Nike’s leadership shake-up has been met with enthusiasm from the markets, as the sportswear giant announced the return of veteran Elliott Hill to its top job.

On Thursday, the company’s board of directors confirmed Hill’s appointment as Chief Executive Officer, effective October 14.

Hill will be replacing Nike’s current CEO John Donahoe who announced his retirement amidst growing concerns over the company’s performance.

This marks a homecoming for Hill, who spent 32 years at Nike before retiring in 2020.

Markets cheer Hill’s return, analysts positive

Investors greeted the news with optimism, leading Nike’s shares to surge by almost 10% following the announcement.

The rally continued into Friday, with Nike’s stock opening 7% higher and trading close to 8% up in pre-market hours. At the same time, competitors Adidas and Puma saw their shares fall by 3.8% and 5.7%, respectively.

“This is definitely seen as a positive for the stock. Nike is the strongest player in this sector, and Hill’s return is viewed as a significant opportunity for the company to return to its roots,” said Cristina Fernandez, senior research analyst at Telsey Advisory Group.

Fernandez pointed out that under its current leadership, Nike had strayed from its focus on product innovation and relationships with wholesale partners, both areas that Hill is expected to address upon his return.

On Friday, Baird increased the price target for Nike to $110 from $100, while maintaining an Outperform rating on the stock. 

Although the immediate financial outcomes following a CEO transition can be unpredictable, the brokerage voiced a more optimistic view of Nike’s multi-year earnings and the stock’s performance over the next 6 to 12 months or more.

Nike’s issues under Donahoe’s leadership

Donahoe, who took the reins in January 2020, initially won praise for guiding the company through the challenges posed by the COVID-19 pandemic.

His emphasis on technology and direct-to-consumer (DTC) sales accelerated Nike’s digital transformation, but over time, the company’s focus shifted away from its core strengths in product innovation and wholesale distribution.

Under Donahoe’s leadership, Nike’s earnings per share (EPS) fell by 3%, and its stock value plummeted by 20%.

In June, the company issued a dire warning, stating that sales were expected to decline by 10% in the current quarter — far worse than the 3.2% drop that analysts had predicted.

This announcement, paired with Nike’s slowest annual sales growth in 14 years (excluding the pandemic), caused a historic plunge in its stock price, wiping out $28 billion in market capitalization.

Nike’s aggressive DTC strategy, which saw the company prioritizing online sales over its traditional brick-and-mortar retail and wholesale channels, backfired.

This approach alienated many of Nike’s long-time retail partners and opened the door for rivals like Adidas and smaller brands such as On and Hoka to gain market share.

Wall Street analysts began to question whether Donahoe, whose background was in consulting and tech, was the right leader for Nike.

Source: Statista

Elliott Hill’s journey with Nike

Elliott Hill, 60, began his journey at Nike as an intern in 1988 and worked his way up through 19 different roles.

His most prominent position was as President of Consumer and Marketplace, where he was responsible for managing Nike’s largest brands and overseeing commercial and marketing strategies across its global markets.

During his tenure, Hill helped grow Nike, Inc.’s revenue to $39 billion, successfully expanding the brand’s reach both in the United States and internationally.

In a statement, Nike co-founder and controlling shareholder Phil Knight praised Hill’s experience, saying,

“Elliott’s deep knowledge of the company and the industry is exactly what’s needed at this moment. We’ve got a lot of work to do, but I’m looking forward to seeing Nike back on its pace.”

Group chairman Mark Parker said Elliott’s global expertise, leadership style, and deep understanding of the industry and partners, paired with his passion for sport, our brands, products, consumers, athletes, and employees, made him the right person to lead Nike’s next stage of growth.

Challenges for Elliott Hill

Hill’s return comes at a pivotal time for Nike.

With shares rebounding, markets are hopeful that the new CEO will refocus on what has historically driven Nike’s success — groundbreaking product designs and a robust presence across multiple retail channels.

His immediate tasks will be to restore Nike’s product innovation and rebuild relationships with retail partners who were sidelined during the company’s pivot towards DTC sales. Fernandez noted,

“They need to bring new products to the market and have the product more out in the marketplace, as well as bring back its marketing prowess.

By bringing someone who was with Nike for 30 years and knows the company inside and out, it gives a good opportunity for them to return to what has worked.”

His familiarity with the company’s culture and deep connections within the industry give him a unique advantage as he steps into the role.

However, Hill faces significant challenges in reviving Nike’s fortunes.

The company’s product innovation has stagnated, with several iconic sneaker lines, including the Air Force 1 and Dunk, losing their edge.

Competitors have capitalized on Nike’s lack of fresh offerings, particularly Adidas, which has seen resurgent demand for its Samba shoe line.

Restoring Nike’s once-dominant position in the market will require Hill to reinvigorate its product line with new silhouettes and styles that resonate with consumers.

“This is fashion, not just about finding new technology that transforms the world,” Financial Times quotes JD Sports CEO Régis Schultz.

“It’s about having new silhouettes . . . I think Nike has been, and they recognize it, slow.”

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Investment advisors are now recommending that clients reconsider large cash positions as the Federal Reserve begins its anticipated easing of interest rates.

With this shift, money-market funds, which have seen massive inflows, may soon lose their attractiveness, prompting investors to seek alternative options with greater risk.

Money-market funds boom since 2022: will the trend continue?

Retail money-market funds attracted a staggering $951 billion in inflows since the Fed kicked off its rate-hiking campaign in 2022 to curb inflation, according to the Investment Company Institute, an organization representing investment funds.

By September 18, 2023, total assets in these funds surged to $2.6 trillion, marking an 80% increase since early 2022.

However, with the Federal Reserve now reversing course and lowering rates, the appeal of these ultra-low-risk investments may be short-lived.

“As policy rates fall, the appeal of money-market funds will wane,” Daniel Morris, Chief Market Strategist at BNP Paribas Asset Management, told Reuters.

Fed rate cut signals a shift in investment strategy

On Wednesday, the Federal Reserve cut the federal funds rate by a significant 50 basis points, bringing it down to a range of 4.75% to 5%.

This sizable reduction may push investors to reassess cash holdings and other low-risk assets as returns dwindle.

Jason Britton, founder of Reflection Asset Management, overseeing $5 billion in assets, advises that investors will need to accept more risk.

Britton emphasized the need for higher-risk strategies, adding:

Money-market assets will have to become fixed-income holdings; fixed income will move into preferred stocks or dividend-paying stocks.

Seeking higher returns amid falling rates

Money-market funds, which primarily invest in short-term government securities, have long been attractive due to their risk-free returns.

When interest rates rise, so do their returns, drawing investors seeking safety. But now, with rates declining, their shine may start to fade.

In the same Reuters report, Ross Mayfield, investment strategist at Baird Wealth, suggests investors re-evaluate their portfolios.

If you’re relying on income from money-market funds, you may need to consider longer-term investments to lock in rates and protect yourself from falling interest rates.

Despite the shifting landscape, some experts, like Carol Schleif, Chief Investment Officer at BMO Family Office, believe there’s still value in holding cash to seize future stock-buying opportunities.

Although analysts suggest it may take a week or longer for the market to fully react to the Fed’s decision, the Investment Company Institute’s latest report shows money-market fund flows have remained stable.

Retail investors, however, have been hesitant to abandon their cash holdings entirely, according to advisors.

Investors face tough choices

As interest rates fall, clients are increasingly eager to find alternatives to cash, says Christian Salomone, Chief Investment Officer at Ballast Rock Private Wealth.

Yet, Jason Britton warns that “investors are stuck between a rock and a hard place,” faced with either taking on more risk or settling for lower returns in cash-like investments.

With the Fed’s rate-cutting cycle just beginning, the months ahead will likely see a reallocation of assets, as investors adjust to the new economic reality.

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American Airlines is in advanced talks to establish Citigroup as its sole credit card issuer, potentially ending its partnership with Barclays, a relationship that began after American’s 2013 merger with US Airways, according to a CNBC report.

For months, the airline has been negotiating with banks to streamline its loyalty program, aiming to consolidate its credit card partnerships and boost revenue from its AAdvantage program, individuals familiar with the matter told CNBC.

The goal of this move is to simplify operations and increase the income generated through its loyalty program.

American Airlines, like many other airlines, heavily relies on the revenue from its credit card partnerships to stay financially stable.

These programs allow banks to offer loyal customers miles for their purchases, which in turn generates billions of dollars for the airlines.

During the pandemic, as air travel collapsed, credit card spending provided a lifeline to airlines.

Even as travel demand recovered, growth in card spending has outpaced passenger revenue in recent years.

This makes co-branded card deals essential to an airline’s financial strategy, and American is pushing for a more profitable agreement through exclusive partnerships.

American Airlines in a statement said:

We continue to work with all of our partners, including our co-branded credit card partners, to explore opportunities to improve the products and services we provide our mutual customers and bring even more value to the AAdvantage program.

Airline credit card deals are a fiercely competitive space, with banks fighting for the opportunity to tap into millions of frequent flyers who generate billions of dollars annually in spending.

In recent years, large brands like American Airlines have been negotiating harder, demanding a larger share of revenue from these partnerships.

At the same time, banks have been facing rising card losses, increased scrutiny from regulators, and higher capital costs, which have made profit margins tighter.

Some banks have stepped away from this sector, while others, like Citigroup, have positioned themselves for long-term deals that can deliver significant returns over time.

American Airlines-Citigroup partnership: What does it mean for Barclays?

American Airlines’ partnership with both Citigroup and Barclays has been an anomaly in the credit card industry, where most companies prefer working with a single issuer.

Since the 2013 merger, the airline has maintained relationships with both banks, renewing their deals in 2016. Under that agreement, Citigroup could market its cards through online platforms and airport lounges, while Barclays was confined to in-flight promotions.

Now, Citigroup seems poised to secure a more lucrative exclusive deal. CEO Jane Fraser has led Citigroup since 2021, and the bank holds a profitable side of American Airlines’ credit card business.

Citigroup customers tend to spend more and default less than Barclays customers, as per the CNBC report.

If the deal goes through, Citigroup would likely sign a contract for seven to ten years, allowing it to recoup costs from acquiring Barclays customers and making the necessary investments.

Regulatory challenges and Barclays’ shift

However, regulatory approval is still required for this deal, and there is a possibility that US regulators, including the Department of Transportation, could delay or even block the agreement.

Should that happen, American would likely keep its dual partnership arrangement with Citigroup and Barclays intact.

Barclays, for its part, has been diversifying its portfolio away from airline co-branded cards.

Executives revealed earlier this year that they are focusing on partnerships with retailers and tech companies instead of airlines.

Citigroup, on the other hand, is aggressively pursuing bigger partnerships, aiming to increase profitability in its card business.

“We are always actively working with our partners, including American Airlines, to look for ways to jointly enhance customer products and drive shared value and growth,” CNBC quoted a Citigroup spokesperson.

As the negotiations continue, American Airlines is poised for a significant shift in its credit card business, which could reshape the competitive landscape of co-branded airline cards.

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Germany has made it clear that it will hold onto its remaining shares in Commerzbank for the foreseeable future, affirming that the bank’s strategy remains focused on maintaining its independence.

This was confirmed by Germany’s Finance Agency on Friday, indicating the government’s current stance against a takeover of the country’s second-largest bank.

This announcement follows closely on the heels of Italian lender UniCredit’s unexpected acquisition of a 9% stake in Commerzbank, making it the second-largest shareholder.

UniCredit’s CEO Andrea Orcel has openly expressed his interest in potential mergers, adding to the speculation surrounding Commerzbank’s future.

However, the surprise purchase by UniCredit, internally known as ‘Flash’ after Orcel’s dog, has raised alarms within Berlin.

The acquisition was met with resistance from both labor unions and Commerzbank itself, prompting the bank to outline a defensive strategy against any immediate changes.

Government urged to hold Commerzbank stake

Germany’s government, which still holds 12% of Commerzbank after recently selling 4.5% of its shares to UniCredit, has a crucial role in any future merger discussions.

Despite this, key stakeholders, including union leaders and Commerzbank management, have urged the government to refrain from further share sales.

During a Friday meeting, officials from the Finance Agency, which oversees government-held assets, concluded that no additional shares would be sold “until further notice.”

A spokesperson for Commerzbank reaffirmed the bank’s current approach to CNBC, stating:

Commerzbank is a stable and profitable institute. The bank’s strategy is geared towards independence. The Federal government will accompany this until further notice by maintaining its shareholding.

Orcel has expressed his intention to pursue merger talks, arguing that such a move could create a “stronger competitor” in Germany’s banking sector.

His statement comes at a time when European banks are grappling with the need to become more competitive, especially against larger US and Asian financial institutions.

However, several challenges stand in the way of such a merger. European cross-border banking deals have faced obstacles for years due to weak profitability, which has left many banks hesitant to engage in mergers.

Additionally, regulatory hurdles and political preferences for national banking champions have made such deals even more complicated.

Political hurdles delay UniCredit’s potential Commerzbank takeover

Although UniCredit has made significant strides in recent years—largely due to a strong financial recovery that distinguishes it from its competitors—political dynamics remain a significant barrier to cross-border mergers.

Anke Reingen, a banking analyst at RBC, informed CNBC that a UniCredit takeover bid for Commerzbank is not off the table but is unlikely to happen soon.

She said:

We do not think a deal is off the table, forever, but any move is likely to be later than we had initially expected.

The decision to maintain the government’s Commerzbank shares comes with a broader implication: it extends the current 90-day lockup period established when the share sale to UniCredit was completed.

According to insiders familiar with the situation, this ensures the government’s continued involvement in the bank for the foreseeable future.

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Chinese electric vehicles (EVs) are poised to maintain their competitiveness in Europe, despite the European Union’s introduction of additional tariffs.

Even with the revised rates that were lowered last month, Chinese automakers are expected to continue expanding their presence in the European market.

In August, the EU adjusted its tariff rates on Chinese auto imports, reducing the tax burden for major manufacturers.

According to a report in CNBC, BYD, one of China’s leading automakers, saw its tariff reduced from 17.4% to 17%, while Geely’s rate fell from 19.9% to 19.3%. SAIC, another prominent Chinese manufacturer, also received a reduction, with its tariff dropping from 37.6% to 36.3%.

However, research group Rhodium noted that to truly discourage Chinese EV manufacturers from exporting to Europe, tariffs would need to reach as high as 50%. For vertically integrated companies like BYD, which control much of their supply chain, the threshold may need to be even higher.

Tariffs: a speed bump, not a roadblock for China’s EV rise

The current tariff rates are unlikely to significantly disrupt Chinese EV makers’ plans in Europe, according to Joseph McCabe, President and CEO of AutoForecast Solutions. He explained that while these tariffs pose some challenges, they are far from an insurmountable obstacle.

“Tariffs on Chinese-made EVs will create a hurdle, but not a barrier to entry,” McCabe told CNBC.

He also highlighted the difference between EU and North American tariffs, noting that while North America has implemented much harsher tariffs, the European market remains more interconnected with Chinese original equipment manufacturers (OEMs).

For instance, the United States imposed a 100% tariff on Chinese EVs in May, with Canada following suit last month.

In contrast, the EU’s tariffs are less severe, reflecting a delicate balance between promoting domestic production and maintaining crucial ties with Chinese manufacturers.

Affordable Chinese EVs: a challenge for European automakers

While the EU works to limit Chinese imports, Chinese automakers are continually rolling out affordable EV models for European consumers.

At a conference earlier this year, Chinese giant BYD introduced its Dolphin model to the European market, priced under $21,550.

The Dolphin is a rebranded version of the Chinese Seagull model, showcasing China’s ability to bring cost-effective options to the table.

Comparatively, Tesla’s Model 3, one of the most affordable options from a Western EV manufacturer, sells for $44,480 in the UK.

Even with the 17% import tariff, BYD’s Dolphin will still be around $23,270 cheaper than Tesla’s China-manufactured Model 3.

In response to the growing competition from Chinese brands, German automaker Volkswagen has announced plans to release a budget-friendly EV for Europe, targeting a price point of around $21,476 by 2027.

This is a clear indication that European manufacturers are feeling the pressure to match China’s affordability.

Market share over profitability in EV space

“Now, profitability takes a back seat to market share,” McCabe commented.

He noted that investors tend to favor innovative EV companies for their potential future growth, rather than their short-term financial performance—an advantage legacy automakers lack.

William Ma, CIO of GROW Investment Group, emphasized this point, adding that attempting to curb the Chinese EV market with extreme tariffs—such as a 300% rate—would be impractical. “If they really have to kill the EV industry in China, they have to put in 300% of tariffs, which doesn’t make sense,” Ma said in a recent CNBC interview.

Potential retaliation from China looms large

McCabe also warned of potential retaliatory tariffs from China if European measures become too aggressive.

If Europe’s tariff policies cause significant harm to Chinese OEMs, there is a strong possibility that China will respond with its own set of trade barriers against European automakers.

The EU’s tariff discussions, which began in June, stem from concerns over what it views as “unfair subsidies” granted to Chinese EV manufacturers.

These subsidies are perceived as a threat to European automakers, and the EU is striving to protect its domestic industry from economic harm.

However, as Ma pointed out, these geopolitical tensions are unlikely to dissipate anytime soon.

“This geopolitical or sanction will not go away easily for the next year or two,” he predicted, indicating that the global EV landscape will remain complex for the foreseeable future.

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