Nike Pause NFTs, Focus on Gaming

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Nike’s Web3 Journey 👟 

Nike has had one of the most successful Web3 strategies we've seen to date - but they've decided to pivot to gaming, shelving their NFT launches. But before we get into the details, let’s remind ourselves of Nike’s Web3 journey so far.

• In December 2021, Nike acquired the virtual fashion studio RTFKT for an undisclosed sum.

• In November 2022, Nike launched DOT SWOOSH. It was described as “a web3-enabled platform that champions athletes and serves the future of sport by creating a new, inclusive digital community and experience and a home for Nike virtual creation”. They onboarded Nike users with the Nike DOT SWOOSH ID, a non-transferrable token that acts your .SWOOSH account. Since then close to 400,000 DOT SWOOSH IDs have been claimed.

• In January 2023, Nike launched the Your Force One contest, where members could co-design sneakers for the Our Force 1 collection.

• In April 2023, Nike distributed 106,453 free virtual posters to DOT SWOOSH community members who had previously engaged in co-creation with Nike.

• In May 2023, over 30,000 people bought almost 100,000 Our Force 1 boxes resulting in almost $2m in revenue for Nike

• In June 2023, Nike announced that DOT SWOOSH NFTs were to appear in future editions of EA Sports video games. They also partnered with Fortnite to create ‘Airphoria’ — players who linked their Epic Games and Nike accounts while Airphoria is available were able to claim an "Achievement" on DOT SWOOSH.

• In October 2023, Nike launched TINAJ (This is not a JPEG), a phygital sneaker release via the Nike SNKRS app for owners of the OF1 NFT collection.

Nike’s .SWOOSH Announcement 🔈️

In a blog post titled ‘.SWOOSH YEAR 3: Read to Level Up’ announced several things regarding the future of what they now call their ‘Home for Gaming':

1. DOT SWOOSH will allow users to transfer their NFT from their DOT SWOOSH platform and custody them in their own wallets

2. Those who bought .SWOOSH NFTs will qualify for special access to experiences and products in 2025.

3. They won’t be launching any more NFT collections for now.

4. They will go deeper with gaming partners to build the gaming experiences, in-game wearables, and of course, Nike footwear and apparel. .SWOOSH will be the home for all of our Nike gaming news, products, and events.

To summarise — Nike’s home for virtual goods in .SWOOSH has pivoted to become their home for ‘Gaming’ and they are not launching any NFT collections anytime soon.

Why are Nike Pressing Pause on NFTs? 🤔 

So why have they pivoted in this direction?

The answer to this isn’t as straightforward as with many other brands, where there is more of a clear-cut answer. Therefore, we will explore several angles from their blockchain strategy to the macro tailwinds impacting the sportswear goliath. All of these I believe contributed to the decision which paused Nike’s NFT production.

(1) This is the 3rd Brand Using Layer 2 scaling Solution Polygon that have Shelved their Web3 plans.

Nike join Starbucks and DraftKings in shelving their Web3 plans for various reasons. The common denominator however, is the network they were using to build out these strategies; Polygon. There are reports that Polygon paid large sums to these brands to encourage them to build on their network. One hypothesis could be that this funding has slowed down or halted, which has meant these large brands have to consider whether or not it is worthwhile continuing the development of these strategies or products, without that guaranteed revenue.

(2) It Was Coming: NFT Volumes Have Dried Up

At the start of the year, Nike signalled that they were moving toward gaming more. They wrote in a blog customers would "be able to unlock exclusive real-world apparel based on the in-game wearables. You won’t need a wallet to store any of these new products — you’ll just link your game accounts to Nike” but did not specify that these in-game wearables were NFTs. Combine this with waning retail interest in NFTs and it makes sense that they are pressing pause on digital collectibles.

(3) Nike’s Acquisition of RTKFT Looks Stranger Every Passing Day

I've long thought that Nike have one of the best-in-class Web3 strategies in the space from a brand point of view. But one part of their strategy that didn't stack up (to me) was the distance that .SWOOSH had from RTFKT, the virtual studios Nike acquired in late 2021. There was never a real convergence and they always felt quite disparate. Nike acquired RTFKT and the virtual studios made close to $200m in NFT sales and royalties in 2022, so the ROI there was clear. But there has been inconsequential incorporation of the virtual studios and it’s almost been 3 years since the acquisition.

(4) Macro: Nike’s Share Price is Down 25-30% YTD

The Macro is important. Nike's share price is down 25-30% YTD. They are not the only ones, with many athletic clothing brands also struggling. There are a variety of reasons for this but the bottom line is that sales have decreased for Nike, 2% quarterly from last earnings reports. When times are bad for businesses, they hunker down and double down what they know - they don't double down on the unknown (Web3).

(5) Changes in Leadership

John Donahoe has stepped down as Nike CEO signalling a big change within the organisation. In June 2024, their market cap plummeted by $28 billion signalling the worst day for Nike stock since its 1980 IPO. Donahoe was brought in to make Nike digitally native, pivoting to e-commerce and DTC rather than wholesale distribution. To fill his boots, Nike have named company veteran Elliott Hill as its new CEO.

(6) Going Digital Worked Until it Didn’t. D2C Pivot is Arguably a Failure.

Acquiring RTFKT, data integration startup Datalogue, a presence in Roblox and Fortnite, and chatbots in their e-commerce stack — Nike really went for it. In a pandemic world where people spent less time outdoors, it felt like the sportswear giant was once again a pioneer, a step ahead of its competition. But in a post pandemic world, Nike had lost much of its wholesale distribution and simultaneously, has had sales eroded by smaller brands such as Hoka.

As per Massimo Guinco, a former Nike Marketing Exec:

(7) Nike are not Alone, Disruptors are rising

In 2020, Nike, Adidas, Puma, Under Armour, and Vans collectively held 80% of the global sportswear market. By 2023, that number had fallen to 65%, with challenger brands growing at an annual average rate of 29% compared to incumbents, which grew by just 8%. [Source: Wired]

(8) Layoffs and Talent

Nike made layoffs that probably signalled a turn in their digital strategies in late 2023. Many of the people working in digital and innovation were let go. When you let go of the talent that is building out your digital innovation strategy, what choice do you have but to shutter parts of it?

(9) Outsourcing

A focus on gaming allows .SWOOSH to move to an outsourced model, where this team focuses more on creativity and account management rather than innovation. They can outsource the development of gaming propositions to studios that have off-the-shelf solutions — making the .SWOOSH team leaner and less specialised.

(10) Gaming is Hot Right Now and an Easy Win

Although gaming is troubled broadly (huge dilution of gaming titles, users dominated by ‘forever games’ and platforms; Roblox, Fortnite, Call of Duty), it is still viewed as an easy win by those in digital marketing right now:

a) It drives strong brand recognition to an audience of potential current and future consumers.
b) Everyone is spending money there — making it easier to convince leadership to allocate budget.
c) Direct sales in-game create measurable ROI.
d) Brands are usually late to the party (like they were with NFTs) — and we’re seeing that right now with gaming. Collaborating with Fortnite in 2021 yields greater ROI than it does right now.

Nike need to reconfigure their strategy as a business - but they can ‘stay involved’ and feel ‘innovative’ with gaming collaborations here and there.

(11) Any Other Business

There are perhaps other reasons that Nike’s troubles have culminated in a step back from digital, and thus pausing their NFT proposition.

These include:

a) China’s economic slowdown and lack of consumer spending.
b) Nike had big supply chain issues during COVID-19 and their cost of production went up. There’s still likely some hangover from that.
c) Nike has lost some grassroots communities that it was once synonymous with (running, for example).

Analysis & Concluding Thoughts 🧠

There are a multitude of reasons for Nike moving away from NFTs, as discussed in this piece.

Whilst I’m understanding and sympathetic to why it has ended up this way, largely due to a complete shift in company strategy, I think it’s a shame that we have seemingly lost one of the most compelling, innovative leaders from a brand perspective in Web3.

One thing I’m interested in and we will follow on Sporting Crypto with great depth is the future of RTKFT. Could they break out of Nike or be acquired by someone else? I also wonder, should NFTs come back into prominence whether Nike will turn that tap on once more?

This feels like the final significant brand from the last crypto cycle to down tools. It will be fascinating to see how what digital innovation looks like for Nike in the future, and what brands in this cycle will emerge as market leaders in Web3.

When a brand struggles generally, it will almost always double down on what it knows. For Nike, NFTs are not something they know and their new CEO will no doubt try and invigorate whatever parts of the business will be best for their share price.

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