sports apparels final

8/7/2019 SPORTS APPARELS final

1/46

AProject Report

on

SPORTS APPARELS

PUMA

Submited By:-

(Group No. 5)

PGDM-IB Apurva Bhardwaj (207)Namisha Choudhry (228)

Prateek Jaiswal (240)Pratichi Dixit (241)

Prerna Karwa (244)

Rashmi Sharma (248)

Rohit Saha (249)
http://en.wikipedia.org/wiki/File:New_Balance.svghttp://en.wikipedia.org/wiki/File:Reebok_logo.svghttp://en.wikipedia.org/wiki/File:Adidas_Logo.svghttp://en.wikipedia.org/wiki/File:Nike(c).svg


2/46

INTRODUCTION

Sportswear has become a big market today with most of the people showing their interest

in sports during their leisure or free time. Now-a-days sports apparel scenario has seen a

major makeover with new fabrics being introduced that provide better fit, more comfort

and are even fashionable. Apart from apparels, even the footwear trend is changing with

the new technological advancements. Sports have become so popular recently that

sportswear industry has wide range of options for everyone including from kids, college

students to men and women. Having sportswear for children may make them feel special

and just as important as the adults. Their attire usually consists of many colorful things

just to spice up there sports dressing. Sometimes these colorful spiced up dresses may

even inspire some of the young kids to get into sports. With over 40% of female fans

interested in sports and increasing number of women athletes, it is very important to have

right clothing for them. Most of the stores today offer a complete line of women and girls

sports apparel or you can even shop on-line. Recently even the men sportswear has seen a

major change with the changing trends. Sports wear are improving with the new

technologies and they have become lightweight, durable that offer protection to the

wearer as well as provide utmost comfort in any type of condition. Sports apparel today is

not only designed for function but most garments today also employ designs that make

them more fashionable.

Nowadays, its common to designers catering to various segments as and when need

arises. So, its only natural to find that under the sports apparel banner, one will find

apparels for kickboxing, karate, yoga, tennis etc. you name it; you would find it.

Designers are now making their mark by making sports apparel extremely fashionable.

No longer are they the same old boring designs. It is now very fashionable to sport

designer label when trying to shed that extra weight and get into shape.

Sports apparel is now available in all sizes for the extra small woman to the extra tall who

is over 5 ft 10 to 6 ft tall. A lot of work goes into the making of sports apparels. They not


3/46

just about color and design and being trendy, but also about look, fit and comfort.

Here are a few tips to remember while choosing sports apparel. When you need gear for

running, it is ideal to find something other than cotton, as it would lead to chafing as

cotton absorbs moisture. Running shorts, tights, and socks are what is needed to make

sure the base layer keeps you dry in the long run. Of course, a comfortable pair of

running shoes has to go with the apparel. For Golf, one just needs trousers and T -shirt as

comfort plays an important part. Nowadays chinos and shirts have made the grade as

golf sports apparel. Sports apparels normally sport a combination of numbers, symbols

and prints. Colors are normally fresh red, white or blue. They include football sweats;

mesh knits, T-shirts, cardigans and hooded styles. Most Sports shops and Malls in Indiasell sports apparels. Ludhiana, in North India is famous for it's sports apparel industry.


4/46

BACKGROUND

Out of the Gym, into the Street, Sports Apparel Has Become a Big, Growing Business.

Sports apparel is no longer confined to gyms. In fact, leisure apparel, especially for

women, and increasingly for teenagers, has become one of the hottest lines in the garment

industry.

Last year, the nations specialty and department stores rang up U.S. retail sales of sports

apparel totaling $43.7 billion, representing 22.8% of the overall clothing market, and

increasing 5.6% from 2005, a 40% faster improvement than the rise in overall apparel

sales.

The steady growth of athletic-style clothing has forced clothing designers to change thedirection of their overall lines to include a broader selection of sports-inspired looks.

Sports apparel now includes casual sports clothing, active sports clothing and licensed

sports clothing, and range from basic and inexpensive socks to high-end designer labels.

Consumers are demanding sports apparel and sporting accessories that possess a blend

of fashion, function and performance However, the largest challenge facing sports

apparel companies will be gaining market share in an already maturing market.

Its important to also recognize that despite its size and growth, the sports apparel

market remains highly fragmented, with the leader Nike, Inc. having only a 3.8%

market share, and it scales down sharply from there. Moreover, consolidation is

becoming significant, driven primarily by the need for economies of scale in dealing with

suppliers stretched around the globe. The industry has also increasingly become the focus

of private equity firms.

The study also points out that with functionality and versatility being so important,

vendors have responded with stylish clothing for both men and women to go from the

gym to the streets: World-famous apparel designer John Varvatos has partnered with

legendary sports company Converse to design a line of shoes and clothing in an effort to

reinvigorate the retro brand. Actress Scarlett Johansson has lent her name and input to

help design a women's line for Reebok, while actress Eva Longoria recently signed on to

be the new face of Bebe Sport (Nasdaq: BEBE). Clothing designer Stella McCartney,


5/46

daughter of the famous former Beatle, lends her design expertise and her name on

everything from yoga gear to ski pants for global sporting goods giant Adidas (DB:

ADS).

Particularly fast-growing, says the report, is the number of brands creating crossover lines

that may not even be sold through traditional sport goods channels. Crossover wear is a

primary driver behind the growth of fitness apparel sales relative to overall clothing sales.

Consumers are willing to wear these new fitness products outside of their traditional

location, the gym. The expansion of overall usage contributes to increased spending on

fitness products, while the amplified focus on style necessary for such items allows

manufacturers and retailers to charge significantly higher prices.

Among the major trends spurring the growth in sports apparel that can be pointed out,

are:

High-tech clothing that has the ability to reduce the potential for injury or

discomfort, along with smart fabrics that help the wearer in their exercises by

acting as a heart rate monitor.

Stylish sports wear that is now fashionable in chic restaurants as well as gyms.

The fact that consumers are embracing low-maintenance life styles and sports

wear, again while maintaining a fashionable image.

Growth of women in sports, particularly in canoeing, trail running and other

rugged outdoor activities.

Expanding demand for eco-friendly clothing, ranging from organic cotton to

enhanced natural sourced fabrics.

Sports apparel is no longer just functional, but has become a staple of everyday

wardrobes. With prices ranging from bargains to high end, sports apparel has become a

diverse, dynamic market, with both major manufacturers and a slew of smaller companies

actively serving particular niches. And niche players, such as Under Armour

(NYSE:UA), which is an explosive driving force because of its introduction of advanced

performance compression garments that keep muscles warm to lessen chance of injury,

are providing technological advancements in clothing that are not only feasible but

marketable.


6/46

CUSTOMER BEHAVIOUR

The Indian retailing industry, which was traditionally dominated by small and family-run

stores, has come of age. The retail sector is the second largest employer after agriculture

in the country and also the second largest untapped market after China. There are some

12 million retail outlets in India. Besides, the country is also dotted with low-cost kiosks

and pushcarts. Organized retailing is only 2% of the total retail industry.

Over the past couple of years there have been sweeping changes in the general retailing

business, mainly in apparel retailing which was once strictly a made-to-order market for

clothing has changed to a ready-to-wear market. Flipping through a catalogue, picking

the color, size and type of clothing a person wanted to purchase and then waiting to have

it sewn and shipped was standard practice. Fashion element and design content was

minimal in the pre-1990s, owing mainly to the lack of national level brands. At the turn

of the century some retailers would have a storefront where people could browse, and

new pieces being sewn or customized in the back rooms. Among the few players who

have been catering to the branded market are Reebok, Nike, Adidas, Puma, Park Avenue,

Charagh Din, Liberty, Double Bull, Proline and Snowhite. It took a quite long time for

brands such as Allen Solly and Van Heusen to create a respectable market share in theready-to-wear market. Big players like Tata, Raheja, Biyani, etc have intensified the

competition with their professional retail chains like Westside, Shoppers Stop and

Pantaloons. Recently, India is increasingly being looked upon as a major supplier of high

quality fashion apparels and Indian apparels have come to be appreciated in major

markets internationally. Mens apparel market is 46 percent of the total apparel market in

India. Preference for readymade garments is increasing and this has become inevitable

with the rise in urbanization. Whereas, womens apparel market is 17 percent of the total

apparel market in India. The preference for the branded Western and Indo-western

apparels among the working women is on the rise, which is a welcome relief for the

manufacturer and retailers of branded apparel. The dressing habits are getting refined if

not changed specifically among the working women. Kids apparel market is 37 percent

of the total apparel market. Being the brand penetration in this segment lowest at 9


7/46

percent shows a lot of potential for the branded players to exploit this segment. The

apparel market will be thrown open to competition in the year 2005, due to expiry of

Multi Fibre Agreement. Then there will be lot of demand in the western countries. After

China, India is being perceived as the next country with the biggest 'Growth Potential'

due to its cheap manpower and natural resources. The first decade of the 21st century will

witness India as the major player in the apparel business - partly because more

industrialized countries like Korea, Taiwan, etc. have moved into other industries - and

partly because the Indian Government believes in, and wants to grow the apparel export

business, since it is a major earner of foreign exchange. The following report covers

various aspects of apparel retailing in India, starting from global overview to future

outlook of Indian apparel market. It also provides an in-depth study of current Indian

apparel market scenario, which includes manufacturing capabilities and exports market.

The report covers trends and expected market sizes of different product categories e.g.

Mens wear, Womens wear and Kids wear. Extensive analysis of consumer behavior

while purchasing different apparel categories, Michael Porters 5-forces analysis, SWOT

analysis and Supply chain management are provided in this report. The details of major

retailers and their financial dynamics have also been discussed in the report.


8/46

Athletic apparel is an important and growing product category, accounting for 13% of

total U.S. apparel offerings at retail in 2009, based on data from Cotton Incorporateds

Retail Monitor. According to Just-Style, the U.S. athletic apparel market grew an

estimated 8.5% from 2003 to 2008, from $13.0 billion to $14.1 billion, and is projected to

grow another 8.5% by 2014, to $15.3 billion. Athletic apparel appeals to a wide range of

consumers, as over two-thirds of U.S. consumers exercise at least once a week, according

to Cotton Incorporateds Lifestyle Monitor. Consumers also appreciate the versatility of

athletic apparel, wearing it for non-athletic purposes as well. Furthermore, they are

willing to pay full price for its functionality the Retail Monitor found that athletic

apparel was significantly less likely to be offered on sale than non-athletic clothing

(46% vs. 54%). To gain insight into this growing market, Cotton Incorporated conducted

a national survey of consumers who had bought athletic apparel within the past year and

who reported exercising regularly. Consumers were asked how they purchased and used

athletic apparel and their attitudes towards its features. These consumers exercised an

average of 3.8 days a week, and differences in exercise frequency by gender and age

group were small. As might be expected, younger consumers (aged 13 to 24) were more

likely to run, dance, and play organized team sports, while their elders were more likely

to walk or hike. Women were more likely to participate in walking and cardio training,

while men were more likely to weight train. Although consumers buy athletic apparel to

wear when exercising, the vast majority wear it for other purposes as well. Only 13% of

respondents said they wore their athletic apparel only for exercise, while 80% reported

wearing it around the house. Women were more likely to wear athletic apparel while

running errands (61%), whereas men were more likely to wear it out to lunch or a movie

(22%) or to work (15%). Nearly half (46%) of young consumers (aged 13 to 24) said they

wore athletic apparel to school or class.


9/46

KEY FEATURES: COMFORT AND FIT

Given the versatility of athletic apparel, it is not surprising that consumers look for the

same key features in these garments as they do in other types of apparel. When asked

what they liked about their current favorite athletic garment, consumers cited

comfort/softness first (47%), followed by fit (16%). These same factors drove their

purchases when asked their main reason for buying a particular athletic garment, 44%

cited fit/comfort, followed by price (14%) and performance features (12%). Women

cared more than men about fit/comfort (49% vs. 39%), while men cared more than

women about performance features (15% vs. 9%), and the youngest consumers (13 to 24)

cared more about style than did older consumers (11% vs. 4%).The most popular retail

channels for athletic apparel were mass merchants and sports retailers (29% each).

Regardless of retail channel, consumers cared most about fit/comfort. However, the

number-two factor among those who shopped at mass merchants was price (20%), while

those who shopped at sports retailers were more likely to care about performance

features (19%) than price (8%).


10/46

ATHLETIC APPAREL OFFERS VERSATILITY

% of consumers who wear athletic apparel for other purposes*

Around the house 80

Running errands 58

Shopping 34

Lunch/movie 18

School/class 16

Exercise only 13

Work 10

*Consumers could cite more than one activity.

SEGMENTATION ON THE BASIS OF PURPOSE

RUNNING ERRANDS

SHOPPING

LUNCH/MOVIE

SCHOOL/CLASS

WORK

EXERCISE ONLY

FAVORED FORMS OF EXERCISE

% of respondents who participate in each activity*

Walking

58%

Cardio training

46%

Weight training

44%

Running

33%


11/46

COTTON FOR COMFORT

Consumers shopping for athletic apparel like to make informed purchase decisions 77%

said they were likely to read labels, and 64% said that the information provided on labels

was likely to influence their purchases. A key piece of information they glean from labels

is fiber content. When asked to choose among three athletic apparel products with the

same price, style, and performance features but with different fiber content, most

consumers chose cotton (76%) over polyester (12%) or nylon (12%). Nearly a third of

consumers (31%) said they avoided certain fibers when buying athletic apparel, and the

most-avoided fiber was polyester (35%) the main reasons being that it was

uncomfortable, was too hot, and didnt breathe. In contrast, the comfort of cotton makes

it consumers favorite fiber to wear when exercising. When asked what attributes best

described cotton athletic apparel, most consumers cited comfort (87%) and softness

(86%), followed by durability (77%) and good fit (77%). However, despite consumers

interest in cotton athletic apparel, the Retail Monitor found that only 38% of athletic

apparel offered at retail contained cotton.

PERFORMING UP TO EXPECTATIONS?


12/46

In a market dominated by synthetic fibers, only 3% of consumers said they were satisfied

with their synthetic performance athletic apparel. Over a third (35%) said they had

purchased athletic apparel with a feature that did not perform as expected. Most

consumers ( 93%) said they would be upset if they bought a garment for a specific

performance feature and it failed to perform, and 90% said they would not purchase the

brand again.

Dissatisfied customers signal market opportunities. Consumers love cotton for its

comfort, and they like the idea of cotton athletic apparel with performance features.

When asked whether they would purchase cotton athletic apparel.

Of the 35% of athletic apparel offering performance features, % offering each feature*

Moisture wicking 67

Quick drying 27

Waterproof/resistant 23

Wind resistant 11

Temperature control 11

Anti-microbial 7

Odor resistant 1

SEGMENTATION ON THE BASIS OF

PERFORMANCE FEATURES

MOISTURE WICKING

WATERPROOF

TEMPRATURE CONTROL

ANTI-MICROBIAL

ODOR RESISTANT

QUICK DRYING

PRIMARY SURVEY: DATA FROM STORE

MANAGERS OF DIFFERENT RETAIL OUTLETS


13/46

Our group has done a survey in which we had been to the various retail outlets of

different brands in the Great India Place, Noida. This particular data that we collected

includes the information about how they manage their outlets, their average monthly

revenue, their target customers, their unique selling point (USP). The main purpose

behind this study was to know the various strategies that the different brands follow.

This survey includes data about 3 major companies, they are reebok, adidas, puma and

nike, who play a very key role when it comes to sports apparels category. The data was

collected by asking a few questions to the store manager. The following is the

information that we collected.

NIKE

This showroom has average monthly revenue of around Rs. 30 lacs. The breakup of their

revenue as per our survey made is like this: 50% from foot wears, 40% from apparels and

10% from accessories.

When asked about their USP, we came to know that this brand is known for its comfort

level. It focuses a lot on the comfort zone of its customers. This company concentrates on

the collection for women and kids as well. So it easily targets all types of people.

The prices of its products are higher than other brands like adidas, reebok, etc. But still

these companies stand as a competition for nike.

REEBOK

After talking to the store manager we came to know that this showrooms average

monthly revenue is around Rs. 15 lacs. The breakup of the sale is: 25% comes from

apparels, 10% from accessories, and 55% from foot wears. So, we see that REEBOK has

its main part of revenue from foot wears.

When asked about the USP, the manager said that this company uses various

technologies in its products which help them creating products according to the need of

various people. Till now, it has got 42 different technologies used to produce the items.

They consider adidas and nike as their main competitors. The pricing strategy of adidas is

almost the same but that of nike is a bit higher. The stocks that they have in their


14/46

showrooms keep changing every 3 months and they keep bringing in new and fresh

stocks. Their target customers mostly include the youth.

ADIDAS

The data collected about adidas showroom says that their average monthly revenue is

around Rs. 37 lacs. Their revenue break up goes like this: 15% from track pants, 20%

from shorts, 20% from collar t-shirts, 20% from t-shirts, 10% from accessories and 15%

from others (jackets, pullovers, etc.). They consider nike and reebok as their main

competitors. Their main focus while making their products is comfort. They give the

most importance to the comfort level of the customers and that also becomes their USP.

They have also been providing a very good after sales services to their customers. There

is a club called adiclub opened by adidas for its customers. All the customers are made

aware of this club and they can join in that club. The customers can provide their

feedbacks, suggestions, etc. about their products being a part of that club. This activity

also gives them an opportunity to be in regular contact with their customers.

Their target customers are of all age group. They do not specifically target a particular

age group.

PUMA

This brand is mostly considered as a lifestyle brand. The prices of the products are

higher. The average monthly revenue of this particular showroom is Rs. 30 lacs per

month. Their revenue break up as per the items for male and female is 65:35. On the

other hand the revenue break up as per the items is: 55% foot wear, 35% apparels, and

10% accessories. Their main focus is on status and style. They provide a feeling of high

lifestyle to their customers. Their main aim is not to compete with other sports brands.

Puma has targeted customers of every age equally.

This was the total study that we made on the retail outlets of various brands. The main

aim was achieved as to understand the various strategies that these brands use, their

revenue break ups, their USP, etc. This was all about the survey of the outlets


15/46

MARKETING STRATEGIES AND

COMPETITION

ADIDAS

Entered India as part of global strategy

Adidas decided to enter India as part of the companys global strategy to take direct

control of the markets in Asia.The domestic demand was not high when the company

started India operations. In the first 9 years, India was the smallest sub-division in Asia,

in terms of revenue. The company believed that India had the potential to become a huge

market considering Indias large young population and the changing demographics.

Currently out of the 13 subsidiaries in Asia, India is ranked number 7 and the

management believes it has the potential to climb up to number 3. The merger with

Reebok will strengthen adidas in India. In most countries, adidas is significantly bigger

than Reebok. However in India, Reebok has a larger share of the market.

Keys to success

adidas success factors include strength in supply chain management, cutting edge

technology, a strong retail network and effective advertising. India provides advantages

in terms of lower labor costs and a highly-skilled work force. However, attracting and

retaining the right people is a challenge in a highly competitive job market. Retailers are

willing to invest money in setting up showrooms but generally their understanding of

retailing is poor.

Focused approach to the market and support from parent company

adidas entered India with aggressive marketing campaigns. It brought in Indian sports

icons Sachin Tendulkar and Leander Paes to endorse the brand. The parent company has

been very supportive. The top management had the belief and commitment that it would

weather the initial loss-making years, before India could gain critical mass and become a

profitable operation.


16/46

REEBOK

Reebok started its operations in India in 1995. Headed by Managing Director Mr.

Subhinder Singh Prem, Reebok India has a pan-India presence with branch offices in

Mumbai, Kolkata and Bangalore and ranks at the top amongst international footwear

companies in India. The Company's brand vision is fulfilling potential, its mission

Always challenge and lead through creativity. Reeboks positioning is to celebrate

individuality in sports and life. Reebok has introduced its internationally acclaimed

fitness programs in India, conducted under the banner of Reebok Instructor Alliance,

which is dedicated to fitness instructors, personal trainers and health club owners. Reebok

has trained and certified more then 900 trainers till now.

Reebok India commands 40% market share in the premium sports wear industry. It plans

to increase the store count from the existing 500 to over 600 before the next financial

year. Reebok reaches out to its target customers through its 500 exclusive Reebok Stores,

200 Shop in the shop outlets & 2500 dealer outlets.

Comparison

The entry of foreign players into the Indian sportswear industry post-liberalisation

brought in a new sophistication, and increased brand awareness among the Indian

sportswear customers. In an intensively competitive environment, Reebok and Nike

emerged as sportswear giants. However, in spite of Nike being the No. 1 sportswear

company in the world, Reebok swayed away with the lion's share of the Indian market.

Among others, Reeboks prime strategy was to associate itself with the cricket frenzy

Indians. While Nike was wasting dollars on promoting its brand through international

sports persons, Reebok roped in top Indian cricket players to endorse its brand. Realising

the importance of localising its brand, in December 2005, Nike won the bid to supply

official kit to the Indian cricket team. In spite of this, Reebok grabbed the attention of

cricket viewers across India by placing its logo on the bats of the Indian cricket players.


17/46

NIKE - NEW BALANCE: A CASE STUDY

The industry of athletic apparel is vastly growing in todays society. With this rapidly

expanding industry, the competition between companies, such as New Balance and Nike,

is extremely fierce. To compare which company has any possible competitive advantage

over the other, one must identify different issues, controversies, and future plans provided

by the two companies.

About NikeNike is one of the largest sports apparel brands, accounting for 50 percent of the sports

footwear market alone. Nike leads the athletic footwear with an estimated 36 percent

share of the U.S. market. Nike also has annual sales of around $13.7 billion. All of these

vs.


18/46

attributes, plus more discussed later, makes Nike extremely hard to compete with; giving

them competitive advantage.

Competitive Advantage--Innovative Designs

Nike gains competitive advantage over New Balance through innovative designs,

marketing strategies, big endorsements, and more international recognition. Nike is

known for their innovative designs because they come out with a new model every week.

Another way Nike remains ahead of its competitors is by anticipating customers desires

and then supplying large orders based on these predictions. Besides designing new shoes

weekly, customers can also design their own shoes on Nikes webpage. Consumers can

pick their favorite colors and personally customize their own shoes; this is called Nike

ID. Nike has simply learned that young shoppers now demand ways to differentiate

the products they buy and that the customization trend will only get bigger. Nike is the

biggest company to take advantage of this innovative technology, which largely gives

them competitive advantage in this area.

Adverting and Marketing Strategies

Nike is also extremely popular because they lead the industry in advertising and

marketing strategies. Since Nike has the largest sales they can afford to spend a lot of

money on advertising. The average American connects the swoosh logo, along with

the slogan Just Do it, to Nike without even thinking twice. This connection is the

magical work of marketing. These quick recognitions to Nike make them a dominant

name brand.

Large Endorsers/Team Sponsorship

To also help them establish a dominant name brand, Nike has endorsed many popular

athletes and team sports. Some of their key sponsorships are LeBron James, Michael

Jordan, Terrell Owens, and Lance Armstrong. All of these athletes have been hand

picked by Michael Jordan to become a part of the subsidiary Nike brand Jordan.

Along with individual athletes, Nike has sponsored many team sports such as collegiate

teams and professional athletic teams. Some collegiate teams include The University of


19/46

North Carolina and Ohio State University. For professional teams, Nike sponsors teams

such as Denver Broncos and San Antonio Spurs.

International Recognition

For more international recognition, Nike has extended their sponsorship to other

countrys sports. For example, Nike has shifted their focus to soccer in order to gain

more international acknowledgement. Even though currently Nikes sales have been

decreasing in the U.S., their international sales have been growing. Nikes response to

their declining sales in the U.S. was its acquisition of Converse. This is due to the recent

change in footwear taste, such as retro styles.

Current Issues--Sweat Shops

Quoting the founder Phil Knight, A lot has happened at Nike in the 30 years since we

entered the industry, most of it good, some of it downright embarrassing. One of their

embarrassing moments has been about their overseas factories. Nike has a total of 700

factories that produce its footwear and clothing. These factories locations consist of

China, Thailand, South Korea, Vietnam, and others in Asia. Worldwide, Nike employs

around 650,000 workers. However, there has been controversy that Nikes employees

were not being treated fairly. In some of their Asian factories, workers reported being

treated with physical and verbal abusive treatment. In these same factories, workers

were denied access to toilets, drinking water during the workday, and were also denied at

least one day off during a week.

In response to this harmful press, Nike has joined the Fair Labor Association which

conducts independent audits designed to improve the standards across the industry.

Nikes CEO and founder, Phillip Knight, has also made promises to improve the working

conditions of their oversea factories. However, it seems these promises were made just to

quiet the concern for sweatshops. Nike factory workers are still forced to work an insane

amount of hours per week, the average being 70 hours per week and are humiliated in

front of their employees or threatened if they refuse. Along with working too many

hours, factory workers are also being exposed to toxic fumes while producing goods.

Even in respect with cultural relativism, Nike is not treating their workers fairly because


20/46

Nike workers are not even paid enough to meet the most basic needs to tend for their

families.

Suit Filed Against Nike

Another recent issue to consider is a recent suit that was brought against Nike. On behalf

of the public, Kasky filed suit against Nike for false statements. Kasky claimed that Nike

made false statements of fact in letters to newspapers, press releases, and other public

documents about their working conditions and labor practices overseas. Kasky argues

that Nike did this in response to the public criticism of their alleged sweatshops in effort

to encourage their customers to continue buying their products. This in effect, Kasky

argues, is false advertisement and unfair competition.

Controversial Advertisements

Another controversial issue with Nike has been their strategy of advertising. Nike has

always produced edgy and controversial advertisements on purpose to attract the younger

audience. However, lately this kind of strategy has caused problems. NBC yanked a

Nike ad in which track star Suzy Hamilton narrowly escaped a masked chainsaw killer

a commercial intended as a spoof on horror movies, but which critics said glorified

violence against women. Historically, Nikes commercials have often been successful

but have often come close to offending people.

About New Balance

New Balance has a different perspective than Nike on how to run a company. Their

mission is broad but thorough in stating, We attribute this success to our ongoing

commitment to integrity, teamwork, and total customer satisfaction; performance and fit

over fashion; investment in domestic manufacturing; technological innovation; and our

anti-endorsement philosophy. We have remained true to who we are by remaining

focused on manufacturing as opposed to marketing, and by being concerned first and

foremost with producing high-quality performance products.

New Balance has always relied on a small budget for advertising, unlike larger

companies like Nike. Although it has had such a small budget and a low-key message, it


21/46

is now one of the top athletic brands in the world. Great marketing strategies, shoes

made for big and wide feet, and the ability to focus on age rather than popularity, give

New Balance a great outlook on the future.

Marketing Strategy

New Balance, contrary to Nike, has a marketing strategy that is greatly based on age. Its

products appeal to an older (ages 35-59), less fickle group of people. Many companies

always advertise to younger crowds, but what they dont realize is that these younger

crowds eventually grow up. The athletes and stars which larger companies like Nike use

to advertise their products grow older and retire. Mike May explains the age issue when

he says, These people are incredibly passionate about sports, but its not high intensity.

Whether you win or lose is neither here nor there. At 50, thats just not as important as it

used to be . Total spending by consumers is falling among 25-44 year olds by $4.3

million this decade. The population of people that range between the ages of 45-64 is

growing by 16 million consumers. Obviously, the youthful age group in which Nike

advertises to is falling, while the age group that New Balance promotes to is growing in

great numbers. New Balance strives to become the worldwide leader for high

performance athletic footwear and apparel for the serious athlete.

Function Over Fashion

According to The Walkers Warehouse, New Balance focuses on function over fashion.

New Balance offers a unique variety to its shoes. Unlike other companies, it offers five

different widths in shoe size (unlike the average of 3) and releases new products every 17

weeks (rather than the average 6). Doing this allows retailers to keep the New Balance

inventory longer and not have to downsize in order to make more room for new products.

Globalization has had a high effect on companies such as Nike, but a high amount of

products made by New Balance are made in the United States.

Current Issues

Recently New Balance is reported to be the fourth largest shoe company in the world. To

help achieve a higher level of satisfaction for their customers, they have teamed up with


22/46

Hewlett Packard to implement new servers into their business to help with management

and efficiency in the data center to get better organized. In other current news, New

Balance has been fighting to stop a former supplier in China from making counterfeit

shoes for domestic sales and export to Europe, Japan, and Australia. New Balance

representatives are more worried about protecting the image and the brand more than

anything. It is also easy for the Chinese to copy the shoes because even though New

Balance started out being an American company, the company has moved in many

directions; particularly in China. The counterfeit shoe brand is calling themselves New

Barlun. The Chinese officials along with New Balance have recently confiscated the

counterfeit New Barlun brand from retail stores in China because this brand is guilty of

infringement on New Balances trademark.

Along with making their mark in the press, New Balance is very involved in their

community. It seems that New Balance is more appealing to the more family-oriented

target market and wants to do good for the community. In their larger cities where the

plants are located, they try to contribute a little more. Recently, The Teen Health

Initiative at the Allston-Brighton Oak Square Branch of the Greater Boston YMCA has

been awarded a $500,000 grant by the New Balance Foundation. This foundation is to

increase the amount of exercise and reduce the risk of obesity and diabetes among teens.

This is another emphasis on how New Balance is more in touch with their community.

Conclusion

Even though Nike has more negative controversy issues in the media than New Balance,

we still feel that Nike has a competitive advantage over New Balance. The fact that Nike

has a much bigger budget to work with and tends to meet the needs of customers more by

allowing them to customize their own shoes, only helps Nikes competitive advantage

over their competitors. Also, because of Nikes marketing strategies, multiple

endorsements of major athletes, extending dominance in other countries, and innovative

designs, it is hard for New Balance to keep up with the competitive and always changing

Nike. However, New Balance is a growing company and we feel that with more brand

recognition they will be able to compete even more with Nike. Currently, Nike has a

flaw in their marketing strategy by only appealing to the younger audience. Eventually


23/46

this audience will grow up, and discover different issues other than looks. This is where

New Balances marketing strategy will take effect because they appeal to the older target

market by promoting function over fashion. Therefore, in the future New Balance may

have competitive advantage over Nike because of this.

Brands

REEBO

KADIDAS

NIKE

SWOT Analysis

Meaning

A SWOT analysis must first start with defining a desired end state or objective. A SWOT

analysis may be incorporated into thestrategic planningmodel.

Strengths: attributes of the person or company those are helpful to achieving the

objective.

Weaknesses: attributes of the person or company those are harmful to achieving

the objective.

Opportunities: externalconditions those are helpful to achieving the objective.

Threats: externalconditions which could do damage to the business's

performance.

Identification of SWOTs is essential because subsequent steps in the process of planning

for achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the

SWOTs. If the objective is NOT attainable a different objective must be selected and the
http://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Strategic_planninghttp://en.wikipedia.org/wiki/Strategic_planning


24/46

process repeated. The SWOT analysis is often used in academia to highlight and identify

strengths, weaknesses, opportunities and threats. It is particularly helpful in identifying

areas for development.

SWOT Analysis of Nike

Strengths

Nike, Inc is listed in NYSE and positioned as a US headquartered worldwide

sportswear trader and supplier that:

Contracts with about 700 shops worldwide, runs offices in 45 countries, and

manages factories in China, Indonesia, Taiwan, Thailand, India, Vietnam,

Philippines, Pakistan, and Malaysia.

Belongs to Fortune 500 companies which 2007 total revenue exceeded 16 b. USD

Employs more than 30.000 people worldwide;

Owns strong marketing strategy under Nike brand that assumes the involvement

of world top-class athletes and sportsmen in Nikes Just do it advertising

campaigns;

Operates a chain of Nike town retail stores;

Leads its international business operations through acquisitions and re-branding:

Converse Inc, 2003; Starter athletic clothing, 2004; Umbro, 2008;


25/46

Nikes premium brand is used to manufacture and promote a wide variety of

products for all types of sport-oriented and leisure activities;

Manages the US premier training program SPARQ Training Program;

Applies lunarlite foam and fly wire materials to reduce the weight of

manufactured shoes

Weaknesses

Unwilling to disclose information concerning its partnering companies, which

caused harsh criticism from CorpWatch and other companies;

Contracts factories in Vietnam, China, Mexico, Indonesia;

Violated overtime laws minimum wage rates and in Vietnam, 1996

Provides poor working conditions, and tends to exploit cheap workforce overseas,

especially in free trade zones where;

Some of Nikes ads are associated with US female empowerment;

In 1990s, Nike was reported to apply child labor in Pakistan and Cambodia to

produce soccer balls;

Contracts overseas companies that apply non-transparent and inadequate labor

regulations, involving child labor.

Positioned as a permanent subject of criticism by anti-globalization groups;

Forced Labor applications in partnering apparel factories in Malaysia, involving

forced Labor and poor living conditions.

Opportunities

Producing sportswear products from manufacturing waste;

Extension of eco-friendly projects like Reuse-A-Shoe Program aimed at further

recycling;

Emphasis on corporate marketing strategy through the promotion of corporate

brand and sponsorship agreements;

Threats

Textile industry adversely affects the environment, and therefore the company is

permanently striving to maintain its eco-friendly reputation;

Financial crisis may lead to job shortages in a number of Nikes worldwide

subsidiaries;


26/46

The company has experienced negative publicity feedbacks due to its extensive

advertising in mass media (Kasky v. Nike; Minor Threat at; Beatles song;

Chinese-themed at, Horror ad etc).

PORTERS MODEL FOR ANALYSIS OF COMPETITVE FORCES:

NIKE

Rivalry

Rivalry in the apparel and footwear industry is very proactive. Many new sports

conglomerates are attracted to this market due to high and promising profits.

Nevertheless, NIKE faces only few competitors that come close to its size and product

differentiation. The companys major competitors include Adidas, Solomon, Reebok, and

Fila USA, the latter of which is a privately held company. During the 1990s, NIKE

controlled nearly half of the market. Once competitors started rapidly entering this

market, NIKEs market share fell to 32.5% in 2002. However, NIKE is still considered to

be the leader in the footwear industry, since it is ranked number one (1) in US and

International sales. Adidas-Solomon, on the other hand, is the fourth (4) largest US seller

of athletic footwear and the second (2) largest globally, while Reebok currently comes

second (2) in US sales in this area. Another fast growing company Skechers, has acquired

a significant market share in the past few years. Skechers market share rose to 5.5% in

2002, but compared to the top athletic footwear manufacturers such as NIKE, Skechers is

still a very small player in this colossal industry.

Barriers to Entry

Product Technology

NIKE has always striven to provide a competitive edge to foster the best possible

performance in their athletes. This is the reason NIKE continues to lead innovation in

footwear, apparel, and equipment. The ability to test and examine footwear products


27/46

serves as one of the major barriers for any footwear company that considers entering the

market. NIKE is already highly advanced in the Research and Development area.

Specifically, NIKE operates its own Sport Research Lab, where it carefully examines

each of its new products. Three primary areas that researchers work on include:

Biomechanics (study of human movement), Physiology (study of the integration of the

bodys energy systems and responses to the environmental stresses), and

Sensory/Perception (subjective evaluation of product attributes, usability and durability).

NIKE Inc. invests heavily in having researchers perform a number of scientific

techniques to quantify their findings. Among numerous tests performed, here is a list of

some exams NIKEs athletic shoes are tested for:

Motion Analysis (kinematics)

Foot-pressure Measurement

Ankle Range of Motion

Metabolic Cart

Heart-rate Monitors

Blood-work

Proprietary Knowledge

NIKE has invested and achieved the most amongst any other sports company in

developing cushioning systems that reduce shock, distribute pressure, and provide

comfort for athletes feet. NIKE is credited with being the first to design footwear that

encapsulates air to cushion foot-strike. The companys scientists have also engineered a

new model called Zoom Air for NIKEs running shoe-line. Zoom Air shoes are very

light and they are designed to bring the athletes foot closer to the ground to allow greater

maneuverability. For the apparel category, NIKE continues to develop an array of

innovative designs for different types of sports such as basketball, volleyball, track-and-

field, swimming, tennis, golf, and fencing. NIKE is also an expert in manufacturing high-

performance fabrics that enhance athletes performance under various conditions. Nike

Sphere Dry, which is a double-brushed micro-fiber fleece that retains energy and resists

heat loss, Nike Sphere Thermal, which is a garment that serves as a thermal insulation, or

Dry-FIT, which uses a special fabric that absorbs the sweat and then brings it to the


28/46

surface of the fabric where it evaporates leaving the athletes skin dry, are few of the

designs that NIKE engineered so far.

Brand Identity

NIKE enjoys the popularity of its brand name, which is recognized all around the world.

Its name carries a trademark, and thus makes it illegal for other companies to infringe

upon the NIKE name. Besides the brand name, the company also has a trademark for the

Swoosh Design logo that identifies NIKE Inc. In fact, NIKE considers its name and the

Swoosh symbol to be the most valuable assets; therefore, the company registered these

trademarks in over 100 countries.

Patents

One of the exclusive licenses that distinguishes NIKE from the rest of its competitors is

the patented Air technology that the company uses to sell footwear. The process

utilizes pressurized gas encapsulated in polyurethane.1 Although some NIKE AIR

patents have expired, NIKE still holds a number of subsequent NIKE AIR patents, and

patents that cover specific features in various athletic and leisure shoes that will not

expire for several years. In addition, the company places a significant emphasis on its

Research and Development, Production and Marketing, and Design departments to

maintain its competitive edge.

Product Differentiation

In terms of product differentiation, NIKE is also leading the market. The only competitor

nearly has an identical business is Adidas-Solomon. Product differentiation is healthy in

the footwear industry and allows the company to increase its profits through the sale of

different products. Another advantage of manufacturing a number of product lines is the

reduction of risk in that if one product fails there are numerous other products to

compensate for this loss. Companies in the apparel and footwear industry that concentrate

on manufacturing a single product are at a great disadvantage since their revenues depend


29/46

exclusively on the sales of only one type of product, therefore, increasing the potential

default risk. NIKE designs most of its footwear for athletic use; however, in order to

diversify its products, a large percentage of their products come from sales of footwear,

apparel, and accessories for casual and leisure purposes. The company segments its

products in variety of ways. First of all, it manufactures sports goods and accessories for

three different groups of people: men, women and children. Each segment is carefully

examined in terms of physical capabilities, sociological needs, and design preference.

Another type of segmentation used by NIKE that helps to increase product diversification

is achieved by offering footwear, apparel, accessories, such as NIKE watches or gym

bags, as well as performance equipment, including sport balls, timepieces, eyewear,

skates, bats, gloves, and others in virtually every type of sport: running, basketball,

tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading,

aquatic activities, hiking, fencing, and others. Besides the two segmentations described

above, NIKE also has agreements for licensees to produce and sell NIKE brand items

aside from athletic footwear and apparel. In part, this product differentiation is

accomplished through strategic management planning by having the company sell NIKE

brand timepieces, childrens clothing, school supplies, electronic media devices, and

other items. NIKE subsidiaries, such as Bauer NIKE Hockey Inc., are yet another way the

company segments its product lines. Specifically, the Bauer NIKE Hockey Inc.

subsidiary manufactures and distributes ice skates, skate blades, in-line roller skates,

protective gear, hockey sticks and many other licensed apparel and accessories that make

NIKE stand out in its industry.

MANAGEMENT STRATEGIES

NIKEs mission statement is very straightforward. By referring to legendary track-and

field coach Bill Bowermans quotation, NIKE states that the vision of their company is

To bring inspiration and innovation to every athlete in the world. To follow its mission,

NIKEs managers are concerned with elaborating on the strategies listed below:

Functional-level strategy: is directed at improving the effectiveness of operations

within the company. NIKE is employing this strategy within its manufacturing,


30/46

marketing, product development, and customer service processes. Thus, in order to

improve its customer services, NIKE strives to represent the highest service standard

within its industry, and tries to build loyal customer relationships around the world.

Business-level strategy: encompasses the business overall positioning in the market.

NIKE stays competitive due to its cost leadership, product differentiation, and industry

segment management.

Global strategy: addresses the companys needs to expand its operations outside the

home country and compete on a global scale. NIKE is applying this strategy to its fullest

extent reaching its customers on all six continents: USA, Europe, Middle East, Africa,

Asia Pacific, and the Americas Regions.

Corporate-level strategy: concentrates on the firms ability to focus on particular

businesses that maximize the long-run profitability of the organization. NIKE is able to

maintain its long-run profitability and even continue to grow within its industry because

it produces what it knows best, as well as, improves and innovates its products. NIKE

depends heavily on Strategic Outsourcing. Virtually all footwear products are produced

outside the United States. There were seven (7) contract suppliers outside the US that

manufactured NIKE brand footwear in 2003. The Republic of China, Indonesia, Vietnam,

and Thailand manufactured 38%, 27%, 18% and 16% of total NIKE footwear

respectively. In FY2003, only approximately 1% of total NIKE brand apparel was

manufactured in the US. Independent contractors located in 35 countries manufactured

the remainder. 2 Another key to success for NIKE Inc. is its exploitation of the network

structure, which allows it to replace the non-performing alliance partners that fail to meet

NIKEs standards with new partners. In addition, the company works closely with its

suppliers, which helps NIKE reduce costs and increase product quality with new

developments in technology.3 NIKEs use of killer applications allows it to use new

technology to manufacture superior products that are so compelling that the company

persuades customers to adopt the new format, thereby killing demand for competing

companies. Generally, killer applications help NIKE to jump-start demand for the new


31/46

standard and allow it to lead the market. Currently, NIKE Inc. began a realignment of the

companys US footwear distribution to address the challenging retail market.

Supplier Diversity: Supplier diversity is a very important part of a successful business

and it holds several key aspects. It is about understanding the importance of consumers

and satisfying their needs. However, since NIKEs customers are on a worldwide scale,

the company needs as broad a base of suppliers as possible to actively and significantly

reflect the world in which it operates. NIKE relies heavily on its supplier relationships to

help the company arrive at innovative and creative solutions, to understand its business,

and to help it reach its goals. Furthermore, with such a large and diverse supplier base,

NIKE is able to have a strong presence in the markets it operates, and it has a solid brand

name that is recognizable worldwide, with strong credibility.

THREAT OF SUBSTITUTES

A threat of substitutes is highlighted with the ability to replace the companys existing

products with one of its competitors or other industries. When a products demand is

affected by the price changes ofsubstitute products, the company ought to adjust its

prices by reducing manufacturing costs or other unnecessary costs. However, in the case

of NIKE, the company is to some extent able to keep its prices higher than other

competitors because of its recognizable brand name, and its customer loyalty that it

heavily depends on. The threat of substitutes is also affected by the cost of supplies that

are used for manufacturing. Again,we see that NIKE is able to keep those costs lower

than other competitors because of its good supplierrelationships, its low default risk, and

its continuous productivity all year long for all seasons. In terms of fear of the buyer

inclination to substitute, NIKE is less affected than other companies because of its

product quality, brand recognition, and geographic diversification. NIKE products are

distributed on all continents and target different age groups. NIKE Inc. is a well


32/46

established company, with quality products, at very competitive prices. The latter

qualities dramatically decrease the threat of substitutes for its products.

Buyer Power

The power of buyers in the footwear industry is distributed among several companies.

Even though the number of buyers is around 25 companies, there are a small number of

them that control the market.

Being a very large corporation with a very large consumer base, NIKE is able to acquire

other competitors or producing firms. NIKE joined with some great partners over the

years to extend and improve its products quality, variety and efficiency. Some of those

companies include: Cole Haan, Bauer, Hurley International, and Converse. Because of its

rigorously established situation in the markets it operates, the company is also able to

control its supplies by increasing the number of suppliers and therefore increasing

competition and lowering costs. NIKE designs, manufactures, and markets a much

diversified portfolio of products which includes footwear, clothing, sports accessories,

and other equipment for almost every existing type of sport. This characteristic gives

NIKE an advantage over other sports companies that carry a smaller product line by

limiting their control over the market and product diversification, which essentially

increases the possibility of default.

Analysis of Management Strategies

To offer a better service quality to their customers, suppliers and other parties interested

in doing business with NIKE, the company is about to launch a new Supplier Diversity

Management System. This new system will assist the company in sourcing for certified

diverse suppliers, supplier registrations, and reporting and tracking of their supplier


33/46

diversity goals and expenditures. Management focuses in large on supplier diversity

initiatives that afford solid benefits that can have a favorable impact on business. It's

accomplished in several ways:

Creating more competition in the supply chain results in lower costs of goods and

services.

Maintaining a connection to the broad consumer base that is populated with increasing

numbers of minorities, women, and those who are physically challenged.

Providing economic stimulus to the community as a result of increased business with a

wider range of diverse suppliers.

Dedicating to supplier diversity not only contributes to the enhancement of our brand,

but it also creates and strengthens our relationship with our customers who also value

diversity.

The year of 2003 brought a lot of challenges and obstacles to NIKE and other companies

in general. Some of the problems that they had to face were a global economic recession,

West Coast port closures, the unforgettable mystery of the virus SARS, a crushed

European supply chain, and a major cut in demand from Foot Locker. Even with such

high hurdles to face, NIKEs management had their best year ever in sales and in

earnings per share before an accounting change.

NIKEs management focuses on delivering high earnings8 year after year by increasing

sales and by establishing company growth. To achieve high earnings, management

promises long-term potential which is broken down as follows:


34/46

1. The regenerative nature of sports itself.9 New athletes are born every day; and

today's generation of athletes promises to reach new levels of human potential, and it's

the companys job to help them get there.

2. Behind the performance and greatness of athletes and teams, is NIKEs product. Great

quality, and great innovations and technology put into the manufacturing and design of

NIKEs products is a key factor to success of the company.

3. Advertising and marketing are becoming one of the essential factors to a successful

business. With all the competition in the market, being able to gain an advantage over

other competitors through advertisements and marketing has become a must.

4. Behind it all are the people of Nike, the men and women of this company who have

never accepted failure, who consider us a growth company, even when sales go down.

With a lot of dedication and a competitive edge in their work, NIKEs employees are

considered the back bone of the company.

Growth is one of NIKEs main goals. It enjoys growing sales revenue every year, which

allows it to pay out dividends since it was a start-up company in 1987. The dividends that

NIKE paid out through the years are increasing gradually reaching its second highest of

$0.20 per share in March 2004, having paid its highest in 1994-95 of $0.25 per share.

Being a growth company, NIKE has acquired several other competitors like Cole Haan,

Bauer, Hurley International, and Converse. By doing so, NIKE grew even bigger and

stronger, and was able to control a larger part of the market and serve a larger customer

base, which generated higher returns. The footwear industry is one of the industries

where new products and new designs are a must for the survival of the company. For that

fact, one of NIKEs managerial strategies is the emphasis on the research and

development section, which is considered a key factor in the past and future success of

the company. Technical innovation in the design of footwear, apparel, and athletic

equipment receives continued contribution and attention, as NIKE strives to produce

products that reduce or eliminate injury, aid athletic performance and maximize comfort.

NIKE Historical Ratios


35/46

NIKEs Return on Equity rose 36.41% between 1999 and 2000, while a shaky position

between 2000 and 2001 resulted in a fall in the return on equity gained from the previous

yr by 8.61% to stand at 16.88 in 2001. This position was reversed in the following two

years with return on equity rising by 3.14% between 2001 and 2002 and then 6.54%

between 2002 and 2003. Return on Assets steadily increased for NIKE from the period

from 1999 to 2003 with an overall increase of 28.14% showing that NIKE continuously

earned more returns on the employment of its assets throughout the years. Operating

Margin also steadily grew from 1999 to 2003 with a slight drop by 2.37% in 2001 but

then rose again by 0.94% and then 7.97% resulting in an overall increase in operating

margin from 1999 to 2003 of 19.36%.

Liquidity Indicators

NIKEs liquidity fell between 1999 and 2000 by 25.66% but the company was still able

to meet its short term obligations with its current assets. After 2000 the companys

liquidity then steadily increased from 2000 to 2003 to highlight an overall increase in

liquidity of 2.65%. The quick ratio also highlights a similar movement in liquidity.

Liquidity dropped between 1999 and 2000 by 30.77% but then the company steadily

improved its liquidity throughout the following years to result in an overall increase in

liquidity of 10.77% as represented by the quick ratio. In terms of the ratio of debt to

equity in financing between 1999 and 2000 NIKE showed an increase in debt in its

financing as compared to equity but then in 2000 the company showed a reversal in its

position with more reliance on equity compared to debt. 2001 to 2003 showed an


36/46

increased use of debt compared to equity in NIKEs capital structure and therefore

showed NIKE to be more leveraged at the end of 2003.

Asset Management

Revenues as a percentage of total assets dropped between 1999 and 2000 by 7.78% then

improved by 5.84% in 2001 but then declined again in 2002 by 5.52% and then improved

in 2003 by 3.24% to stand at 1.59. Even with these fluctuations, NIKE achieved positive

gains on its total assets in the form of revenues for example in 2003 for every $1 in total

assets NIKE generated $1.59 in revenues. Revenues as a percentage of working capital

fluctuated throughout the years moving up between 1999 and 2000, and then

continuously fell between 2000 and 2003 by an overall 35.11%. The Interest covered

figures showed improvement between 1999 and 2000, a drop between 2000 and 2001 but

then a continuous increase from 2001 to 2003 showing that NIKE is able to cover its

interest expenses 27.18 times.

Comparison Data for 2003

Financial Ratios


37/46

Liquidity Ratios: Liquidity is a measure of a companys ability to meet its short-term

obligations. A liquid asset is one that can be quickly converted into cash. Liquidity ratios

express the variability of liquid resources relative to potential claims.

Current Ratio: With this current ratio, Nike is able to cover its current liabilities 2.32

times with its current assets. Reeboks ratio is slightly higher at 3.05 and Adidas is

slightly lower at 2.07. In comparison the industry is more liquid than Nike and the market

is less liquid. Focusing on its main competitors in the form of Reebok and Adidas, Nikes

liquidity is at a viable position and the higher liquidity of Reebok and the industry may

mean that other companies are leaving its cash idle and not using it to its full potential.

Quick/Acid Test Ratio: This means that with the exclusion of its most illiquid asset in

the form of inventory, Nike is still able to cover its current liabilities. The industry to

which NIKE belongs is more liquid with ADIDAS being less liquid than NIKE and

REEBOK being even more liquid than industry. The market as a whole stands at a more

balanced position with a 1 to 1 ratio.

Leverage Ratios: A leveraged company uses more debt than equity including stock and

retained earnings in its capital structure.

Debt-to-Equity: Nikes debt-to-equity ratio of 0.19 shows that Nike uses more equity in

its financing than debt and is therefore not highly leveraged. Reebok and Adidas are more

leveraged but the industry as a whole shows capital structures that weigh more on the

equity side with a figure of 0.27 but still more leveraged than Nike. The market as a

whole however is highly leveraged represented by a figure of 1.41, which shows that

debt, outweighs equity in capital structure.

Operations Indicators for 2003


38/46

Activity Ratios: These ratios assess the efficiency with which the firm manages its

assets. More specifically, they describe how efficiently or intensively a firm uses its

assets to generate sales.

Inventory Turnover: This means that NIKE turned over its entire inventory 7.06 times.

As long as a company is not running out of stock and thereby foregoing sales, the higher

this ratio is the more efficiently inventory is being managed. Inventory turnover for

REEBOK and ADIDAS is 9.89 and 5.38 times respectively. This highlights that

REEBOK turns over its inventory much faster than NIKE and the industry as a whole.

The industry position is much lower at 3.70 and the market turns over its inventory faster

than the industry with a figure of 7.60. Even though NIKE is less liquid than its closest

competitor REEBOK this can be accounted for by NIKEs wider and more extensive

range of products in comparison to REEBOK and other competitors.

Asset Turnover: Measures how efficiently a company uses its assets to generate sales.

NIKE uses its assets to generate sales better than ADIDAS, the industry as a whole and

much better than the market. REEBOK however utilizes its assets to generate sales

approximately 10% better than NIKE does.

Average Collection Period: Highlights how effective the companys credit, billing, and

collection procedures are. This shows that it takes NIKE approximately 61.59 days to

receive its cash after making a sale. REEBOK and the industry takes 6.61 and 8.64 days

less to receive its cash after making a sale. The market takes 5.6 days more than the

industry but takes 3.04 days less than NIKE to receive its cash.

Profitability Ratios for 2003


39/46

Profitability Ratios: These ratios measure the efficiency with which a company uses its

resources and the more efficient a company is the higher its profitability. A number of

different ratios can be used to assess different aspects of profitability in relation to a

companys performance.

Gross Profit Margin: This calculation represents the amount of each dollar of revenue

that results in Gross Profit. Approximately forty-one percent of NIKEs revenues result

on gross profit, Reeboks figure is slightly less at 38.40% with ADIDAS, the industry and

the market reaping higher results.

Net Profit Margin: This represents the amount of each dollar of revenue that results in

Total Net Income. NIKE realizes a higher percentage of its revenue in total net income

compared to its main competitors, the industry and the market, with a net profit margin of

7.55%. This turnaround between the positions realized with the gross profit margin

suggests that NIKE manages its expenses better than the other groups with which it is

compared.

Return on Total Assets: This measures the profit earned on the employment of assets

and this shows that NIKE earned 11.02% on its total assets. This shows a better return

when compared to its main competitors, the industry and a superior position over the

market which only earned 1.30% on its assets. For every dollar of assets in NIKE the

company generated approximately $0.11 in returns.

Return on Equity: Because shareholders benefit is the main goal, ROE is one of the

most important measurers of performance. According to this calculation NIKE an

18.55% return on its shareholders investments, that is, for every dollar of shareholder

investments NIKE was able to generate approximately $0.19. REEBOK was able to

generate less with a $0.15 return, but ADIDAS was slightly higher at $0.20. In

comparison the industry as a whole generated $0.12 and the market was even lower at

$0.08.

Return on Invested Capital: This represents the profits earned on the capital invested in

the company and highlights a continuation of the trend realized by the previous figures.

NIKE was able to generate approximately $0.17 for every $1 of capital invested in the

company while, REEBOK was able to generate $0.11, ADIDAS $0.65, the industry


40/46

$0.10 and the market approximately $0.40. As such, NIKE was able to generate or garner

higher profits on the capital invested.

Risks: Risks are not inherently bad but left un-addressed can cause serious harm to a

company. Like all companies NIKE faces risk and these risks can stem both internally

and externally. From an internal standpoint the company itself is the focus and from an

external standpoint the industry in which the company operates is the source. Under the

umbrella of market risk lie foreign exchange risk, translation and interest rate risk, all of

which Nike undoubtedly faces due to its international stature.

Bad Publicity and False Advertisements: Even though NIKE has implemented a new

code of ethics in carrying out its business, there still remains some negative backlash

from previous linkages to sweat shops and poor working conditions in factories of its

foreign suppliers. Any resurgence in this sort of negativity can lead to a drop in consumer

confidence and ultimately NIKEs stock price as experienced in the past. As with other

companies in this position NIKE faces this threat but the company has attempted to

rectify the situation and should continue to foster good relationships with its suppliers

and continue checks of working conditions. Some organizations not in favor of NIKEs

touted affiliations with poor working conditions continue to protest sporadically at NIKE

store locations and also post websites that make false advertisements about the company

and try to gain the support of consumers through these means. Despite this, the company

is still experiencing growth and has taken a vigilant look at these groups.

Fashion Changes and changes in consumer tastes and preferences: NIKE needs to

stay on top of changes in consumer tastes and preferences as evidenced by changes in

fashion. NIKE faces the risk that fashion trends may change that fail to incorporate

NIKEs styles. To combat this NIKE, should position itself as a trendsetter and not a

trend follower, as well as, be responsive to its consumers. Like all companies Pall

Corporation faces risk and these risks can stem both internally and externally. From an

internal standpoint the company itself is the focus and from an external standpoint the

industry in which the company operates is the source. Under the umbrella of market risk

lie foreign exchange risk, translation and interest rate risk, all of which Pall Corporation

undoubtedly faces. NIKE is exposed to foreign currency fluctuation as well as

translations risk as a result of international sales, production and funding activities. The


41/46

company however realizes and accounts for this risk by hedging. According to the

companys annual report, our foreign currency risk management objective is to reduce

the variability of local cash flows as a result of exchange rate movements. The company

uses forward exchange contracts and options to hedge certain anticipated but not yet

firmly committed transactions as well certain firm commitments and the related

receivables and payables, including third party or inter-company transactions.

Investment Drivers:

The economy as experiencing an upswing and this has been translated to an upswing in

the athletic footwear, apparel and equipment segments of consumer products industry.

Existing investment drivers include NIKEs strong brand recognition, differentiation of

products, and high market share. These have translated in increased earnings for the past

three quarters and much of our valuation of this company is based on expected future

increases in earnings for the upcoming quarter and year. Unlike many companies that

remain sluggish in a stagnant economy NIKE seems able to overcome these setbacks and

still realize high earnings as well as pass on dividends to its shareholders. NIKE also

adopts innovative ideas with the use of extensive research and development and

technology. The Company continues to venture into new, but related areas by applying

key management strategies in its approach. This approach, has proven to be successful in

the past. NIKE continuously searches for new opportunities for partnerships and alliances

that not only build brand loyalty and support but also generate sales. These partnerships

come in the form of relationships with buyers, suppliers as well as athletes, which have

proven to drive consumer purchases. Nikes propriety knowledge pushes the company to

the top of its industry while maintaining a competitive edge, quality products at

affordable prices. Two key events also occur soon. The Olympics is an event that always

pushes consumer desire to be more athletic but also patriotism. These increases in

positive feelings will ultimately spill over into support for NIKE who sponsors an

enormous amount of athletes and sports teams. Also, children, mainly teenagers

accounted for the majority of sales recently, with this in mind along with back to school

shopping coming up around August this can also result in increases sales as these


42/46

teenagers demand the latest styles and products offered by NIKE. NIKE also benefits

from its first mover status by always being innovative and pushing itself to take

advantage of all opportunities that appear.

CONCLUSION

Sportswear has become a big market today with most of the people showing their interest

in sports during their leisure or free time. Now-a-days sports apparel scenario has seen a

major makeover with new fabrics being introduced that provide better fit, more comfort

and are even fashionable. Apart from apparels, even the footwear trend is changing with

the new technological advancements. Sports have become so popular recently that

sportswear industry has wide range of options for everyone including from kids, college

students to men and women. Having sportswear for children may make them feel special

and just as important as the adults. Their attire usually consists of many colorful things

just to spice up there sports dressing. Sometimes these colorful spiced up dresses mayeven inspire some of the young kids to get into sports. With over 40% of female fans

interested in sports and increasing number of women athletes, it is very important to have

right clothing for them. Most of the stores today offer a complete line of women and girls

sports apparel or you can even shop on-line. Recently even the men sportswear has seen a

major change with the changing trends. Sports wear are improving with the new

technologies and they have become lightweight, durable that offer protection to the

wearer as well as provide utmost comfort in any type of condition. Sports apparel today is

not only designed for function but most garments today also employ designs that make

them more fashionable.

NIKE: A Compendium


43/46

Nike, the number one manufacturer of footwear and apparel, has become a household

name on the same level as mogul companies McDonalds, Coca-Cola and Budweiser.

Nike was founded in 1964 by track coach and runner duo Bill Bowerman and Phillip

Knight as Blue Ribbons Sports, later becoming Nike, Inc. in 1978. The name Nike was

chosen in reference to the Greek Goddess of victory.

Headquartered in Portland, Oregon, the sportswear and equipment supplier made $16

billion in revenue in 2007, up from 9.2 billion in 1997. Nike currently employs 30,000

people worldwide.

Nike sells products under Nike, Inc., Nike Golf, Nike+, Nike Pro, Nike SB

(Skateboarding), Air Jordan, and Team Starter, with subsidiaries Cole Haan, Umbro

(since 2007), Converse, and Hurley International. Nike has come a long way from when

its founders used to sell the shoes out of the trunk of their cars until the first Nike store

was built in 1966.

Now Nike products are sold in numerous shoe and apparel stores worldwide as well as in

specialty Niketown stores and online at Nike.com. Nike sells clothing and equipment for

sports like Track and Field, Football, Baseball, Soccer, Tennis, Cricket, Basketball, and

Skateboarding. Nike has numerous websites dedicated to each of their target audiences

including Nikebasketball.com, Nikerunning.com and Nikefootball.com.

Nike didnt run TV ads until 1982. Previously, Nike concentrated on sponsorships and

celebrity athletes endorsements including both professional athletes and college teams.

The first professional athlete endorser was Ilie Natase a Romanian tennis player. The

first track and field athlete to endorse the brand was Steve Prefontaine.

Nike has signed top athletes in the sports of Football, Basketball, Soccer, Baseball,

Cycling, Golf, Tennis, Skateboarding, Boxing, Track and Field and Formula 1 Racing.

One of Nikes best PR decisions was signing Michael Jordan as a celebrity endorser in

1984. Nikes steady competition in the 1980s was Reebok. To break any similarities they

had to Reebok, Nike began promoting its shoes as fashion accessories. Reebok had

cornered the younger, aerobics audience, so Nike started concentrating their ads around

the person wearing the product rather than the product itself. In the 80s, Nike grew to

hold 50% of the market share in the athletic shoe market.

In 1988, Nike employees met with advertising agency Wieden and Kennedy (formed in


44/46

1982). In the midst of the meeting, Dan Weiden turned to the Nike employees and said,

You Nike guys, you just do it. And so the infamous Just Do It tagline was born.

The original Just Do It campaign was aimed at Nikes traditional target, 18-40 year old

males, as well as younger teens and females. The campaign reached consumers on a

humorous level and tapped into the fitness craze happening at the time. The ads worked

to shame people into exercising, and when exercising to wear Nikes.

Through the celebrity endorsement of John McEnroe, Bo Jackson and Michael Jordan,

the Just Do It ads helped Nike be seen as a hip brand that people wanted to wear whether

exercising or not. The Just Do It campaign was chosen by the magazine Ad Age as one of

the top five advertising slogans of the 20th century. Nike sponsors Hoop It Up, a program

for high school basketball players, and The Golden West Invitational, for high school

track and field players. Nike also donates money to the Let Me Play Fund named after a

1995 Nike advertisement. The Fund issues grants for equipment and uniforms.

Nike launched their skateboard collection, NikeSB, in 2002 in an attempt to gain market

share in the quickly growing skateboarding craze. Before Nike SB, skateboarders wore

Nike basketball sneakers because of their strong grips and ankle support, as well as their

great comfort level. Over the years, skateboarders have had fluctuating opinions of Nike

enjoying the brands quality products, but rejecting its commercial aspects. Nikes two

main competitors for skateboard shoes are Vans and DC Shoes. Occasionally the NikeSB

shoes get ruined quickly if used for skateboarding leading their users to steer away

from skating in the shoes and instead wear them for their collectible value. To keep up its

collectible aspect, Nike keeps down the numbers of its NikeSBs produced and ships

them to shops with a $65 $100.00 suggested retail price, although the shop owners

often sell them for much more.

In 2007, NikeSB released a Skateboarding video titled Nothing But The Truth starring

Brian Anderson, Wieger Van Wageningen, Paul Rodriguez Jr., Omar Salazar, Stefan

Janoski, and Aaron Gonzalez. NikeSB promotes their products in hip-magazine ads in

skateboard magazines like Transworld, Skateboarding Mag, Skateboarder, Thrasher,

Slap, Big Brother.

In 2005, Nike released a series of ads aimed at women athletes. The sassy, humorous ads

urged women to celebrate their Thunder Thies and Big Butts. The strictly print campaign


45/46

drove women to the website NikeWomen.com. The campaign discussed 6 body parts and

mirrored the Dove Real Women campaign.

In 2006, Nike released the fourth pair of sneakers sponsored by LeBron James Nike Air

Zoom LeBron IV. Not only was the shoe the single sponsor of an airing of ESPN Sports

Center, there were also 400,000 DVDs distributed that showed the making of the shoe

and its unique ad campaign.

There were many advertising outlets used for the fourth shoe in the series that were not

used as heavily in the first, second or third versions. These included ads on MTV.com

and ESPN.com, video clips on MTV2, TV commercials, print ads, and a Retro-Chic,

neon billboard placed near Madison Square Garden that showed LeBron dunking

continuously.

Nike promoted NikeLab.com along with the release of the movie Transformers through a

TV commercial in which a large Nike shoe on a billboard transforms into a transformer.

Recently, after radio host Don Imus made his infamous comments on air, Nike created a

spin-off ad campaign defending women athletes. The campaign stars female athletes

Serena Williams, Gabby Reece and Picabo Street.

Nike recently teamed with Apple to create the Nike+ series which links the runners

shoes to their iPod Nano to monitor their performance.


46/46

sports apparels final

Documents