Facing increased competition and self-inflicted strategic errors, Nike is undergoing a significant transformation. The sportswear behemoth declared on Thursday that CEO John Donahoe will step down next month, making way for Elliott Hill, a seasoned former Nike leader, to take the helm. This announcement sparked a 9% surge in Nike's stock during after-hours trading on Thursday, a much-needed boost after a 24% decline this year.

The company is grappling with a slowdown in consumer spending and fierce rivalry from emerging running brands such as Hoka and On. Shoppers are reallocating their funds away from non-essential sportswear and footwear purchases towards essentials and experiences like music events and vacations. The call for a shake-up at Nike has been loud among investors and analysts, who have applauded the leadership change.

Nike's sales remained stagnant in the last quarter, with the company forecasting a further 10% drop in the upcoming quarter as demand for its iconic brands wanes. Critics have pointed to a perceived lack of innovation in Nike's new sneaker designs. As Brian Nagel, an analyst at Oppenheimer, noted, Nike has become "more lax on product innovation, particularly in running," as newer brands have begun to make their mark.

Nagel's subsequent analysis indicated that Hill's appointment could signify a more substantial commitment from Nike's board to effect a turnaround. However, Nike's distribution strategy revamp has not yielded the desired results. The company has reduced its reliance on traditional retailers, pushing customers towards direct sales channels, particularly online, where it claims to double the profit margins compared to wholesale.

Nike has concentrated its marketing and top products on a select group of 40 retail partners, including Dick’s Sporting Goods and Foot Locker. Yet, this shift was executed too abruptly, negatively impacting sales. In response, Nike has re-embraced some of the retailers it had initially sidelined.

"Nike took it too far and underestimated the importance of third-party retailers," noted Neil Saunders, an analyst at GlobalData Retail, in June. Other leading sportswear brands like Lululemon and Under Armour are also confronting pressures similar to those faced by Nike. Lululemon's stock has plummeted 46% this year, while Under Armour's shares have dipped by 8%.