Nike: Can Perez Fill Knight's Shoes?
By Stanley Holmes
Phil Knight is finally letting go. He officially announced his resignation as CEO and president of the world's largest sneaker company on Nov. 18. Knight named Nike (NKE ) outsider William D. Perez, head of S.C. Johnson & Son, maker of Glade air fresheners and Drano drain cleaner, to succeed him. Knight, a Nike co-founder, kept true to his penchant for secrecy and mystery when he surprised his employees and the market with a rather unexpected choice.
The new appointment raises several questions for the $12 billion athletic and apparel giant. Will Perez be able to assimilate into the insular Nike culture -- one that has often rejected transplants, especially at the senior-executive level? And can Perez win the confidence of and manage Nike's spend-happy designers and marketers who seemingly have never seen a budget they haven't busted?
How will Mark Parker and Charlie Denson, Nike co-presidents and longtime insiders, help the new boss transition from making bug repellent to producing flashy, high-performance sneakers and athletic apparel? Parker, Denson, and Nike CFO Donald Blair have largely been responsible for the business' impressive financial turnaround over the last three years. Will Denson and Parker, who both reportedly coveted the top job, continue to carry the Nike torch for Perez?
Finally, Knight, 66, is retaining his chairman title and will remain at the outfit. Knight had largely handed the daily responsibilities of running Nike over to Parker and Denson and had been acting more like a chairman than a CEO for some time. Will the cult of Knight inside Nike overshadow Perez's efforts to run the concern as he sees fit? Will Knight, known for his Midas touch when it comes to advertising and endorsing athletes, let Perez make the big calls?
Most of these questions remain unanswered in the immediate aftermath of Knight's stunning announcement. Knight and Perez couldn't be reached for comment. But how they handle these issues will determine whether Nike can keep up its impressive sales and earning momentum.
"Investors are going to be nervous," said John Shanley, analyst for Susquehanna Financial Group in New York. "People don't know what to make of it. There's not a lot of information out there about the decision or about Perez. This is a radically different approach, but I think it will be a good thing in the long term."
Certainly, Knight is leaving Nike in strong financial shape. In fiscal 2004, ended May 31, it turned in another record year. The outfit earned nearly $1 billion, 27% more than the previous year, on sales that climbed 15%, to $12.3 billion. In September, Nike reported a 25% jump in first-quarter profits and said U.S. orders were up 11%, to $1.4 billion -- reversing a declining trend in the national sneaker market.
But the news of Knight's resignation pressured Nike's stock, which fell 99 cents to close at $85 on the New York Stock Exchange before the news was released. Shares dropped another $1 in after-hours trading.
Knight was quick to praise his current cadre of senior leaders and reassure the Street that newbie Perez can sprint with the best of the Nike veterans. Singling out Parker and Denson in a prepared statement, Knight went on to say: "Nike's current management team is the strongest it has ever been. With Bill [Perez], we will become even stronger. I'm confident that as CEO of Nike, Bill will lead Nike's extraordinary team of people to create an even bigger and better global company." Denson and Parker could not be reached for comment.
Perez, 57, appears to be well-suited to help Nike as it morphs into a less volatile, global consumer concern. He appears to have two key strengths: Experience selling in multiple markets across the world as well as managing a big portfolio of consumer brands. "The board wanted somebody with a different viewpoint to drive the company down a different path in terms of being experienced with multiple brands and also hav[ing] strong international experience," Shanley said.
Fact is, Nike no longer singularly focuses on making and marketing sneakers. It now owns and manages brands such as dress and casual-shoe maker Cole Haan, Converse sneakers, Bauer hockey skates and equipment, and skateboard fashion and equipment producer Hurley International. One of its key growth strategies is to acquire more brands complementing the Nike name, rather than concentrate solely on expanding the swoosh empire.
It will be Perez's responsibility to continue boosting the value of these brands while not taking his eye off of the Nike name -- still the big kahuna at the Beaverton (Ore.) headquarters. "Bill is a highly regarded and deeply talented leader with more than 30 years experience as a builder of global brands and businesses," Knight said in a statement.
Perez has spent 34 years at S.C. Johnson, a private company based in Racine, Wisc., that reported $6.5 billion in revenue last year. He has been president and CEO at the outfit since 1996. In a statement, he said he would stay true to Knight's vision. "You can feel the innovative spirit that Phil and his team inspires from product design, to retail and athlete partnerships. And I'm a strong believer in 'Just Do it'."
Perez has a tough job ahead. But he will have the knowledge that two key members of Knight's senior staff -- Blair and Apparel Vice-President Mindy Grossman -- made the successful transition from outsider to insider. He also likely will have Blair's support in continuing to manage the company more like a business rather than as an overwhelming passion.
But that's where things could get sticky for Perez. It took Nike nearly three decades to finally reach this ying-yang balance between the creative and financial sides. Emotion, passion, and the creative process are big motivators inside the outfit and are what made it the leading sports and athletic apparel brand in the world.
Perez is said to be a people person and a marathon runner, and he will need to draw on those skills -- as well as his business acumen -- to take Nike to the next finish line.
Holmes is a correspondent in BusinessWeek's Seattle bureau
Edited by Beth Belton