Why Nike Just Forced Out the Head of Its Huge Basketball Business

It was almost a slam dunk that Nike (NKE) would eventually shake up its struggling basketball business.

Nike announced late Tuesday that 27-year company veteran Craig Zanon would assume the role of vice president and general manager of its all-important global basketball business. Zanon previously ran Nike's basketball division for seven years, and most recently was overseeing the company's global training business. He will continue to have duties for the training business, said Nike. 

Gone is Nike exec Michael Jackson, who resigned after just two years in the position. "The resignation follows underwhelming holiday season signature shoe releases in North America," pointed out Stifel analyst Jim Duffy in a note to clients on Wednesday.

Nike's global basketball is the company's second largest behind running, and pulled in over $3.7 billion in sales for the fiscal year ended May 31, 2015. Zanon's appointment comes prior to the start next year of Nike's eight-year, $1 billion deal to supply the NBA with merchandise. 

Understanding the reason for Jackson's departure -- a mere weeks removed from Nike basketball products being center stage at the summer Rio Olympics -- is as simple as looking at the latest results from footwear retailer Foot Locker (FL) .

Sales of basketball sneakers at Foot Locker fell by a mid-single digit percentage during the quarter. Despite strong interest in Under Armour's (UA)  Stephen Curry basketball sneakers, Nike's LeBron and Kevin Durant lines "proved the most challenging" said Foot Locker. The company's chief, Richard Johnson, said Nike was starting to "reset the price relationship" on its signature basketball sneakers. In other words, Nike may be lowering some prices on LeBron and Durant styles in order to spur sales.

Johnson added Foot Locker was dealt a "body blow" in its signature basketball business to kick off the year. On the positive side, Nike's Jordan brand had "excellent results" said Johnson.

Lowering prices on its marquee sneaker lines, coupled with the rising popularity of Curry's sneakers, likely has bruised Nike's inflated ego. Hence, heads had to roll.   

Said Duffy, "Nike execs are undoubtedly unhappy about basketball's recent stumbling, and they respect the competitive threat from Under Armour's Stephen Curry shoe," adding the decision was a "proactive move" to return the basketball business back to growth and to be seen once again as a "trusted and proven leader."

 

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