What We Learned This Week

Nike Gets a New Playbook: We got our first glimpse of Nike under new CEO Elliot Hill last week as the company reported its latest quarterly earnings. While Nike managed to surpass Wall Street’s low expectations on sales and earnings, initial optimism faded as Hill outlined the challenges ahead. Elevated inventory levels continue to drive excessive promotional activity, with discounts accounting for roughly 50% of Nike’s direct online sales. This not only pressures margins but disrupts the broader marketplace, eroding profitability and trust among key retail partners.

Many of these issues stem from strategic shifts under the previous leadership. During the pandemic, Nike pivoted toward direct-to-consumer sales, reducing reliance on third-party retailers in an effort to control pricing and inventory. However, this abrupt move alienated long-time retail partners and left gaps on shelves—spaces quickly filled by upstart competitors like On Running and Hoka. At the same time, Nike doubled down on lifestyle products, such as Air Jordans and Nike Dunks, which flooded the market and diluted demand, leaving the company lagging in core performance categories.

Hill, a Nike veteran, has acknowledged these missteps and is focusing on returning the brand to its roots: performance products that define Nike’s DNA. He also stressed the importance of rebuilding relationships with retail partners, a critical step toward restoring balance in the marketplace. While these changes are likely the right ones, Hill urged patience, as such a turnaround will take time. It’s not uncommon for a new CEO to set a low bar early on, clearing the way for incremental wins moving forward. Nike remains a powerful brand with the potential to regain its footing, but it will require a longer-term perspective to see these efforts bear fruit.

Lego Continues its Brick-by-Brick Dominance: The toy industry has faced an uphill battle since the pandemic, with spending normalizing as people prioritize experiences over products and the ever-growing competition from digital entertainment like smartphones and gaming consoles. Industry giants like Hasbro and Mattel have been struggling to keep pace. Yet, one brand seems entirely unfazed by these challenges: Lego.

Lego has posted positive sales growth for six consecutive years, including an impressive 13% growth in the first half of this year. This is no small feat in a tough market and speaks volumes about its masterful brand management and unmatched consumer loyalty. The company has consistently delivered on product quality while forming powerful partnerships with iconic brands like Star Wars, Harry Potter, and Formula 1. They simply don’t seem to miss, always staying relevant and maintaining their status as a cultural phenomenon.

Remarkably, Lego remains a private company, with over 75% of ownership held by the founding family. It’s estimated to be the most valuable toy company in the world, and its private status has arguably been a key to its success. By avoiding the quarterly pressures of public markets, Lego has focused on long-term health rather than near-term profits, weathering tough periods without sacrificing its core values or customer experience.

Lego’s success invites comparisons to some of the most consistently successful public companies. For example, much like Lego, Costco prioritizes consumer experience and employee treatment over squeezing out short-term profits. This approach has made it one of the most admired and resilient retailers in the world. These stories remind us that some companies succeed by staying true to their mission and playing the long game, even when their decisions may frustrate short-term-focused investors.

Lego’s story is a testament to the power of sticking to your roots. It’s not always about the current quarter; it’s about building something that lasts. Here’s to Lego—forever the GOAT of toys, full stop.