Nike (NKE 0.89%) The stock closed up 5% on Tuesday, although there was no company-specific news on the stock.

Instead, the main driver of gains came from a surprising source. Starbucks Shares rose 25% after a new CEO was appointed to turnaround the company after business stalled under CEO Laxman Narasimhan.

A 25% increase in the selection of a new CEO may be unprecedented, especially for a company the size of Starbucks. And apparently Nike investors believe a similar move could benefit them, too.

Image source: Getty Images.

What’s good for Starbucks is also good for Nike?

While it’s a stretch to expect Nike stock to soar based on news about a company in a completely different industry, Nike and Starbucks have a lot in common, including their current problems caused by poor strategy and execution.

Both companies are U.S.-based, world-leading consumer goods brands and are even based in the same region of the country, the Pacific Northwest. The companies are also almost the same age, at least if you include Starbucks’ early days when it was just a retailer. Both companies even have aging founders who are involved in the company as chairman emeritus, Phil Knight at Nike and Howard Schultz at Starbucks.

And Nike’s current challenges have a lot in common with Starbucks’. Like the coffee chain, Nike brought in a CEO in 2020, John Donahoe, who had no experience in consumer goods. Instead, Donahoe’s previous job was CEO of ServiceNowthe global enterprise cloud software company, which apparently left him ill-prepared to lead the sportswear giant.

Narasimhan also spent most of his career as a consultant at McKinsey and had never run a restaurant before. Both CEOs were responsible for long stock price declines, and both companies are now seeing declining revenues as they lose market share to competitors.

Donahoe’s mistake

Donahoe’s overarching strategy as CEO of Nike was to focus the business on the direct sales channel and move away from the traditional wholesale business.

He also reorganized the company and led two rounds of layoffs, losing valuable talent and shifting the company from a focus on specific sports to general categories like men, women and kids. With the shift from wholesale to DTC came a focus on performance rather than brand marketing, where Nike had long excelled with memorable campaigns.

The result of these measures is that the company has given up valuable shelf space with key retail partners such as Foot Lockerand made way for competitors such as When holding, Deckers“Hoka and New Balance are gaining market share. In running, a huge sneaker category in which it used to be a leader, the company has fallen behind.

The company also appears to be losing ground in core categories such as streetwear, perhaps due to a lack of brand promotion and underinvestment in the product. The company also suffered embarrassment when its MLB uniforms were found to have sweat stains earlier this year and were heavily vilified by fans and players alike.

After these setbacks, Donahoe and his company are now beginning to reverse course and refocus on wholesale. But regaining that retail market share may not be easy, as competitors now have the opportunity to grab shelf space and market share.

Will Donahoe be ousted?

Wall Street is clamoring for a change in the leadership. A note from Boots Analyst Jim Duffy said: “Management credibility is being severely tested and the possibility of a regime change at the executive level adds further uncertainty.”

The bad decisions made under Donahoe could be more easily reversed if someone else were in charge, but there is an important difference between Donahoe and Narasimhan. Nike founder Phil Knight has expressed his support for Donahoe: “I am optimistic about Nike’s future, and John Donahoe has my unwavering confidence and full support.” Howard Schultz, on the other hand, was critical of Narasimhan.

That’s no guarantee that Donahoe will stay at the helm, but something needs to change at Nike. If the company announces a new CEO, investors could be rewarded with a share price increase similar to Starbucks’ on Tuesday. From there, there’s plenty of upside for Nike if the company gets back on a growth trajectory.