar with the matter said.

Some executives felt the specialty stores in particular worked better as marketing tools and that cutting off so many retailers so fast would backfire, the people said. Donahoe and his allies prevailed.

Nike teams were tasked to come up with a new global supply-chain process. Selling directly to consumers increased the company’s liabilities, including by shifting storage and shipping costs from wholesalers to Nike. The company would also absorb the losses from discounts if the merchandise didn’t sell quickly and inventory piled up.

One of the casualties of Donahoe’s 2020 transformation was a multibillion-dollar operation dedicated to developing footwear sold for under $100. The company deprioritised more-affordable footwear that usually sold to the sales partners that Nike was leaving behind. The move left Nike skewed toward higher-priced shoes.

The first evidence of cracks in Nike’s new approach appeared early last year when Foot Locker Chief Executive Mary Dillon said during an earnings call the brand had reversed course and was sending the retailer a wider assortment of Nike products. By the summer, Macy’s and DSW were saying the same thing.

The message was clear: Nike needed help selling merchandise.

Nike veterans said cutting off wholesale clients was one of the biggest mistakes the company has ever made. After digital sales hit the 30% of the total mark early in the pandemic, they dropped back, and haven’t reached that level since—let alone the 50% target Donahoe had foreseen.

Donahoe said in the interview the goal at the time was to lean more on specific partners, such as Dick’s Sporting Goods and JD Sports , which he considers to be more aligned with Nike, rather than make a dramatic shift in strategy. Nike deprioritised making lower-priced shoes because of supply-chain disruptions during the pandemic, but it is now making more of those products, he said.

“I don’t see it as a reversal of the strategy,” Donahoe said of the return to more retail chains. “I see it as an adjustment.”

Rising competition

Competitors have been using the sneaker giant’s playbook at its expense. Smaller brands like On, Hoka and New Balance have captured significant pieces of the market for both hard-core and everyday runners—and their popularity is spreading to the mainstream.

Often quoting Knight, the Nike co-founder, former employees said the principle always was to first capture the market for hard-core athletes with innovative performance gear, and the casual consumer would follow.

In early February, Hoka owner Deckers Outdoor tapped Nike alums to take over both the parent company and the shoe brand. Hoka had $1.4 billion in sales for the year through March 2023, compared with about $352 million three years earlier.

Hoka didn’t respond to requests for comment.

“When you’re the biggest, there’s always going to be people coming after you,” Donahoe said. Competitors give Nike an incentive to try to understand what consumers want and to figure out how to come up with something bold and different, he said.

Nike still dwarfs its competition . During Donahoe’s tenure, Nike sales have grown 31% to $51 billion in 2023. That is more than double the results of Adidas, its closest competitor by far. New Balance reported sales reached $6.5 billion last year, and upstart On almost hit the $2 billion mark.

The race to hit revenue targets came at a cost for Nike. Executives turned to the brand’s lucrative franchises, including Air Jordan and Dunk, and ramped up the releases. The strategy diluted the exclusivity prized by die-hard Nike sneaker shoppers.

Donahoe said in the interview that Nike ramped up production to meet demand on its SNKRS app, which fans use to buy the latest limited releases. In early 2021, Nike was meeting less than 5% of the demand for some releases on the app and consumers were frustrated, Donahoe said, adding the goal is to meet something closer to 20% of demand for the exclusive styles.

Now, sneaker resellers say they have seen release after release of Nike’s limited-edition kicks that don’t sell out on the SNKRS app, and that in the secondary market—a space that the brand closely monitors —prices are tanking.

Nike executives in March said they would pull back on franchise releases.

Donahoe said “franchise management has always been something Nike has done.”

Nike’s digital sales, a figure that includes direct and partner e-commerce sales, declined for the quarter ended Feb. 29. Friend, the finance chief, told analysts in March that Nike expects total sales to decline at least until the end of this year.

Struggle for innovation

The pursuit of sales growth from limited-edition sneaker releases led Nike to neglect its running category, long considered the core product of the company, former employees said.

This month in Paris, Nike unveiled its new product line for the Olympics, including running shoes with a new cushioning system that uses the company’s Air technology.

In interviews at the event, executives said the company had become somewhat risk-averse during the pandemic, when working remotely stifled creativity. Martin Lotti, chief design officer, said the company had spent too much time looking to its past.

“If you drive a car just by looking in the rear view mirror, that’s not a good thing,” Lotti said. “The bigger opportunity is the windshield.”

Current and former Nike executives believe the future of the company is in its app ecosystem , like the Nike Training and Running Club or its SNKRS app, and the data it can harness from them to help design and sell products. Inside the company, leaders have long tried to draw comparisons to Apple when talking about Nike’s innovation and design culture.

The sneaker giant has been acquiring smaller data analytics startups for at least a decade. Two years ago, it also bet on the NFT craze .

One of Nike’s biggest tech investments is a multibillion-dollar process to migrate multiple software programs into one single system. The new platform, known as S/4HANA, is still not operational and is three years behind schedule. The software is designed to help day-to-day operations, such as procurement and inventory management, and speed up digital sales.

As part of its accelerated focus on digital sales, Nike hired about 3,500 people to join what the company calls its global technology group, which includes consumer insights and data analytics. Executives at the time said they were investing in “demand sensing,” “insight gathering” and a new inventory system.

Former Nike employees with knowledge of the consumer insights strategy said executives misinterpreted the data in ways that overestimated demand for retro franchises.

During February’s round of layoffs executives trimmed layers of management across the company’s insights and analytics teams. A large technology innovation team, tasked with developing software to implement Apple’s new Vision Pro augmented reality system in day-to-day design tasks, and a separate artificial intelligence team were also eliminated.

Executives at Nike say it is entering a “supercycle” of innovation and that the new Air line of products enhances athlete performance.

At the Olympics preview event this month, the company took over the historic Palais Brongniart in central Paris with a three-day event to unveil its new Air line. Guests wandered through a museum-like, conveyor-belt installation highlighting Nike’s product evolutions and research and development programs. Athletes including runners Sha’Carri Richardson and Eliud Kipchoge modeled the new gear. Retired tennis great Serena Williams narrated the company’s lavish introduction video before appearing on stage.

Outside, 30-foot orange statues of Nike-sponsored athletes including LeBron James, Kylian Mbappé and Victor Wembanyama stood guard.

Donahoe’s relationship with Knight goes back to the early 1990s, when he was a Bain consultant on Nike projects. He joined the Nike board in 2014 and is one of the directors of an entity Knight created called Swoosh LLC, which holds roughly $22 billion worth of Nike shares and controls a majority of Nike’s board seats. Donahoe calls Knight his “greatest hero in business.”

The current CEO said he meets with his predecessor, Parker, every week.

Donahoe said that he and Parker share an approach to management he calls “servant leadership” that was embodied by some of his sports heroes, including basketball coaches Phil Jackson, John Thompson, Mike Krzyzewski and Tara VanDerveer.

“It’s never been about me. It’s about your players. And are you doing everything you can to allow your players to make the adjustments to win? And when you have a win it’s about the players and when you have a loss you say it’s on me, right?,” he said. “And that’s what I’ve always tried to embody, including during this period of time.”

This week, Donahoe is facing another test: the company is notifying several hundred more workers whose jobs are being cut.


Consumers are going to gravitate toward applications powered by the buzzy new technology, analyst Michael Wolf predicts


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