On Thursday, a class action securities fraud lawsuit was filed against Nike related to a failed direct consumer engagement (DTC) strategy.

The plaintiffs claim that Nike management, in particular CEO John Donahoe and CFO Matt Friend, misled investors about the effectiveness of the DTC model. According to them, Nike positioned DTC as a path to sustainable revenue growth, but in fact this strategy did not meet expectations. The lawsuit also says that the rejection of wholesale partners as part of the DTC strategy left Nike vulnerable to pressure from competitors. Plaintiffs who bought Nike shares between 2021 and 2024 are seeking damages. Nike has not yet commented on the lawsuit.

It is worth noting that Nike did terminate a number of wholesale contracts as part of the transition to the DTC model (from 2020 to 2023). However, after disappointing results, the company returned to cooperation with some of these partners. At the end of 2023, Nike also announced cost-cutting measures, including layoffs of employees and optimization of the product portfolio. At the same time, the company's management openly admitted that these measures are related to the difficulties caused by the transition to the DTC model.

DTC (Direct-to-Consumer) is a business model in which a company directly sells its goods or services to end consumers, bypassing traditional wholesale channels. This model can be attractive to companies because it allows them to improve their control over prices, branding and customer interaction. However, switching to the DTC model can be difficult and costly, and it does not always lead to the desired results.

In the case of Nike, it is still unclear how this lawsuit will end, but it has already cast a shadow over the company's strategy.

Will the DTC model be saved? Or will Nike have to return to more traditional sales channels?

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