Strategy Analysis and Company OverviewNovember 2015

Nike Inc.

“BRING INSPIRATION AND INNOVATION TO ATHLETE* IN THE WORLD IN THE WORLD.”

*IF YOU HAVE A BODY, YOU ARE AN ATHLETE`

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Nike Inc. is an American multinational corporation that is engaged in the design, development, manufacturing and worldwide marketing and sales of footwear, apparel, equipment, accessories, and services.

Company Profile

Athletic Footwear, Apparel, and Equipment

Research, Development,

and Design

Manufacturing, Supply Chain, and Marketing

Branding, Services, and Social

Responsibility

Nike was founded in 1964 as Blue Ribbon Sports and initially operated as a distributor for the Japanese shoemaker Onitsuka. It officially became Nike Inc. in 1971

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Name Nike Inc.Year Founded 1964

Headquarters Beaverton, OR

Current CEO Mark Parker

Regional Involvement NA, SA, AS, EU, AF, AU

Category Involvement Footwear, Sportswear, Equipment, Service

World Value Share 2014 25%

Key Company FactsNike, Inc. includes five distinct brands.

Executive Summary

Although Nike has become a powerhouse in sportswear industry, there are many other companies that threaten Nike’s competitive position. Nike’s strategic issue is that they rely solely on their branding strategies to differentiate themselves in the industry. The company must continue creating product offerings that hold value to their customers face the possibility of losing their competitive advantage in the market.

Nike is the largest seller of athletic footwear and athletic apparel in the world. The company has a strong understanding of the market they serve and bring value to their customers through their branding strategies. At the end of fiscal year 2014, their brand value was $19 billion.

NIKE Brand Converse, Inc.Hurley International LLC.Jordan BrandNIKE Golf.

Nike Brand33%

Jordan Brand33%

Converse33%

Footwear

58%

Apparel31%

Equipment

5%Converse

6%

Nike Brand45%

Converse9%

Hurley12%

Jordan Brand15%

Nike Golf18%

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Current Performance

2014 Revenue Breakdown by Product CategoryThe size of the overall US athletic footwear market is estimated to be $21.2 billion in 2014. In the US, NIKE, Converse, and the Jordan brands combined accounted for over 60% of market share in athletic footwear. That’s up from 35% in 2005 and 57% in 2013. Most gains came at the expense of global rival Adidas, which lost 2% share. Under Armour’s market share of footwear products, meanwhile, rose by 1% to 3% in that time frame. Skechers USA, too, expanded its share of the footwear market, from 3% to 4% over the period.

Nike has a reported 60% market share for U.S. athletic footwear and around a 25% share of the global market.

While Under Armour has grown substantially in its shoe sales in the past few years, its substantial growth has meant just increasing to not even 3% of the total U.S. footwear market and an even smaller percentage worldwide.

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Internal Analysis

Strategic business units

Celebrity endorsers Marketing strategies

SWOT Analysis

Labor scrutiny High pricing Reliance on footwear

Emerging markets Exponential growth in technology

Support of sporting events

High competition 3-D Screen-printing Currency volatility

Nike’s extensive variety of footwear, apparel, and equipment offerings are recognized worldwide by their signature logo. Nike has taken advantage of brand loyalty by raising their prices above competitors, and receiving a higher profit.

Nike has carefully selected celebrities and athletes all over the world to endorse their products and develop it’s competitive position in the market as the iconic brand it is today. These athletes correspond to the popular trends in the differing markets and add value to their brand.

Nike has always put a lot of resources into developing creative marketing strategies to convey the value their products hold to their customers. Whether it be on TV, magazines, or through social media, people remember Nike and believe in their message.

Nike’s international working conditions and labor pay rates in have been one of the main issues the company has faced in the past. Advocates for social responsibility have publicized this issue, hurting Nike’s image as a wholesome company.

The company has positioned its products at higher price points in the market, which reinforces their strategy of offering the highest quality items. This hurts the company as some people just see Nike as a company who enjoys stealing people’s money.

In 2014, Nike’s footwear segment accounted for nearly 60% of total revenues. Nike has been able to thrive off of the popularity of the trends towards sneakers, but any changes in those trends could be detrimental to the company..

In 2014, sales from emerging markets made up 14% of Nike’s overall revenues. Continued exploration and utilization of growing economies can benefit Nike in the long run.

With the help of greater advancement in scientific studies and technologies, Nike has the potential to produce products at more effective rates and at higher efficiencies than its competitors. Continued innovation is one of Nike’s strengths.

Sponsorships in future global sporting events including the Olympic Games, the Super Bowl, and the World Series will contribute to Nike’s image as a brand that inspires athletes to work hard and become champions.

There has been an increasing amount of competition among rivals who offer relatively the same basic products at lower prices. People who do not value Nike can purchase their sportswear cheaper at Wal-Mart of Target.

3-D screen-printing allows people the ability to make their own clothing at home. This poses a threat to apparel companies such as Nike, Adidas, and Under Armour as their signature logos that keep their customers interested could be achieved at home.

Nike’s diversification into foreign markets has made Nike a worldly known company, any volatility in foreign markets can cause fluctuations in the American dollar, devaluating their sales.

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Competitive Position

Cradle to Cradle Network and Sustainability Campaigns

In 2011, a nonprofit organization by the name of Green Sports Alliance was founded by a collection of Pacific Northwest pro-sport teams with the mission of bringing recognition of sustainable practices throughout the sports industry. By using biometric approaches to the design of products and systems, better known as the cradle to cradle framework, companies were encouraged to view materials used in production as nutrients that fueled fragile bodies. It suggests that industry must protect and enrich ecosystems and nature's biological metabolism while also maintaining a safe, productive technical metabolism for the high-quality use and circulation of organic and technical nutrients.

http://buddhajeans.com/2013/05/05/update-eco-fashion-dictionary-may/

Since then, Nike has re-focused a segment of its business structure towards marketing strategies that focus on creating projects that benefit communities around the world and in building greater sustainability. To further their support, Nike announced their plans for transforming recycled materials into high-performance apparel and footwear through the use of energy-efficient technologies.

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Competitive Position

Cradle to Cradle Network and Sustainability Campaigns

Nike’s decision to evolve with the cradle to cradle framework avoided the possibility of being publicly scrutinized, as other companies such as Puma have taken action as well. Nike’s humanitarian gestures has enhanced their company image as a more wholesome, environmentally friendlier, and well rounded company.

In November of 2011, Nike released its Material Sustainability Index (MSI) sharing its framework developed from years of sustainability research, design and collaboration. Additionally, Nike established the Nike Better World Campaign to resolve this rising issue in their business structure.

Much of the Nike Better World campaign focuses on movements targeted towards demographically relative markets. It has reframed its sustainability message so

their young customers can relate and be motivated to take action. Nike’s simple and clear “Better World” calls it like it is, much like its predecessor, “Just Do It.” Beginning with their highly acclaimed recycling advertisement, the website tells the story of how sports and Nike have been “the vehicles of making the world a better place.” The company has taken a very systemic approach by dispersing its leverage over a large team of department executives, using different advertising mediums including building a strong social media platform and focusing much of its effort on innovation through collaboration.

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Competitive Position

Achieving Innovative Technology through Research and Development

The Nike Explore Team Sport Research Lab is located at the world Headquarters in Beaverton, Oregon. As a global hub of sport science knowledge, the sport research lab has established research partnerships with major universities and institutions throughout Asia, Europe and North America. These strategic partnerships, along with access to the world's best talent, tools and athletes, work together to achieve value innovation at its highest potential.

Nike has been able to defeat their competitors by using their distinctive competences to market themselves as an innovative company. Their ability to convey value through their messages, product offerings, and company culture leaves an inspiring impression in the minds of their customers.

High-profile endorsements from world-class athletes contribute to Nike’s positive vision of motivating goal achievement and success. Their partnerships with athletes shows that they care about the processes it takes to get there.

These inspiring ideas and images are the driving force behind Nike.

Nike sport research focuses on biomechanics, physiology, sensory/perception and data science and takes pride in product innovation and creation which is made possible through their research lab. Products are specifically formed through knowledge and insight gained from a scientific understanding of athletic performance. 

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Competitive Position

Production and Distribution ChannelsNike sells their products to retail accounts in the United States, including a mix of footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis, and golf shops, and other retail accounts. They also distribute products through their own Direct to Consumer operations, through Nike-owned retail stores, internet websites, and through a mix of independent distributors and licensees throughout the world. Virtually all of their products materials are sourced and manufactured by independent contractors. Practically all of Nike’s footwear and apparel products are produced outside the United States, while equipment products are produced both in the United States and abroad.

While Nike does not have to take on the development costs and risks associated with doing business in the foreign markets, they lose control of their manufacturing, marketing, and strategic functions which in turns lowers their ability to take advantage of scale economies. Nike operates in 43 different countries which makes it hard to coordinate any strategic moves across differing countries. One other disadvantage to Nike’s strategy is that production in developing countries makes it hard to produce technologically advanced product offerings, and limits their ability to grow as a company.

1,011,420785

Factories by ProductFactory Workers by Region

AmericasEurope, Middle East, & Africa

North AsiaSouth Asia

FootwearApparel

Equipment

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

External Analysis

Threat of substitutesMedium

Risk of entryLow-medium

Rivalry High

Supplier power Low

Buyer power Medium-high

Porter’s 5 Forces

• Athletic shoes are necessary for sports, but clothing products are interchangeable and can be accommodated to tastes, comfort preferences.

• Any apparel company can have access to many of the same general materials that Nike has access to.

• The worldwide demand for athletic footwear and equipment is expected to grow in the future and customers cannot substitute these products.

• The problem of counterfeit products is an area of concern. As the quality of counterfeit products has been improving recently, this could threaten the company’s sales in emerging markets and could also potentially dilute Nike’s brand value.

• Economies of scale must be achieved in the sportswear industry.

• Nike is a strong and well established brand and enjoys a great degree of brand recognition and loyalty. It will be difficult for a new player to match its level.

• Absolute cost advantage.• Significant capital resources

are required for creating a new brand as large investments are needed for marketing and obtaining floor space. This restricts the entry of newer players.

• One opportunity is that internet companies could start selling competitors’ footwear, apparel and equipment online as the barriers to entry are low in this business.

• The global market for athletic footwear, apparel, and equipment is characterized by intense competition by rivals.

• The sportswear industry experiences continuous changes in consumer preferences and technology. If Nike is unable to adapt to these changes quickly, it could suffer losses in its market share.

• Rising competition from emerging players such as Under Armour and Lululemon Athletica, which focus on niche market segments such as performance apparel and yoga-focused apparel, pose a threat to Nike’s share of selected markets.

• Nike also faces competition from local players in emerging markets who are increasingly improving their product quality.

• Nike’s footwear and apparel products are manufactured by third-party manufacturers outside of the U.S.

• Nike’s footwear production is largely conducted in Vietnam, China and Indonesia as contract factories in these countries in fiscal 2013 comprised around 42%, 30%, and 26% of total Nike brand footwear production, respectively. Both sovereign issues and currency effects could be a cause for concern for Nike.

• There are high switching costs to change suppliers, as no single footwear factory or apparel factory accounted for more than 6% of total Nike brand footwear production and Nike brand apparel production in fiscal 2013

• Low switching costs for the end consumer. People will often pay whatever price for items depending on changing price, style trends, brands, and preferences.

• Nike is globally synonymous with sports which results in a universal demand for sportswear.

• Nike caters to its customers through both the wholesale and direct-to-consumer channels, which accounted for 80.6% and 18.9% of total Nike brand’s sales respectively, in fiscal 2013.

• Certain big wholesale customers hold bargaining power as they could widen their partnership with Nike’s competitors or provide their own private label offerings to earn higher profitability.

2001 2002 2003 2004 2005 $-

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$14.59 $15.65

$17.63

$22.66

$24.14

$3.97 $3.31

$4.30

$6.80

$10.96

Nike Adidas

Year

Mar

ket C

ap (B

illio

ns)

2003- Signs LeBron James

2003- Signs Kobe Bryant

Nike Inc.

Strategy Analysis and Company Overview http://www.highsnobiety.com/2015/11/09/nike-adidas-market-shares/

Competitive Position

NIKE vs ADIDAS l MARKET CAPITALIZATIONS

2002- Nike acquires Hurley

2003- launches Y-3

2004- Acquired Starter2005- Jordan XX Launches 20th Jordan shoe

2005– Adidas signs Lionel Messi, Launches “Impossible Is Nothing” Campaign with David Beckham & Muhammed Ali

2001- Herbert Hainer takes over as Adidas CEO

2003- David Beckham signs $130M lifetime contract

2004- Phil Knight steps down as CEO

2003- Nike acquires Converse

Gradual increases in select acquisitions and engaging in particular celebrity endorsement strategies throughout the last 15 years has enabled Nike to increase its market capital, beat out its competitors, and become the most recognizable and valued sportswear company in the world.

This graph illustrates the market capitalizations between Nike and Adidas. As of 2014 Adidas was the second leading manufacturer behind Nike.

2006 2007 2008 2009 2010 $-

$5.00

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$25.14

$30.70

$23.22

$29.03

$36.40

$9.03

$13.70

$7.90

$10.98

$13.56

Nike AdidasYear

Mar

ket C

ap (B

illio

ns)

2008- Nike acquires UM-BRO

2008- Adidas signs Derrick Rose

Nike Inc.

Strategy Analysis and Company Overview http://www.highsnobiety.com/2015/11/09/nike-adidas-market-shares/

Competitive PositionNIKE vs ADIDAS l MARKET CAPITALIZATIONS

2006- Mike Parker becomes Nike’s CEO

2007- Acquires Reebok; Becomes official NBA merchandiser

2009- Nike launches Yeezy 1

2007- Signs Kevin Durant

2011 2012 2013 2014 2015 $-

$20.00

$40.00

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$40.47 $41.36

$69.43

$83.66

$113.04

$13.76 $18.61

$26.21

$14.41 $18.75

Nike Adidas

Year

Mar

ket C

ap (B

illio

ns)

2014- Nike signs Rory Mcilroy2014- Nike signs Rafael Nadel

Nike Inc.

Strategy Analysis and Company Overview http://www.highsnobiety.com/2015/11/09/nike-adidas-market-shares/

Competitive PositionNIKE vs ADIDAS l MARKET CAPITALIZATIONS

2012Sells UMBRO, drops Yeezy 2,

Flyknit fiasco, drops Roshe Run

2015- Adidas launches Yeezy boost, signs James Harden

2011- Adidas launches “All In” campaign featuring David Beckham, Lionel Messi, Katy Perry and Derrick Rose

2014Adidas signs Parrell and Nigo,

2014- Yeezy 2 RED October

2013- Nike sells Cole Haan

2012- Flyknit vs Primeknit fiasco

2013- Launches energy boost running technology

2013Adidas signs Kanye West

2014- Adidas launches Tubular

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Integration

Branding Strategies

Product Innovation

Manufacturing

Celebrity Endorsements

Nike has enjoyed success from their superior ability to market themselves in a

way that brings value to its customers.

Nike has reached economies of scales by licensing their products to contract

manufacturers to international markets where costs are lower.

Nike continues to develop new styles of footwear, clothing and accessories that appeal to their

customers. The company began as a footwear company but diversified its business and succeeds

at filling customer needs.

Since endorsing Michael Jordan in 1984, the company has prides itself on the multiple partnerships with other celebrities who represent Nike in a positive way. These

ambassadors are seen as real life remodels and create affect-based trust between the

customers and the company.

Cradle to Cradle FrameworkNike’s Better World campaign boosts the

company’s image as being compassionate for the livelihoods of communities and growth in

economies.

Problem occurs when customers no longer see value.

Problem occurs when products no longer satisfy needs.

Problem occurs when celebrities are no longer trustworthy.

Problem occurs when customers do not believe their efforts are making a change.

Problem occurs when customers can buy their products elsewhere.

Nike Inc.

Strategy Analysis and Company Overview http://www.nike.com/us/en_us/c/better-world/

Recommendations & Action Plan

Nike’s company structure and strategies have no doubt placed them in a position that is hard to beat.

Although they have built a successful empire, the strategic issue remains. What will Nike do when their products no longer hold value to the customers they serve?

Recommendations & Action Plan

• Be the first to establish a new trend, rather than being the company that has to catch up to it. Pioneer inventive products that appeal to customers.

• Continue reaching customers by bringing awareness of Nike through different social media platforms. • Become more relatable to regular people by sponsoring a YouTube personality.

• Create different ways to increase customer switching costs. This could include a shoe that is fitted specifically to the foot of a customer.

• Continue research ways to make a healthier production process for all of those involved.

Sources• http://www.wolverineworldwide.com/investor-relation/annual-reports/WWW_2014_oar/home.html • http://www.businessinsider.com/the-athlete-endorsements-helping-under-armour-compete-with-nike-2015-6• http://www.highsnobiety.com/2015/11/09/nike-adidas-market-shares/ • http://www.trefis.com/stock/nke/articles/217421/marynike-through-the-lens-of-porters-five-forces/2013-12-02 • http://www.triplepundit.com/2011/11/nike-puma-reframing-sustainability-message-younger-market/ • http://www.triplepundit.com/2011/12/dear-nike-better-world-better-marketing/• http://www.valueline.com/Stocks/Highlights/SWOT_Analysis__Nike.aspx#.Vh3VNCtSE4c • http://news.nike.com/news/nike-inc-introduces-2015-global-growth-strategy• http://www.nike.com/us/en_us/sl/store-locator• http://www.statista.com/statistics/278834/revenue-nike-adidas-puma-footwear-segment/• http://marketrealist.com/2014/12/understanding-nikes-pricing-power-and-premium-products-tilt/• http://www.fool.com/investing/general/2015/02/12/nike-inc-vs-under-armor-inc-the-2015-matchup.aspx• http://www.nikebiz.com/crreport/content/workers-and-factories/3-1-2-key-issues.php?cat=overviewb • https://www.allfreepapers.com/Miscellaneous/Nike-Executive-Summary/28609.html • http://www.nikeresponsibility.com/report/content/chapter/business-overview