Introduction
Nike produces a wide range of sports equipment. Their first products were track running shoes, tennis, soccer, and wrestling & basketball shoes. They currently also make jerseys for a wide range of sports including track & field, football, baseball, tennis, soccer, lacrosse, basketball and cricket. The most recent additions to their line are the Nike 6.0 and Nike SB shoes, designed for skateboarding. Nike has recently introduced cricket shoes, called Air Zoom Yorker, designed to be 30% lighter than their competitors’. Nike positions its products in such a way as to try to appeal to a “youthful….materialistic crowd”. It is positioned as a premium performance brand. However, it also engineers shoes for discount stores like Wal-Mart under the Starter brand.
Manufacturing
Nike has more than 500 locations around the world and offices located in 45 countries outside the United States. Most of the factories are located in Asia, including China, Taiwan, India, Turkey, Thailand, Vietnam, Pakistan, Philippines, Malaysia, and Korea. Nike is hesitant to disclose information about the contract companies it works with. However, due to harsh criticism from some organizations like Barbie.com, Nike has disclosed information about its contract factories in its Corporate Governance Report. Nike plans to be carbon neutral by 2011.
Rivalry and competition
Because Nike creates goods for a wide range of sports, they have competition from every sports and sports fashion brand. After surpassing adidas in the 1970s, Nike had no direct competitors because there was no single brand which could compete directly with Nike’s range of sports and non-sports oriented gear until Reebok came along in the 1980s. Reebok now has merchandising contracts with the National Football League and the National Hockey League in the United States, and was purchased in 2006 by adidas. Nike’s other competitor is Puma, the third largest shoe and sports clothing supplier.
Key Business Issues
Increase market share in all the markets to counter the threat from the recent Adidas/Reebok merger
Expand further into international markets such as Emerging markets and spur growth in the European and Japanese markets
Improve gross margins & operating margins through supply chain initiatives – lean manufacturing, better sourcing, product costs, etc..
Improve its inventory management, days sales outstanding, days payables outstanding and working capital management further
Provide innovative and technical products that cater to the consumer expectations at all price points – Connect to the consumer
Counter the increased marketing strength of Adidas/Reebok by spending more on marketing spend and creating demand while maintaining margins
Improve relations with all retailers & innovatively use multi channels to market and sell its multiple brands to different customer segments
Focus on design, development and marketing of products and reducing time to market
Expand its own retail chain as a viable and profitable option to contend with retail consolidation, as retailers may substitute Nike’s products with private labels products or decrease Nike’s shelf space
Stabilize the leadership team and have a common strategy and plan for the future
NIKE Introduction
Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States. The company is headquartered in the Portland metropolitan area of Oregon, near Beaverton. It is the world’s leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment with revenue in excess of $16 billion USD in 2007. As of 2008, it employed over 30,000 people world-wide. Nike and Precision Castparts are the only Fortune 500 companies headquartered in the state of Oregon.
NIKE is engaged in design, development and marketing of footwear, apparel, equipment and accessory products. It is a seller of athletic footwear and athletic apparel in the world. It sells its products to retail accounts, through NIKE-owned retail, including stores and Internet sales, and through a mix of independent distributors and licensees, in over 170 countries around the world. NIKE’s athletic footwear products are designed primarily for specific athletic use. It also markets footwear designed for aquatic activities, baseball, cheerleading, football, golf, lacrosse, outdoor activities, skateboarding, tennis, volleyball, walking, wrestling, and other athletic and recreational uses. It also markets apparel with licensed college and professional team, and league logos. It sells a line of performance equipment under the NIKE brand name, including bags, socks, sport balls, eyewear, timepieces, electronic devices, bats, gloves and protective equipment.
The company was founded in 1962 as Blue Ribbon Sports by Bill Bowerman and Philip Knight, and officially became Nike, Inc. in 1978. The company takes its name from Nike, the Greek goddess of victory. Nike markets its products under its own brand as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding, Team Starter, and subsidiaries including Cole Haan, Hurley International, Umbro and Converse. Nike also owned Bauer Hockey (later renamed Nike Bauer) between 1995 and 2008. In addition to manufacturing sportswear and equipment, the company operates retail stores under the name Niketown.
History
1962: Phillip Knight, a Stanford University business graduate and former member of the track team, arranges to import athletic shoes from Japan and sell them in the U.S.. Knight created Blue Ribbon Sports as a cover name for his small-scale shoe-selling operations
1964: William Bowerman becomes a partner by matching Knight’s investment of $500.
1966: Blue Ribbon Sports, also known as BRS, rents its first retail space; employees can now stop selling shoes from their cars.
1971: Nike, capitalizing on the Greek goddess of victory. The first Nike product sold with the new symbol is a soccer shoe.
1970 – 1975: Steve Prefontaine was turned to the University of Oregon by Bill Bowerman and wore Nike products.
1976: The popularity of jogging increases revenue to $14 million.
1978: The Company changes its name to Nike.
1980: Nike goes public, offering 2 million shares of stock.
1990: Nike files suit against competitors for copying the patented designs of its shoes, and also engaged in a dispute with the U.S. Customs Service over import duties on its Air Jordan basketball shoes.
2000: The National Football League declines to renew its exclusive apparel licensing arrangement with Nike.
2001: Nike opens its first Nike Goddess store, a unit targeting women, in Newport Beach, CA.
2003: Nike purchases Converse Inc. for $ 305 million
Vision:
“To bring inspiration and innovation to every athlete in the world”
(* “If you have a body, you are an athlete” Bill Bowerman, co-founder)
Nike sponsors many high profile athletes and sports teams around the world, with the highly recognized trademarks of “Just do it” and the Swoosh logo.
Nike is the “largest seller of athletic footwear and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry. We believe we are competitive in all of these areas.” The company aims to “lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike.”
Mission: “Innovate for better world”
Unleashing potential through sport. In the last two years, Nike has invested $100 million worldwide in community-based sports initiatives. By 2011, NIKE is expected to invest another $315 million. These investments will be used to give excluded youth around the world the chance to play because as access to sport can enhance their lives. Nike will provide products, resurface playing fields, support community-based programs, and help young people create their own communities. This is all will be the NIKE “Let Me Play commitment.”
Three core values of the company are honesty, competitiveness, and teamwork. Despite its size, Nike operates with a minimum of hierarchy. As a result, there is a lot of collaboration and consensus decision-making. Commonly held values are imperative in such a matrix organization.
Industry Analysis
Barriers to entry have become very competitive in the athletic industry and the companies that will fare best are those with strong brands, huge scale, multi-products, multi-channels & marketing strength.
Global Brand power is the equation
Brands have emerged as the most powerful (and least imitable) assets in the industry.
While retail consolidation and the end of quotas have created some uncertainty, powerful global brands will more than held their own in the changing environment, as they have done in the past.
Marketing is Critical
Apparel and footwear companies rely on marketing to drive demand for their products. Industry has transitioned from capital-intensive manufacturing and distribution activities (which are outsourced) to a more capital-efficient design and marketing business model.
Each company spends on an average about 10% of their sales on advertising and promotions, while Nike spends around 13% of sales.
Consumers are growing more sophisticated – Performance products driven by technology
Industry is highly focused on developing technology for its footwear & apparel products. Consumers are well informed and are demanding more value for their products at all price points. Requires stronger brand profiling and more investment in product characteristics by companies.
Margins drive stocks
Footwear and apparel industries are relatively mature and investors perceive few pure growth plays, and expectations for margins tend to drive stock valuations more than sales growth
Acquisitions to diversify
Large apparel companies, because of their size find it difficult to grow at high digit rates. Also they seem to have neither the proclivity nor creativity to develop new brands. Hence, most companies look at acquisitions to diversify as well as grow their addressable market and improve sales.
Offshore Sourcing
To cut expenses & improve margins there is a trend towards moving production facilities to lower-cost regions outside the U.S. The elimination of quotas/safeguards over the next couple of years is expected to drive input costs lower, and the powerful apparel brands sourcing from the Far East will capture a significant share of these savings.
Manage Own Retail
Branded vendors have traditionally operated factory outlets as a means to manage excess inventory. However, given retail consolidation and retailers’ stated desire to increase private label penetration, companies are looking at expanding their own-retail networks.
Global Market Share for Athletic Footwear, 2008
“2008: footwear data from Sporting Goods Intelligence”.
U.S. is the largest market for athletic footwear, but is also the most mature market along with Western Europe, and future growth is going to be led by the under-penetrated emerging markets, Central & Eastern Europe. Sales by Geography for Athletic footwear, 2008
Opportunities
Growth in Emerging markets
Industry barriers to entry exist in footwear
With the lifting of apparel quotas in the United States, companies should see improved margins in the United States as they move manufacturing offshore
Outsourced production creates lean corporate structures
Industry growing more quickly than GDP rates in most regions
Challenges
Retail Consolidation – will affect the apparel industry (more fragmented) more than the footwear industry (very concentrated and powerful brands (less imitable)
Competition has intensified – Adidas acquisition of Reebok forms a strong competitor, many smaller companies growing rapidly
The activewear market is getting crowded – Nike, Adidas, Reebok, and Puma are all trying to branch out from the primary athletic wear consumer to an activewear or lifestyle consumer creating intense competition
Possible slowdown of consumer spending in the U.S. and Europe
Higher energy prices, weakening consumer sentiment, and rising interest rates
Currency impacts
Closing Year
Acquirer
Target
Deal Value
2006
Adidas-Salomon AG
Reebok
$3.8 billion
2005
Quiksilver
Rossignol
Undisclosed
2004
Russell Corp
Brooks Sports
$115 million
2004
Nike
Official Starter
$47.2 million
2004
Russell Corp
Huffy Sports
$30 million
2004
Reebok
The Hockey Company
$204 million + assumption of $149 million of debt
2004
Quiksilver
DC Shoes
$144.2 Million
2004
Nike
Converse Inc
$310 million
One such merger – the Adidas- Reebok merger between two transatlantic companies has not only doubled Adidas’s market share in the U.S. but has also made it a close competitor to Nike. Theory behind the merger-to utilize Reebok’s marketing power and understanding of the U.S. consumer to build Adidas’s presence in the United States and, conversely, to draw on Adidas’s heritage in Europe to develop the Reebok brand overseas. The company gained top spot in the global athletic apparel market & European footwear market with the merger, which was formerly held by Nike. Adidas and Reebok will now have a larger arsenal of athlete endorsers, more influence on the supply chain, and a chance to secure more shelf space.
NIKE Marketing Strategy
Nike’s strength of its product pipeline, brand portfolio and global reach has made it the clear leader in sports performance, making it #1 or #2 in 89% of the top markets.
Nike’s principal business activity is the design, development and worldwide marketing of high quality footwear, apparel, equipment, and accessory products. It is distributed in over 160 countries around the world. Sells under the NIKE brand, wholly owned subsidiaries Converse, Cole Haan, Hurley International , BAUER NIKE Hockey, and Exeter brands
Nike’s Marketing Mix
Nike’s marketing strategy is an important component of the company’s success. Nike is positioned as a premium-brand, selling well-designed and expensive products. Nike lures customers with a marketing strategy centering on a brand image which is attained by distinctive logo and the advertising slogan: “Just do it”. Nike promotes its products by sponsorship agreements with celebrity athletes, professional teams and college athletic teams. Nike has been developing its marketing mix consisting of the four P’s i.e. product, price, place and promotion. Thus Nike has soughed out the mix that will best help it achieve its goals of maximum profitability.
Product:
Nike takes into consideration various aspects of its products as it is in a product or consumer market. Thus it needs to have extensive range of products to withstand its competition. Nike provides features, designs, various brands, packaging along with some extra features like warranties and after sales service. This all aspects can be included in the product analysis. Nike has various products as well as brands that cater to different market segments which varies according to requirement of particular segments as well as individuals. Also they offer customized designs of their products wherein customer designs their product as per their requirements. Nike provides customization of their shoe range on their site Nike.com.Nike also offers a one year warranty for their products. Also they provide an option for replacement in all their products if any defects or problems occur after purchase which is a part of after sales service. Nike has been designing world class shoes for over 5 decades. Yet it has a tendency of changing the designs and patterns after a particular period or quantity. It also has a range of classic Nike shoes which are available all the time. Nike also provides packaging with collaboration with other brands.
Eg. Selling i-pods with their jogging shoes range
Price:
Nike has a high-end consumer market with high disposable income asking for better service and satisfaction as their target market. Thus their pricing strategy is to provide value at high cost with maximum profitability. Thus they have high margins but this can be justifiable due to its advertising and research costs. Nike also provides with discounts during various festive seasons on its products like Diwali in India. This is also a part of its pricing decisions.
Place:
Nike is a multi-national organization. Thus it needs to develop a wide range of distribution channel which can support its retail business. Thus Nike has some of the following distribution outlets .Retail: Nike sells through its retail stores, brand outlets, exclusive showrooms as well as hyper markets in metropolitan areas. Online shopping: Nike also provides with online shopping facility for its various products and services. Distributors: Nike has a wide coverage of its distributors across the globe to support its retail outlets. Factory outlets: Nike also sells its merchandise through factory outlets that sell some of its products at a discounted rate.
Promotion:
Nike is extensively involved in Promotion and advertising. Nike uses advertising, sales promotion, advertisement campaigns, public relations and publicity and sales offers to build awareness and brand image and loyalty. Nike endorses various celebrities such as athletes, football players, cricketers, tennis etc .It places its products in various movies and shows using product placement. Nike also sponsors various events such as tour de France, FIFA World Cup, Delhi Marathon and various others. Nike promotes its products also utilizing other products brand equity such as promoting its range of shoes along with I-pod. The “Just-do-it” campaign of Nike has been since nearly 3 decades and has got them worldwide fame. Nike also advertises by using various celebs in their advertisements to increase brand loyalty while utilizing the brand image of such celebs.Nike has also gone to the extent of sponsoring a stadium called “the Alliance Arena”, which is by far the biggest football ground in the whole world. Eg. Roger Federer, Tiger Woods, Ronaldinho, Ronaldo. Nike also endorses various teams as well as clubs such as Barcelona Football Club. Designed to make a connection to the consumer
Advertisement Strategies
Seldom pitch the product directly or talk about product attributes
Sometimes don’t even mention the company’s name, featuring instead only the swoosh logo
Seek to portray the core values of sport
Collaboration ads with another strong branded product, such as Apple iPod
Branding: powerful marketing mechanism used by Nike
• Leads to higher and more consistent product quality.
• Increases innovation by giving producers an incentive to look for more new features that can be safeguarded by the patent.
• Branding results in more product variety and choice for consumers.
• Branding provides consumer information about products and where to find them.
Michael Jordan
Put Nike on the map
1984-1985 Nike saw a decrease in their earnings for the first time ever
Influenced them to make their first specialty basketball shoe
Since then, Michael and Nike together have generated billions of dollars in revenue
“World Sports Hero No. 1”
Jump man logo is one of the most easily recognized symbols throughout the world
Tiger Woods
The newest Nike sensation
Estimated that Nike paid him $40 million
More attention than Michael Jordan and Bo Jackson
3 pg. ad in Wall Street Journal
30- and 60- second TV spots
Sales & Distribution
In the U.S., Nike operates 3 distribution centers for footwear. Internationally, Nike operates 21 distribution centers in Europe, Asia, Australia, Latin America, Africa and Canada. Nike’s sales force is divided into footwear and apparel and the teams are assigned specifically to accounts. Nike’s sales force is the most professional and has the greatest knowledge of the products compared to its competitors. Globally, if Nike is in an emerging market, or a new market, it distributes its product through a third party. However, as the company gains critical mass in that particular area of the world, Nike works to go in directly and eliminate the distributor level.
Manufacturing
Majority of Nike’s footwear and apparel products are manufactured by independent contractors outside the U.S., while equipment products are produced both in the U.S. and abroad. Fully 98% of Nike’s footwear is manufactured outside the U.S. Nike has 42 factories in Asia (China 36%, Vietnam 26%, Indonesia 22%, and Thailand 15%) that manufacture its footwear products; however, they are not all exclusive Nike product factories. In the non-exclusive factories, the company’s more basic sneakers are manufactured, while the more technologically advanced product is generally manufactured in the exclusive factories. Nike also has about 400 factories around the world that manufacture apparel, with the largest percentage of apparel manufacturing coming out of Asia, the Middle East, Turkey, Israel, and Mexico.
Financially, Nike’s overall results have improved over the years through both organic (core brands) and inorganic growth (acquisitions), supply chain initiatives and increased penetration in Europe and Asia. Nike has shown a 3 year CAGR of 11.8% since 2003. In 2006, revenues grew by 9% led by strong growth in Americas and U.S., while Europe and Japan have shown flattish growth. Currency had a negative effect of 1% on the total growth. Nike’s performance in 2006 was fueled by solid revenue growth across the different dimensions of the business – each of the geographic regions and each of the product business units posted higher sales for the year. Nike struggled in Europe but improved sales in the fourth quarter as a result of the world cup. Exchange rates too affected the International sales growth negatively. Net Income margin has also been improving over the years
While the core brands have shown good growth, the subsidiaries, through various acquisitions, have been responsible for a quarter of the total growth in the past three years and are expected to be the future drivers of growth. Nike branded footwear is the largest component of overall Nike sales. However, this business is becoming a smaller portion of the company’s portfolio. In fiscal 2001, Nike footwear comprised around 59% of sales compared to 53% at the end of fiscal 2006. Nike could further enhance its “other business/subsidiaries” through various small acquisitions
Sales by business Unit, 2001
Sales by Business Unit, ($ Billions) 2003-2006
*The segment labeled “Subsidiaries” or “Others” represents revenues from NIKE Golf, Cole Haan Holdings, Inc. and Bauer NIKE Hockey, Inc. for fiscal year 2001, and also includes Hurley International LLC, Converse Inc. and Exeter Brands Group LLC for fiscal year 2005. The subsidiaries sales are not reported geographically and hence are included under a separate segment (1) All growth rates include currency impacts
BUSINESS STRATEGY
Nike’s main priorities are to improve brand strength globally, improve trajectory in Europe & Japan, and experience growth from multiple perspectives: by category, price point, geography & channel
Nike’s strategy for building a profitable portfolio is focused in the following key areas:
Continuing to invest in the core business through innovation and demand creation.
Broadening its brand portfolio – Leverage multiple brands to pursue opportunities in all markets, distribution channels and at broader price points
Focusing on financial discipline – Making supply chain a competitive advantage, through operational discipline and excellence
Improve performance in Europe & Japan
Europe – UK and France need further work in the difficult athletic footwear and apparel industry. Football (soccer) is at the core of sports in Europe and is the key to success in that market. Even broader opportunities exist globally. Nike has made steady gains in football, in Europe through steady product innovation and effective demand creation initiatives and is now the leader
Japan – Reorganized management, increased demand creation, redesigned products to add value at select price points
Accelerate growth in developing markets
Nike will focus on growing its brands in underdeveloped countries such as China, India, Thailand, Indonesia, Mexico, and Brazil. While the company may be underdeveloped in countries, the opportunity has not been preempted.
Nike is focused on keeping its talent growth in line with its revenue growth
Women’s Fitness
Estimated market – $14.5 billion, growing at 5%-8% per year
% of Women’s products in Nike sales – 18% of the total branded business
Nike is developing product specifically for women, around four core sport categories: running/walking, yoga, cardio and fitness dance – major competitive advantage. Results have been strong – 19% revenue growth in FY05
China – Biggest growth market – population of 1.3 billion people, over 400 million youths (5x the number of youths in the U.S. )
Revenue doubled in 2006, second largest market in Asia, behind Japan
Nike faces intense competition from Adidas, and Li-Ning
Nike’s retail presence – over 2,000 point of sale locations currently and will continue to grow
Other under penetrated emerging markets like India, Thailand, Indonesia, Mexico and Brazil
Other Brands To Become Increasing Mix Of Revenues
Nike has built a diverse portfolio of other brands including Converse, Starter and Cole Hann among others to address market opportunities not appropriate for the Nike brand
Potential to become 25% of total revenues, up from 13% currently
By executing these strategies, Nike aims to deliver the following long-term financial goals
High single digit revenue growth;
Mid-teens earnings per share growth;
Increased return on invested capital and accelerated cash flows; and
Consistent results through effective management of diversified portfolio of businesses
Profitability gains, through gross margins expansion irrespective of FX movements, augmented by a new focus on SG&A leverage.
BUSINESS COMPETITION
Nike’s main competitor is Adidas which, after the acquisition of Reebok, has become the closest competitor in terms of revenues and market share
Adidas AG – The Group’s principal activities are producing and marketing of sports goods. The Group markets its products under the brand names: Adidas, Salomon TaylorMade-Adidas, Mavic and Bonfire. Products sold under the brand name Adidas include footwear, apparel, and sport accessories such as bags and balls. The Group has operations in Europe, North America, Asia and Latin America. At 31-Jan-2006 the Group acquired Reebok International Ltd & remaining interest of Taylor Made Golf Company. During the year the Group disposed Salomon business segment. Revenues for the company in 2005 were $7.8 billion and net income of $503 million
Puma, another German based company, whose revenues though small, has shown tremendous growth in the past few years and is a big player in the Europe market is expected to provide competition
Puma – The Group’s principal activity is to design, manufacture and market sporting goods. The Group’s activities are carried out through three divisions: Footwear, Apparel and Accessories. Footwear division design, manufacture and market sports shoes. Apparel division includes track suits, football strips and similar sportswear. Accessories include sports luggage, footballs and gloves. The Group has operations in Europe, Asia, America and Africa. The Group sold Tretorn Sports Sales Ltd on 1 July, 2005. Puma had sales of $2.1 billion in 2005 and net income of $337 million
In athletic apparel and footwear, there are two truly global players – Nike, Adidas/Reebok – with a host of ‘second tier’ competitors including Puma.Competitive Landscape – Nike is the best positioned athletic company in the marketplace (Ratings – 3 being the highest and 0 being the lowest)
SWOT Analysis -Nike
Strengths
Contracts with Universities: Nike has contracts with universities nationwide to supply apparel for athletes. These university sponsorships are beneficial to Nike because they give the company the right to sell merchandise with these schools’ logos, tap into the market of collegiate sports apparel, and form relationships with young consumers.
Analyst Confidence in Stock: According to press releases issued by Bloomberg, analysts from Bank of America, CSFB, and Wells Fargo recently called Nike a “buy.” After a lackluster financial year, this news could potentially affect stock price in a positive way.
Michael Jordan Returns to Basketball: Nike received press coverage throughout Jordan’s decision-making process and continues to make press regarding the impact of Jordan’s return. Nike was able to capitalize on this strength by debuting a new shoe – the Air Jordan XVI – and by making new commercials with Jordan that will hit the airwaves soon. Michael Jordan is perhaps the most recognized athlete in the world and markets Air Jordan apparel for Nike.
Corporate Responsibility Report: According to the Nike Web site, in October Nike released its first Corporate Responsibility Report. The document states that Nike’s focus points, in terms of corporate responsibility, are the environment and labor. Since these are two areas that cause protests against Nike, it is important for Nike to label them as areas to focus on and for Nike to give the public this information.
Strict Environmental Standards: According to Bloomberg, Nike has accepted strict environmental standards to comply with by 2005. These standards were part of the Kyoto treaty that President Bush refused to sign and are supposed to help in the fight against global warming. Nike has made other efforts to be energy efficient; its office in the Netherlands is the most energy efficient office in that country by 35%. Nike also uses organically grown cotton, promotes the Eco-class program with Delta Airlines, and founded N.E.A.T. in 1993 to, as the Nike Web site maintains, “Reduce Nike’s impact on the planet.”
Philanthropy: Nike is committed to philanthropic endeavors such as “Reuse a Shoe,” “Project Dreams” and “Habitat for Humanity.”
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