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Norma EspinosaJon HutchensTeresita Ibarra UriarteKenneth TuttleMichael Venegas
Strategic Analysis for Nike, Inc.
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Table of Contents1.0 EXECUTIVE SUMMARY........................................................................................................................... 3
2.0 COMPANY HISTORY................................................................................................................................ 3
2.1 BACKGROUND....................................................................................................................................................32.2 PURPOSE OF THIS STUDY....................................................................................................................................4
3.0 EXTERNAL ANALYSIS............................................................................................................................. 5
3.1 GENERAL ENVIRONMENTAL ANALYSIS.............................................................................................................53.1.1 Political and Legal Segment......................................................................................................................53.1.2 Economic Segment.....................................................................................................................................63.1.3 Socio-Cultural and Demographic Segment................................................................................................63.1.4 Technological Segment..............................................................................................................................73.1.5 Global Segment.........................................................................................................................................83.1.6 External Environment Driving Forces.......................................................................................................8
3.2 INDUSTRY DESCRIPTION....................................................................................................................................93.3 FIVE FORCES ANALYSIS...................................................................................................................................10
3.3.1 Threat of New Entrants............................................................................................................................113.3.2 Power of Suppliers...................................................................................................................................123.3.3 Power of Buyers......................................................................................................................................133.3.4 Power of Substitutes................................................................................................................................143.3.5 Intensity of Rivalry...................................................................................................................................143.3.6 Summary of Five Forces Analysis............................................................................................................14
3.4 INDUSTRY COMPETITORS ANALYSIS AND ANALYSIS OF THEIR ANTICIPATED STRATEGIC MOVES..................153.5 INDUSTRY KEY SUCCESS FACTORS..................................................................................................................17
4.0 INTERNAL ANALYSIS............................................................................................................................ 18
4.1 ORGANIZATIONAL STRATEGY ANALYSIS.........................................................................................................194.1.1 Corporate Mission...................................................................................................................................194.1.2 Products and Services..............................................................................................................................194.1.3 Strategy (Corporate Level and Business Level).......................................................................................204.1.4 Organizational Culture and Core Values................................................................................................214.1.5 Leadership...............................................................................................................................................22
4.2 FINANCIAL ANALYSIS......................................................................................................................................224.2.1 Valuation Analysis...................................................................................................................................234.2.2 Growth Analysis......................................................................................................................................244.2.3 Profitability Analysis...............................................................................................................................244.2.4 Management Efficiency Analysis.............................................................................................................254.2.5 Summary of Financial Analysis...............................................................................................................25
4.3 VALUE CHAIN ANALYSIS.................................................................................................................................264.3.1 Support Activities.....................................................................................................................................264.3.2 Primary Activities....................................................................................................................................28
5.0 SWOT ANALYSIS..................................................................................................................................... 30
5.1 CRITICAL STRATEGIC CHALLENGES.................................................................................................................305.2 CORE COMPETENCIES/CAPABILITIES...............................................................................................................37
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5.3 STRATEGIC FIT (SWOT) ANALYSIS.................................................................................................................41
REFERENCES................................................................................................................................................ 44
APPENDIX...................................................................................................................................................... 51
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1.0 Executive Summary
When a consumer is looking for footwear or athletic apparel, the first place many people turn to
Nike, Inc. Nike, (NYSE: NKE) is the largest manufacturer of shoes, apparel and other
accessories in the world. Nike is an American-based multinational company, which designs and
manufactures a broad range of athletic apparel, equipment, and other accessories for golf,
baseball, football and other sports. (Nike, Inc., 2014) The purpose of this study is to provide a
detailed internal and external analysis of Nike, Inc. The project study begins with the company
history of Nike followed by a detailed internal and external environmental analysis and
concludes with a value chain analysis.
In the external analysis, the general environment will be carefully examined to determine the
driving forces affecting the athletic apparel industry. The external review will discuss the current
industry situation and major players competing in the industry, follow by a conclusion
summarizing the critical factors that Nike must employ to be successful. Throughout the pages to
follow, recommendations will be provided, and implementation strategies reviewed as potential
solutions to current Nike strategic issues. Overall, the details of this company analysis will shed
more light into the strategic health of Nike resulting in a clear competitive analysis of the
enterprise.
2.0 Company History
2.1 BackgroundOne of the most well-known brands in the world, Nike was founded in January of 1964 as Blue
Ribbon Sports, with dual $500 investments from Phil Knight and Bill Bowerman. Bowerman
and Knight formed the company in hopes of selling quality Japanese shoes in the United States.
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After a brief working relationship with the Japanese fizzled in 1971, Blue Ribbon Sports
launched their line of footwear and changed the company name to Nike, named after the Greek
Goddess of Victory. (Wikipedia, 2015)
More than just shoes, Nike has blossomed into an industry leader paving the way through
innovative designs, global marketing campaigns, second-to-none manufacturing and distribution
techniques. Nike manufactures footwear and apparel mostly outside of the United States, but
reaches consumers all over the world through thousands of retail stores as well as their online
site.
Over the past decade, Nike has established itself as a major player within the sports apparel
industry. The company has consistently grown their global market share year over year and
spends strongly on both marketing and technology to enhance their brand and numerous product
lines. Today, Nike is the world’s largest manufacturer of footwear, apparel, and accessories.
Company revenues were in excess of $27 billion dollars for fiscal year 2014. Nike sells products
under Nike, Converse, and Hurley with a majority of the company’s revenues coming from
footwear and apparel. (Nike, Inc., 2014)
2.2 Purpose of this studyThe purpose of this study is to provide a detailed external analysis of Nike, Inc. The project
study begins with the company history of Nike followed by a detailed external environmental
analysis. In the external analysis, the general environment will be carefully examined to
determine the driving forces affecting the apparel footwear and accessory industry. The
following industry analysis will discuss the current industry situation and major competitors in
the industry, follow by a conclusion, to summarize, the key factors that Nike must employ to be
successful. Throughout the pages to follow, recommendations will be provided, and
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implementation strategies reviewed as potential solutions to current Nike strategic issues.
Overall, the details of this mid-term project analysis will shed more light into the strategic health
of Nike resulting in a clear competitive analysis of the company.
3.0 External Analysis
3.1 General Environmental AnalysisThe general environmental analysis is necessary to evaluate a company's strengths, weaknesses,
opportunities, and threats. A thorough external analysis allows a company to adapt its direction
and strategy as needed. The critical components of an external analysis include the political,
economic, social and technological segments. As part of this study, each of these areas will be
analyzed to provide a precise strategic external analysis of Nike, Inc.
3.1.1 Political and Legal SegmentGlobal companies within any industry must stay apprised of the political and legal segments
within those countries in which they operate. Monitoring this section will help ensure a business
remains ahead of changes in laws or governmental regulations. There can be several benefits to
operating within countries that have favorable tax systems and stable currencies, including
gaining financial flexibility to grow the business and taking advantage of certain economic
policies. Stability within country should allow the company to thrive once established, but if the
company is not monitoring changes, the seemingly smallest change can bring negative
ramifications to any business. (Makos, 2013)
The United States, while slowly recovering from a recession, has seen relatively stable
conditions over the last several years. A multinational company that maintains headquarters in
the United States has been able to take advantage of these circumstances. While conditions may
be stable currently, it is important that a company stay focused on the ever-changing laws and
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regulations that might negatively affect the way a company does business. Whether tax changes,
worker rights, child labor laws, added or increased manufacturing controls, the way a company
does business can quickly change and require adaptation to continuing operating profitably.
Failure to adapt can bring penalties, fines or even lawsuits, costing the company significant
money in legal fees or fines. (Makos, 2013)
3.1.2 Economic SegmentThe U.S and global economies can have a significant effect on the textile industry. A world
recession has resulted in decrease consumer spending, currency exchange rates, and interest rates
can also have an impact on economies and the industry. The U.S. economy is recovering from a
recession, and the retail industry has certainly felt the effects. Companies should benefit as the
economy continues to recover, and consumers find increases in the amount of disposable income
available to spend on sporting goods and accessories. An economic turn-around should have a
positive effect on the retail industry. According to the US Bureau of Labor Statistics, the
unemployment rate is in steady decline, reflecting 5.7 percent at the end of January 2015. (U.S.
Department of Commerce, 2015) As more of the unemployed find work, there should be a
natural increase in spending within the retail segment. (Wagner, 2014)
Another economic factor a large global manufacturer is the benefit from the lower cost of labor
in other countries, where companies can comfortably outsource and pay lower wages. Lower
priced labor can create a competitive advantage for a business, through lower cost to
manufacture goods for sale. (Strange, 2015)
3.1.3 Socio-Cultural and Demographic SegmentSociocultural, the part of the internal environment, is focused on the attitudes and values of the
society such as workplace diversity and environmental concerns. The demographic segment
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concentrates on target market characteristics, such as gender, age, income distribution,
geographic distribution, and occupation. (Makos, 2013) Target market characteristics are some
of the most important factors to any industry but have extreme importance within the consumer
cyclical sector. (Ken Research, 2012) The socio-cultural segment is a major driver for a
consumer products company. The typical consumer pays very close attention to what celebrities
do, and if a celebrity is to purchase a particular brand, consumer demand for that product or
brand naturally rises. Apparel manufacturers must stay close to the cultural climate in order to
adjust for the increase in the application for a particular type of clothing. In the US, people of all
ages are getting more serious about taking care of themselves. Increases in health-conscious
consumers are paying off for athletic apparel companies who are experiencing higher demand for
fitness products, shoes and other equipment. (Trefis, 2013)
3.1.4 Technological SegmentThe technological segment examines innovative enhancements, and other activities focused on
the creation of knowledge or implementation of systems that are translated into new processes,
products, or other items for sale. (Makos, 2013) Examples of technological enhancements that
help with the process enrichment are the implementation of more efficient distribution
mechanisms and backend computing platforms. These systems help retailers sustain demand
surges along with planning for the consumer needs regionally and ensure manufacturers can
track applications of specific products and adjust the output to meet those requirements. (Internal
Revenue Service, 2014) Companies such as Wal-Mart spend a significant amount of their
technology budget tracking consumer spending habits. Understanding consumer habits and
trends allows the retailer to position the most appropriate products and services within their
stores along with streamlining costs and distribution.
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Aside from supply and demand benefits, the consumer often requires technologically advanced
products and the inherent technology within the product must evolve as fitness evolves, in order
to give athletes a competitive advantage. Excellent products must be readily accessible to the
consumer and technology is often used to sell and market products. Products are often made
available through direct to consumer capabilities such as internet websites giving companies a
significant advantage when moving into emerging markets.
3.1.5 Global SegmentAs discussed in the political section above, there are ever changing laws and restrictions that will
play a significant role in the way companies do business globally. The world economy may
provide an entry for a company with which they might expand further, through cheaper labor and
manufacturing costs. The global segment lends insight into the part of the environment which
includes global market expansion opportunities, changes within existing markets, international
events and other cultural considerations to expansion into world markets.
It will prove important for the company’s executives to stay close to the global segment in order
to take advantage of emerging markets. If a corporation is successful at establishing a brand
within emerging markets, competition will struggle to enter and sell goods and services within
these same markets.
3.1.6 External Environment Driving ForcesThe major driving forces within the apparel and accessories industry are:
Sociocultural Trends – The effect of lifestyle changes and attitudes of society seem to be ever-
evolving and can have an acute effect on the apparel industry. As discussed previously, the
sports apparel industry has a profound reflection of society and vice versa. When a celebrity
chooses to wear a brand, society takes notice and will often follow suit, which builds brand
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loyalty. Sports are heavily corkscrewed into the attitudes, beliefs and followings of a large
number sports fans across society. Even those individuals who are not sports fans are influenced
by the biggest celebrities in sports. The cultural climate can drive the demand for a particular
type of clothing especially when it comes to the health-conscious consumer.
Globalization –The impact of sports can be felt around the globe, and the company must take
advantage of their worldwide brand to increase their sales globally. Whether it be through
sponsorship of Olympic Games or sponsorships of athletes with global name recognition,
companies can surely increase sales by focusing on the global customer marketplace. There are
risks associated with global expansion, including fluctuation of currency, improper cultural
considerations and in-country political unrest that can do irreparable harm to a company or
brand.
3.2 Industry DescriptionIn fiscal year 2014, Nike achieved nearly 27 billion dollars in revenues from an industry that
consists of companies designing and selling clothing, footwear and accessories. Nike
manufactures and sells through traditional stores as well as their brand of Nike brick and mortar
stores called, Niketown. While clothing and shoes are to most a basic necessity, purchases are
often made less often and when consumers need to update their wardrobes. Rare purchases leave
the industry susceptible to economic uncertainty and downturns, leaving consumers with the
need to cut their budgets to pay for higher necessity items such as food and gas.
The textiles and apparel industry consists of companies that manufacture clothing and
accessories from yarn and other knit fabrics. There is a broad array of product lines created
through the manufacturing process, including fashion clothing, outerwear, active wear, camping
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According to Forbes, the market for the global sporting apparel has a value of more than 140
billion dollars. This figure takes into account the consumer purchases of many different product
types such as athletic footwear, exercise equipment, and athletic apparel, all of which Nike and
its competitors are looking to grab market share. (Statista, 2014)
The Unites States Census Bureau estimates that the population of the United States is current 318
million people and is growing at over 3% annually. (U.S. Department of Commerce, 2015) As
the global population continues to grow, the market size should continue to grow as well.
An increasing fitness conscious consumer base, searching for comfortable, yet stylish footwear
and apparel, should result in a growth rate of 4% over the next few years, reaching nearly 180
billion dollars by 2019. (Trefis, 2013) Nike is uniquely positioned to take advantage of the
footwear and apparel industry, through their wide variety of offerings. A stated above, consumer
demand is expected to continue to increase given the health conscious consumer and more
Americans paying close attention to their health that includes regular workouts to achieve
desired weight and health goals.
Nike is the clear leader in the US athletic apparel market and has continued to gain competitive
edge with innovative marketing techniques that place the company’s brand in front of millions of
people each year.
3.3 Five Forces AnalysisThe five forces model of competition is the creation of Michael Porter of the Harvard Business
School. His framework implies that an industry is influenced by five forces, and the risk-adjusted
rates of return should be constant across firms and industries. These five forces consist of those
forces close to a company that affects its ability to serve its customers and make a profit. A
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change in any of the forces normally requires a company to re-assess the marketplace. (Peng,
2014, p. 35)
Nike can use the understanding of the five forces to develop an edge over rival firms and better
to understand the industry in which they operate. Nike product offerings fall into three broad
categories, which include athletic footwear, sports apparel, and performance equipment.
A breakdown of each of these five forces in relation to Nike follows.
Summary of Five Forces Analysis
Summary of Five Forces AnalysisAthletic Footwear Sports Apparel Performance EquipmentNow Future Now Future Now Future
Buyer Leverage L L L M M MSupplier Leverage VL VL L L M MThreat of New Entrants M M H VH VH VHThreat of Substitutes L VL VH H H HIntensity of Rivalry H VH VH VH VH VHProfit Potential H VH H H M HRating Key: VL = Very Low; L = Low; M = Medium; H = High; VH = Very High; N/A = Not Applicable
3.3.1 Threat of New EntrantsThe competitive pressure associated with the threat of new entrants into the market is something
all industries must consider. When a product or service is, successful others want to reap the
benefits, thus look to enter the market. The threat of new entrants into the footwear and apparel
industry is low. A substantial capital investment is required for entry into the marketplace, and
established companies have achieved the benefit of economies of scale necessary to fend off
potential new entrants. Footwear and apparel companies face trade protectionism due to
uncertain global economic conditions. (Ken Research, 2012) If trade laws are implemented the
result could be higher product costs and lower industry profits, which deters new entrants.
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product differentiation. Nike has a well-established brand, and consumers now expect the brand
to deliver high-quality products. Thus, new entrants struggle to create product differentiation to
the point Nike has maintained. However, the low entry barriers of online competitors and
‘untapped’ emerging markets are areas of concern for Nike. Thus, Nike needs to improve their
business continually to stay ahead of the competition and keep barriers to entry high.
3.3.2 Power of SuppliersUnderstanding power of suppliers is to understand how strong the competitive pressures
stemming from supplier bargaining power and seller-supplier collaboration are within the
industry. The bargaining power of vendors in Nike’s case is relatively low. Nike has a large
number of vendors, with which the company has developed strategic partnerships. (Nike, Inc.,
2014) The company has about 150 footwear suppliers located in 14 countries and 430 apparel
suppliers located in 41 countries. (Nike, Inc., 2014) Nike is an important customer of these
suppliers, thus lowers the bargaining power of industry suppliers.
Nike faces the risk of disrupted operations if future events prevent it from acquiring products
from suppliers. In particular countries, however; due to Nike’s large number of providers, this
would only create a short-term operational disruption. Their agreements with suppliers give Nike
the right to offer a product that is only available in their stores or online marketplace. These
advantages provide leverage when competing, especially when consumers find a branded
product so well liked. Suppliers are highly unlikely to integrate vertically and become a rival of
Nike. The company’s brand is very strong globally. Therefore, a company attempting to build a
brand from the ground up will encounter a significant financial commitment.
Nike needs to consider how many suppliers exist for a particular product and how costly seller
switching costs might be for their offerings. When Nike builds brand loyalty, it puts the supplier
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at a disadvantage to switching to another apparel company because the consumer demand will
decrease initially over the confusion as to where to purchase the product. If Nike can continually
meet the revenue needs for a particular supplier, there is less chance that increased supplier
bargaining would occur. The products Nike providers are not overly complex in nature, thus the
opportunity for additional providers stays consistent and more could come at any time.
3.3.3 Power of BuyersThe buyer’s bargaining position is something that Nike needs to stay close to, but not spend
much time worrying about their position, considering their industry domination. Nike products
provide a quality of life enhancement for many athletes and have established a brand that many
consumers have built loyalties. (Nike, Inc., 2014) While the buyer switching costs are low, and
the company must stay focused on the overall value and brand of their offerings. Nike should
continue to utilize marketing to increase buyer awareness and ensure brand loyalty is
unsurpassed.
The company has taken strides to train their workforce in hopes that better overall industry
knowledge will result in increased revenues. (Nike, Inc., 2014) Training their workforce to
understand how to cross-sell will allow employees to position the overall benefits of the
company’s offerings to each buyer. Nike sells its products to thousands of retail accounts,
independent distributors, licensees, and directly to consumers in various regions including North
America, Latin America, Europe, and Asia. Although Nike has a large number of buyers, no
single customer accounted for more than 10% of worldwide net sales in 2014. (Nike, Inc., 2014)
Also, Nike’s high brand recognition lowers the bargaining power of buyers.
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3.3.4 Power of SubstitutesAlong with the threat of new entrants, the power of substitutes is one of the most important
factors Nike must consider when doing business. Companies can offer substitutes at lower
prices, but Nike has and must continue to differentiate their products and services and understand
the external environment. Differentiation will position the company to improve continually and
stay ahead of substitute offerings. Counterfeit goods are and will continue to be Nike’s biggest
concern. When Nike finds counterfeit products, the company challenges these products on the
basis of trademark, design patent, and intellectual property infringement. (Nike, Inc., 2014) The
overall threat of substitute products is low for Nike, because, as discussed previously, Nike has a
well-established global brand and substitute products, especially counterfeit goods, are typically
inferior in quality.
3.3.5 Intensity of RivalryNike operates within the global footwear, apparel, and equipment industry, which is highly
competitive on a global basis. Nike is a market leader that produces all of the products that fall
within this industry and, therefore, competes with a large number of athletic footwear and
apparel companies on an international level. Adidas has been Nike’s primary competitor, but
more recently Under Armour has passed Adidas as the number two brand in the sports apparel
industry. (Mirabella, 2014) New Balance, Crocs, and Puma are secondary competitors. While the
competitive rivalry within the industry is high, Nike can address rivalries by changing prices,
improving product differentiation, enhancing the use of channels of distribution and exploiting
relationships with suppliers. (Mbalectures, 2011)
3.3.6 Summary of Five Forces AnalysisThe sports apparel industry offers a low barrier to entry and a seemingly ever-increasing buyer
demand. Nike is uniquely positioned to take advantage in an industry that is relatively stable and
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contains a limited number of genuine rivals, but with a constant threat of new entrants, the
company must stay focused. Nike has over 150 footwear suppliers in 14 countries and an even
larger number of apparel providers, which lowers the bargaining position of any one supplier. A
wide variety of associated products, gives Nike an advantage of rivals, in that the company can
weather the storm if demand decreases for any one product line. A strong brand presence has
positioned Nike for long term sustainable revenue growth. Therefore, Nike must continue to
extinguish counterfeit goods when they surface to prevent harming the brand.
3.4 Industry Competitors Analysis and Analysis of their Anticipated Strategic MovesA competition analysis is important in that it lays the groundwork for the focus areas a company
might look to address as part of their overall strategy. Nike must thoroughly understand their
competition to position themselves better to continue their dominant position and to adjust when
necessary, to the moves of their rivals.
Nike is firmly in the pole position as the industry leader in the sportswear apparel, the leading
competitors in the industry are Adidas, Under Armour and Crocs providing footwear to compete
with Nike. (Ken Research, 2012) Nike’s primary competition is as follows:
Adidas
Adidas is a German multinational company based in Bavaria, Germany. The company consists
of the Reebok sportswear company, Taylor Made Golf Company, along with Rockport. Adidas is
considered the largest competitor for Nike and produces many of the same products, including
watches, clothing and footwear. (Adidas Group, Inc., 2014, p. 46)
Under Armour
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Under Armour, Inc. is an American sports clothing and accessories company, based in
Baltimore, Maryland. The company is a supplier of sportswear and casual apparel and began
offering footwear in 2006. Under Armour’s, growth trajectory is something Nike needs to
monitor as Under Armour is looking to take market share. (Under Armour, 2014)
Crocs, Inc.
Crocs, Inc., provides casual footwear for men, women and children. The company has
established sort of a cult following and had scores of fans all over the globe. According to the
company’s website, Crocs has sold more than 200 million pairs of shoes, including their famous
clog, sneakers, sandals and boots, in more than 90 countries. As a footwear provider, Crocs, is
eating away at profits Nike could gain through a more casual line of footwear. (Crocs Company |
All things Crocs, 2015)
While Nike continues to position themselves to fend off competition, their most formidable
competitors will be positioning themselves to take on the mega-company, hoping to grab a bit of
market share. Adidas will continue attempts at signing the biggest names in sports to their brand
in an effort to keep the company at the forefront of the sports apparel industry. If one of Adidas’
big name sports stars runs into trouble or get injured, the company will look to replace that
athlete with another. As Nike’s biggest pure competitor, Adidas is sure to expand operations in
the United States in an attempt to take market share.
Under Armour is a viable competitor and seems to be gaining more brand recognition. The
company is signing talented young superstars in hopes of reaching a younger audience, which
will help the company grow over the long term. These competitors as a whole will look at areas
where Nike is not as strong, such as hunting apparel, baseball, wrestling and lacrosse to take
advantage of untapped markets.
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The data within the external analysis above shows Nike has a substantial advantage over other
competitors with their extremely strong brand name and recognition in sports apparel and
footwear. Nike is continuing to show signs of revenue growth and make acquisitions where
necessary to fend off competition or add to their portfolio. The company must stay focused and
continually improve in the advancement of footwear technology as rivals will be lurking and
looking to take advantage if Nike slips.
3.5 Industry Key Success FactorsKey success factors (KSFs) are those competitive factors that most affect industry members’
ability to prosper in the marketplace. Key success factors may include specific product attributes,
resources, competencies, competitive capabilities, or intangible assets with the greatest impact on
future success in the marketplace. (Mbalectures, 2011)
Within the sports apparel industry, three key success factors stand out as most impactful to a
company’s success. Firstly, marketing to create a supreme brand image can benefit a business
over the long term. A strong, notable name allows for a sustainable advantage over current rivals
and heightens the barrier to entry for new competitors looking to enter the industry. Companies
often look to the world’s most well-known and influential celebrities to wear their products and
build brand awareness. Marketing through influential celebrities develops a recognizable,
premium brand and results in increased revenues. (Mbalectures, 2011)
Secondly, a company that offers a broad range of related products can sustain downturns in the
market or lessening of demand for a particular product line. When a corporation offers a wide
array of related products, they can couple products to provide more value for the consumer. For
example, in the sportswear and apparel industry, a vendor can offer discounts on accessories
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perceived value-add for the customer is greater, which also leads to increased bottom line
revenues. (Mbalectures, 2011)
The third-way companies can also gain competitive advantage is by addressing research and
development and manufacturing to ensure they can adjust quickly to market demands. Adjusting
to consumer preferences by quickly making the proper adjustment to the company’s product
offering, lends a distinct advantage over the competition. If a business can make it to market first
and even set an industry trend that the company will consistently establish themselves as a
market trendsetter and leader. Tightly aligning R&D with manufacturing, grants a company with
the ability to develop new products and even influence buyer preferences through marketing
campaigns. As discussed earlier, there has been a recent rise in the number of fitness conscious
consumers in the United States. A nimble and aggressive company is in a position to exploit this
trend and maximize profits in the short term. (Mbalectures, 2011)
4.0 Internal Analysis
This section focuses on the microenvironment or the internal analysis of Nike, Inc. The internal
analysis helps identify the core competency of the company along with aligning value
proposition to the marketplace. A proper analysis helps business analysts understand the
competitive advantages and create a good market position. Exploiting core competencies, allows
firms to develop value-creating strategies superior to their competitors and position themselves
to obtain a foothold on the leadership position or better aligns with the methods necessary to
reach leadership capacity. (WebFinance, Inc., 2014)
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4.1 Organizational Strategy AnalysisNike is an American-based multinational company and the largest manufacturer of shoes,
apparel and other accessories in the world. The company designs and manufactures a broad
range of athletic apparel, equipment, and other accessories for golf, baseball, football and other
sports. (Nike, Inc., 2014, p. 47)
4.1.1 Corporate MissionNike’s mission statement is "To bring inspiration and innovation to every athlete in the world."
This mission statement shows the clear, concise direction the company is going. Nike simply
wants to be the preferred provider of inspiration for every athlete. The company’s strategy is to
attract and keep customers by becoming the preferred provider for every athlete in the world. As
part of this strategy, they focus on delighting customers, operating their business efficiently, and
growing their business. (Nike, Inc., 2014, p. 1)
4.1.2 Products and ServicesBringing inspiration to every athlete in the world is serious business for Nike. Nike sells its
athletic footwear and apparel globally and focuses on eight key categories, including running,
action sports, basketball, soccer, men’s and women’s training, action sports, golf, and
sportswear. Nike sells its products through retail affiliates, through their wholly owned Niketown
stores as well as online through Nike.com. The company offers its products to men, women and
children across all the main global sports, with operations in Japan, Europe, China and emerging
markets. (Reuters, 2015)
Nike has built a unique and profitable way of doing business. Nike wants bring inspiration to
every athlete, no matter their demographic. Nike accomplishes this by offering a wide array of
athletic apparel and accessories that can be worn as athletic wear or casually. The company
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generates a majority of revenue from their footwear sales, followed by apparel and equipment.
(Nike, Inc., 2014, p. 47)
4.1.3 Strategy (Corporate Level and Business Level)Nike Corporate Level Strategy. Nike pursues an international diversification strategy. Its
geographic market scope is extensive; “substantial presence beyond geographically and
culturally neighboring countries”. In fiscal 2014, US sales accounted 46% of total revenues; the
other 54% of sales came from international markets. Nike’s operating geographic segments are:
North America, Western Europe, Central & Eastern Europe, Greater China, Japan, Emerging
Markets, and Global Brand Divisions. Revenues in 2014 (millions): $12,299 (44.2%), $4,979
(17.9%), $1,387 (5.0%), $2,602 (9.4%), $771(2.8%), $3,949 (14.2%), and $125 (0.4%)
respectively; Converse $1,684 (6.1%) (Nike, Inc., 2014a).
International branch offices and subsidiaries of NIKE are located in Argentina, Australia,
Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Costa Rica, Croatia, Cyprus, the
Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India,
Indonesia, Ireland, Israel, Italy, Japan, Korea, Malaysia, Mexico, New Zealand, the Netherlands,
Norway, Panama, the Philippines, Poland, Portugal, Russia, Singapore, Slovakia, Slovenia,
South Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United
Arab Emirates, the United Kingdom, Uruguay, and Vietnam.
Nike Business Level Strategy. Nike targets customers with enough disposable income to afford
its branded products and all the benefits perceived with having the brand. The company makes
emphasis and uses diversification as a tool to support its product differentiation. Through its
“Affiliation” dimension, Nike is constantly improving its products to delight customers and
reinforce their relationship (Sioridze, 2011). In order to enhance its brand and build brand
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loyalty, Nike follows a differentiation strategy; its team focuses on designing and delivering
unique products perceived as valuable (Sioridze, 2011). Under this competitive strategy the
company’s key functional areas are: R&D, marketing, and sales. Nike assigns a great amount of
resources to support the design and manufacture of innovative high-quality products and market
and distribute them using creative communication channels (Nike, Inc., 2014a).
Nike segments its market geographically: the Americas, Europe, the Middle East, Africa, and
Asia (Nike, Inc., 2014a), and then by demographics: men, women, and children. Also, these
demographics are examined and analyzed “in term of physical capabilities, sociological needs,
and design preferences” to further segment the market, offering both footwear and apparel, in the
sport categories: running, football (soccer), baseball, basketball, tennis, and more (Sioridze,
2011).
4.1.4 Organizational Culture and Core ValuesNike has built a very strong culture over time and has done a wonderful job maintaining the
foundational views developed by Knight and Bowerman back in the late sixties. Just like the
company’s mission statement, discussed earlier, leadership has tried to instill those same values
in the company. Nike asks their 56,000 employees to strive to tap into their innovative nature and
develop innovative, yet easy to use products that inspire those who use them. (Farfan, 2015)
Nike also asks their leadership team to lead with excellence using the core principles of Lead,
Coach, Drive, and Inspire. This leadership focus drives values to their global workforce.
The company does not seem to have an explicit list of core values, but does focus heavily on
sustainability and innovation. Sustainable innovation is referenced heavily on the company’s
website and through nikeresponsibility.com. Nike understands that the enterprise must
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understand impacts, risks and opportunities of doing business. (Nike, Inc., 2013) Whether it is
the environment or business challenges, Nike has proven the company understands where risk lie
and seems focused on delivering sustainable and safe products and services.
4.1.5 Leadership“The brightest leaders create opportunity and inspire other to do their best work” (Nike, Inc.,
2014b). Nike’s leadership is represented through its corporate governance board of directors. The
chairman, Philip Knight, is a co-founder and director since 1968 and his work is key in the
creation and global leadership of Nike brand. Knight’s strategic leadership has facilitated the
growth of the company; he has built a brand identity culture to fully engage the organization
members with the brand. “The bridge from organizational brand image to external brand image
was readily and tactfully assembled through Nike’s methodical use of athletes in working to
mainstream and assimilate the brand within the global society” (Neiderhauser, 2013).
Nike’s leadership and success have also been achieved through the implementation of its “Code
of Business Conduct & Ethics”. This code provides the principles and guidelines to the entire
organization for how to conduct business (Nike, Inc., 2014b).
As of May 31, 2014, Nike had 56,500 employees worldwide. The company identifies the
relationship with its employees as excellent with no unions, except for some employees in
emergent markets where it is required by law. Also, in some European nations it is required to
comply with “national collective bargaining agreements”; Nike’s operations have never been
interrupted for a labor disagreement (Nike, Inc., 2014b).
4.2 Financial AnalysisIn the financial evaluation section, analysis of the company’s performance for the past three
years will be conducted. This performance will be compared to their nearest competitor, as well
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as the industry and the S&P 500 when applicable and/or available. The information was gathered
from various sources, including the company 10Ks, competition 10Ks, and other finance
resources. The analysis includes four categories: Valuation, Growth, Profitability, and
Management Efficiency.
4.2.1 Valuation AnalysisValuation is an attempt to estimate the market value of a firm or its financial assets. In order to
perform a valuation analysis, price to earnings, price to sales ratios, and price to book will be
used. We will evaluate the effect of Nike’s stock and revenue on their ability to compete and
hold an overall value. Nike’s common stock trades on the New York Stock Exchange under the
symbol NKE. Table 1.2 in the appendix indicates the intra-day quarterly high and low price per
share of NKE common stock over the past two fiscal years. When comparing Nike’s stock to
industry competition the company indeed holds their own. Graphic 2.1 in the appendix shows
Nike’s stock in comparison with Adidas and Under Armour. Under Armour is outpacing Nike as
far as stock growth and will prove a formidable competitor in the near term.
The price to earnings (P/E) ratio reflects the price investors are willing to pay for every dollar of
company revenues. (Dow Jones & Company, Inc., 2012) Just put, investors are paying a dollar
amount for every $1 of the business's earnings. P/E ratios are also known as the stock multiple.
In Graphic 2.8 and 2.9, Nike’s P/E ratio for FY14 was 28.53 while Under Armour’s was 80.05.
Another way to look at a company’s valuation is to evaluate the price to sales ratio. The sales to
price ratio are a firm's stock price divided by its sales revenues. For FY14, Nike shows a
Price/Sales ratio of 2.82 while Under Armour reflects 5.32 in Graphic 2.8 and 2.9. Lastly, the
price to book ratio, which the ratio of a company’s share price over its book value, is a great way
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to gauge value. In FY14, Nike has a 7.17 while Under Armour has a 12.15, which might tell an
investor that Nike is a better value, considering current stock price. (McClure, 2015)
An investment decision should be made in combination with other indicators. The P/E ratio for
Nike is in line with the industry average while Under Armour is much higher and should be
investigated further. Both Nike and Under Armour calculate price-to-sales ratios, significantly
greater than the industry average. High ratios suggest that both companies are active industry
players.
4.2.2 Growth AnalysisNike and Under Armour alike, have performed very well over the past three years. Total
Revenue, Gross Margin and Net Income have all grown substantially. Nike’s results from
operations over the past three years if reflected in Graphic 2.3. Under Armour shows a strongly
in Graphic 2.8 amongst all three categories. While Nike is dominating as far as total revenues,
Under Armour has almost doubled revenues in the past three years and is proving to be a
considerable threat to take market share. From 2012 to 2013, Under Armour grew by 27%, while
Nike, during the same time frame grew 8%.
4.2.3 Profitability AnalysisA profitability analysis shows how well a company performs in relation to its income. In order to
gain better insight into a corporation’s profitability, an investor can consider a company’s Profit
Margin and Operating Margin. In Graphic 2.2, the margins for Nike are shown for the trailing
twelve months. Nike has improved each year since 2012 and outperformed its competitors in this
area. A company’s operating margin is a measurement of what proportion of an enterprise’s
revenue is left after paying production costs. (Investopedia, 2015) For the trailing twelve months,
Nike has a 13.45% operating margin while Under Armour is keeping pace with 11.48%
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Profit Margin measures how much out of every dollar a company keeps as earnings.
(Investopedia, 2015). For the same period, Nike returned a 10.07% while Under Armour finished
with a 6.75%. Even with higher revenues and operating costs, Nike has been able to return
higher margins that its competitors.
4.2.4 Management Efficiency AnalysisThe management efficiency analysis shows how much money the managers can obtain from
their assets. In other words, this analysis shows how well a company is using its assets to
generate sales. Management efficiency ratios include Return on Equity and Return on Assets.
For FY14, Nike has a Return on Assets of 13.52% and a Return on Equity of 26.01% while
Under Armour returned a 12.05% and 17.31% respectively.
4.2.5 Summary of Financial AnalysisThe financial analysis conducted for Nike reveals that the company is in a strong and healthy
financial state. Revenue has nearly doubled for Nike over the last 10 years (Nike, Strategy.
2014). The corporation’s return on invested capital, and diluted EPS performance have
increased over the last five years. Particularly, Nike’s strong performance over the last three
years has been a result of increased sales throughout all divisions within the company (Nike,
Strategy. 2014). Nike’s above average net profit margin shows that the company is more
profitable than the average firm within the sporting goods industry. The increase in product types
and steady flow of sales came from all regions of the world that Nike operates in. Most notably
however, is Nike’s footwear division contributing to a significant portion of company’s revenues
(Nike. 2014).
Nike’s financials demonstrate management’s ability operate with high efficiency. The
company’s ROA provides support that management is using its assets efficiently to generate
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earnings. The company’s low asset turnover figure gives evidence that high profit margins are in
part, due to management’s ability to efficiently run the operations of the company. Nike’s higher
ROE (higher than the industry average), demonstrates that management has made wise decisions
with the money reinvested back into the company (Yahoo. 2015). Furthermore, evidenced by
the ROIC figure earned at the end of the fiscal 2014 year, management is utilizing well, the
capital it has invested into its business (MorningStar, Nike Inc Class B. 2015).
4.3 Value Chain AnalysisUnderstanding a firm’s value chain grants a stakeholder with a view of how a company uses its
resources and capabilities to add value. (Peng, 2014, p. 67) A value chain is typically divided
into primary and support activities. Primary activities involved with a products’ creation, sale
and distribution to buyers, along with service after the sale. Support activities provide the
abutment for the primary activities. After a company has identified all of the components of its
value chain, the analysis provides a comprehensive overview of activities. A reliable analysis
allows the appropriate elimination of certain activities that may be detrimental and the further
development of activities that are advantageous to the business. (Mbalecture, 2011)
4.3.1 Support ActivitiesSupport Activities include firm infrastructure, human resource management, research and
development, and procurement. An evaluation of a company’s infrastructure evaluates processes
such as general management, planning, financing, and accounting of the organization
(Hoskisson, Hitt, & Ireland, 2006).
4.3.1.1 Structure (organizational chart, communication system, etc.)The foundation at Nike has been installed since the company’s incorporation in the early 70’s.
Phil Knight has empowered his management team and employees through a simple yet powerful
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mission statement that makes a statement about bringing inspiration and innovation to every
athlete in the world. The statement contains an asterisk that references back to the co-founder
Bill Bowerman, and his beliefs that anyone with a body is an athlete. (Nike, Inc., 2014) This
deep rooted foundation is still in place and rings true with Nike’s more than 56,000 employees.
Nike’s organizational structure if flat. (See Table 1.1) Flat organizations can be described as an
organization within which employees report to teams led by a manager, which ultimately reports
up to a department manager. Nike is broken up into departments by brand. Each department
makes decisions independent of the CEO. (Chestnut, 2015) A matrix organization allows the
company to adjust quickly to market demands, independent of what other brands are
experiencing. Flat organizations are empowered by company leadership to make calculated
decisions without consulting the CEO.
As discussed in the financial analysis section of this report, Nike is financially strong with very
low debt. The company has shown the ability to achieve single digit revenue growth over the
past several years.
4.3.1.2 Design, Research and Development (R&D)Nike places significant time and effort into their research design and development of their entire
products line. The company’s stated in its annual report, “We believe our research, design, and
development efforts are key factors in our success”. (Nike, Inc., 2014) Not only has Nike
established a brand that continues to excel through design, but also provides comfort and
enhanced athletic performance for athletes of all ages. The company’s dedication to producing
innovative, technological shoes and apparel.
Nike has a staff of specialists, made up of scientists, athletes, podiatrists and other experts that
focus on the science of exercise and sports to produce superior products. (Nike, Inc., 2014, p. 49)
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These experts not only review and modify designs, but also suggest improvements to the
company’s manufacturing processes to ensure a high quality products enters the distribution
stream ever time. Superior products, keep the customer happy and the brand untarnished.
Aside from design and development, Nike prides itself on the use of market research to ensure
they stay close to what the consumer expects in an innovative product line.
Technology has been and will continue as a driving force behind everything Nike manufacturers.
Excellent products, build a great brand and Nike has cornered the market on sports apparel with
one of the biggest brand names in the world.
4.3.2 Primary Activities
4.3.2.1 Input (tangible and intangible resources)Tangible assets include manufacturing facilities, raw materials, and financial resources.
Intangible assets are those that cannot be seen or touched, such as patents and brands. (Peng,
2014, p. 65) One of Nike’s biggest strengths is its brand. According to Forbes Fab 40 from 2014,
Nike’s brand is worth nearly 16 billion dollars. (Forbes, 2015) This intangible resource has the
company ranked consistently at or near the top of Forbes annual list of most valuable brand
names.
Nike’s supply chain is another competitive advantage over rivals. Nike employs a just in time
manufacturing strategy, which means goods are shipped as soon as they are ready for sale. Nike
does not rely on any one select supplier yet leverages numerous suppliers all around the globe to
ensure that supplier power is never too high. Through good supplier relations, Nike assures these
suppliers are dedicated to helping Nike produce the highest quality products with the best raw
materials possible.
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4.3.2.2 Operation Processes (e.g. production, logistics, product/service cost structure)Nike manufactures just about all of its footwear outside of the United States, which allows the
company to take advantage of lower labor costs in other countries. What is unique about Nike is
that they rely on 150 footwear factories in 14 countries, operated by independent manufacturers
of which not one is responsible for more than 5% of production. (Nike, Inc., 2014) A limited
number of supplier allows Nike to stay in control of the supplier manufacturer relationship.
Most of Nike’s apparel manufacturing occurs in Vietnam, China, Indonesia, and Malaysia.
(Nike, Inc., 2014) A very similar operation to that of the footwear manufacturing has been
constructed for apparel as well. Nike has over 400 factories located in more than 40 countries
handling the production of the company’s apparel. Just like with the footwear side of the
business, this keeps manufacturing costs low and allows Nike to take advantage of
manufacturing economies of scale.
Nike maintains firm control over their distribution channel and sells to thousands of retail stores
throughout the world. (Nike, 2014, p 48) The company maintains nearly 20 distribution centers
globally to ensure customers can receive the products in a timely manner. High-quality products
along with many choices in complimentary products, allow Nike to charge a premium for their
products lines.
4.3.3.3 Marketing and Customer ServiceNike has been able to sign some of the biggest names in sports to lend celebrity endorsement to
the company’s brand and reputation. The biggest name the company has even signed is Michael
Jordan. His celebrity has single-handedly generated billions of dollars in sales for the business
and his Jordan brand is synonymous with Nike. Nike seems to have weathered the storms that
surfaced with some of its sponsor athletes, such as Lance Armstrong, Michael Vick, and Tiger
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Woods, without missing a beat. The company has been able to overcome controversies due to the
vast array of offerings maintained within their portfolio of products. It seems as if Nike has been
able to elevate the brand successfully above any one athlete or sport.
Another one of Nike’s strengths is the diversity of products that are offered to consumers.
Whether a new pair of shoes, a track jumpsuit, sunglasses or socks are the list, consumers can
buy from third party retailers or Nike’s branded store called Niketown. Nike also has
partnerships with the likes of Apple, and the companies have come together to develop a running
sensor that communicates wirelessly, via Bluetooth, to Apple products. This technology tracks
running speed and distance and automatically uploads to Nike’s website so that users can
monitor their performance through a web browser and share with friends. Gathering data from
users of Nike technology is a marketer's dream. Consumer data allows Nike to build a better
relationship with its customers and increase sales revenues through direct marketing of new
products to a group of known users.
Another avenue that has allowed Nike to get closer to its customers is their online capabilities.
Through Nike.com, customers can not only bundle goods, but they can also custom design shoes
and have the newly minted shoes shipped directly to their homes, giving them a one-of-a-kind,
personalized item.
5.0 SWOT Analysis
5.1 Critical Strategic Challenges
5.1.1 OpportunitiesHow will economic changes affect industry growth? The recovering economy discussed in
the PEST analysis has brought favorable economic conditions that are expected to lead to global
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industry growth opportunities. Lucintel (2012) is a market research firm that analyzed the
sporting goods industry’s future potential. Lucintel concludes that by 2017, the global market is
expected to be valued at $266 billion with a compound annual growth rate of 4% between the
years of 2012 and 2017. According to the Trefis team (2013), the global athletic footwear market
alone is expected to grow at a compound annual growth rate of 1.8% to $84.4 billion by 2018.
Although the market is currently dominated by North America, emerging markets have favorable
growth potential. In the Asia-Pacific region, the industry’s compound annual growth rate is
estimated at 3.3% (Kumar, 2014). In India, the sporting goods industry is also expected to grow
at an annual compound growth rate of 10.6% between 2013 and 2018 (Kumar, 2014). GDP,
disposable income, and consumer spending are factors that make this issue a fundamental
challenge because they determine the growth or decline state of the industry. Industry growth
opportunities in domestic and emerging markets offer organizations the chance to expand,
however; failure to address this issue will cause Nike to forgo expansion opportunities. Industry
growth resulting from economic changes creates a strategic issue because Nike must ensure that
its development efforts support its corporate mission and values.
How will marketing towards women affect sales? Athletic goods, especially footwear, are
mainly marketed towards men. This implies that male adults make up the highest demographic
group of product sales. Consistent with this implication, the 2013 sales breakdown of athletic
footwear for men, women, and kids was 59%, 22%, and 20% respectively (Powell, 2014).
However, women’s footwear does make up the second largest consumer category. Limited
marketing efforts are employed in the industry to target specifically women. This creates a
marketing opportunity for Nike to increase sales by calling all women to wear Nike products.
The availability of products that satisfy women’s needs is a factor that makes the issue a
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fundamental challenge. This becomes a strategic issue because Nike must determine how to
utilize its brand reputation, innovation, and other strengths to effectively market products that
target women and strengthen their customer loyalty. Eventually, other companies will realize the
existence of this marketing opportunity and will take steps to capitalize on it. If Nike does not
address this issue, the company may lose sales of women’s products to competitors.
How will health consciousness affect profitability? The current social trend is a rise in health
awareness. Members of society have begun taking measures towards healthier living by
improving their diets and increasing their fitness levels. Participation in physical activity is a
factor that makes this issue a fundamental challenge because fitness levels have a direct
relationship with the demand for sports goods. In this case, rising participation in fitness
activities such as exercising and playing sports, results in an increase in demand for athletic
goods. The level of physical activity is represented by the number of gym memberships that have
increased “from 36.3 million in 2002 to more than 42.8 million by 2011” (IBISWorld, 2011).
The rise in health consciousness creates the opportunity for Nike to increase its profitability. This
becomes a strategic issue because Nike must effectively utilize its internal strengths to increase
sales to health conscious consumers. However, failure to address this issue will prevent Nike
from maximizing profitability and capitalizing on the health trend.
What are the Top Two Strategic Issues? Favorable industry growth and the rise in health
consciousness are the top two strategic issues that confront Nike as it heads into the future. Each
issue was evaluated on the basis of potential impact; the issues with the greatest perceived
favorable impact are regarded as the most important. Global industry growth is perceived to have
a significant impact on Nike because the possibility of expansion may allow the company to
increase market share, profitability, and brand awareness. The rise in health consciousness is
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perceived to have a significant impact on Nike because it allows the company to capitalize on
this trend and increase revenues across all product lines including men’s and women’s footwear,
apparel, and sporting equipment. However, marketing Nike’s products towards women may only
result in a revenue increase among women’s categories rather than across all categories. This
illustrates that the potential benefits of industry growth and health consciousness exceed the
benefit of marketing Nike’s products towards women.
5.1.2 ThreatsWill the Projected Global Economic Conditions affect Nike’s Performance?
The projected conditions of the global economy will challenge Nike’s ability to maintain market
shares within the industry that it operates in. With the global financial crisis behind us,
worldwide economies are recovering at different rates. According to the United Nations, the
growth of the world’s gross product is projected to increase over the next two years. Interest
rates worldwide are expected to make a gradual increase during the upcoming years. The
dollar/euro exchange rate is assumed to depreciate over the next two years, dropping from 1.34
in 2014 to 1.21 in 2016. The appreciation of the dollar over the next two years is expected to
place a restraint on US export growth. (United Nations New York, 2015, 2015, p. 3)
While most economies around the world have seen recovery, there remains much room for
improvement. Mainly, the unemployment rate has either gotten worse or remained below
satisfactory for many nations. Of primary importance are the extremely high unemployment
rates in the European nations and the significantly high unemployment rate in the U.S (5.5%
unemployment rate with approximately 8.6 million unemployed) (United States Department of
Labor, 2015). In the United States, much of the unemployment results have been due to the
baby-boomers reaching retirement age, a higher number of discouraged workers, and an increase
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in skills upgrade. Over the next two years, the unemployment rate is not projected to make a
significant change for the better. (United Nations New York, 2015, 2015, p. 3)
The increase in a nation’s labor cost can implicate different economic conditions. During a
recession, labor costs can be greatly influenced by the increase in labor wages and/or
commissions. Confirmed by the Bureau of Labor Statistics, such was the case in 2013 and 2014
when the average compensation costs for workers increased in the US as the national labor
productivity decreased (United States Department of Labor, 2015). With the US economy
growing, the national labor cost over the next two years is expected to increase, resulting in an
increase of labor costs. Subsequently, to offset labor costs, corporations within the US will most
likely increase product prices to maintain financial goals (Keythman, 2013).
As previously mentioned, Nike will be faced with increased global interest rates, the appreciation
of the US dollar and depreciation of the dollar/euro exchange rate. Furthermore, Nike will be
faced with significantly high global unemployment rates. Finally, Nike will be faced with an
increase in the cost of labor. The question is whether Nike has the resources to combat these
threats while delivering a product that is of equal quality and affordable to many.
As highlighted throughout this report, Nike is utilizing its strong financial portfolio,
organizational design, technologically advanced equipment, and healthy relationships with other
companies to provide a product that is innovative and affordable. Furthermore, Nike has a
plethora of suppliers and manufacturers that are producing products at already very low costs.
Additionally, Nike has little influence on the cost of raw materials. Finally, Nike has little
influence on the unemployment rate in the countries in which Nike’s target market resides. It
appears that Nike may have no choice but to increase its product prices. Thus adding to the
population of people who already cannot afford to purchase Nike’s goods. The consequence of
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not attempting to meet the challenges of the global economic conditions could result in a loss of
profit for the company.
Does the Production of Counterfeit Products Pose a Significant Threat to Nike?
Nike faces the challenge of combating counterfeit products. One well-known threat to the
athletic footwear industry is the never-ending supply of counterfeit products. In 2013, the global
volume of counterfeit goods amounted to roughly $210 billion (The European Confederation of
the Footwear Industry, 2013). Over $1.7 billion worth of imitation goods was confiscated at the
US borders alone (The International AntiCounterfeiting Coalition, 2014). Additionally, three
percent of the total replica items confiscated at the American borders belonged to the footwear
industry (roughly $55 million MSRP). Less than one percent (roughly $3 million) belonged to
sporting goods, and roughly seven percent belonged to wearing apparel/accessories. Twenty-nine
percent of all replica items seized were made up of sports jerseys. (The International
AntiCounterfeiting Coalition, 2014)
Replicated products are mostly produced in developing countries, where people manufacture
counterfeit products as a source of income. (International Labour Organization, 1996)
According to the Department of Homeland Security, China remains the primary source for
manufacturing replica goods and pirated materials (The International AntiCounterfeiting
Coalition, 2014). As long as there is a consumer demand, there will most likely be a supply.
Companies that maintain strong brand images, commonly fall prey to the underground market,
because of the demand for their products.
According to the International AntiCounterfeiting Coalition, the number of counterfeit items is
growing with no sign of slowing down. Between 2005 and 2012, footwear was part of the top
five items seized at the US borders. The Coalition projects that in 2015, global trade in replica
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goods and pirated materials will reach $177 trillion. (The International AntiCounterfeiting
Coalition, 2014)
What are the Top Two Strategic Issues? The overwhelming number of producers of
counterfeit items is an immense challenge to Nike. The company is very limited in its capability
to directly challenge every counterfeit production agency. Instead, Nike is forced to support
financial organizations that combat the manufacturing of replica items or engage in example
lawsuits against such entities. Individuals demonstrating their demand for replica items do so
primarily because of financial constraints. (The International AntiCounterfeiting Coalition, 2014)
For Nike, adhering to its corporate values of producing innovative and quality products means
doing so at the expense of providing relatively cost efficient products. Thus, many people
concerned with owning a particular brand while not worrying about the quality will express more
interest in the counterfeit product due to the cheaper cost. Not attempting to meet this challenge
provides an opportunity for the illegal underground market to take shares away from Nike.
The two threats previously described were chosen based on Nike’s inability to control the
external factors. Furthermore, out of the many threats that Nike is faced with, Nike is least
capable to combat these two distinct challenges given the company’s strengths, weaknesses,
values, and mission. The projected global economic conditions and ongoing production of
replica items will significantly influence people to seek substitute items based on financial
reasons.
5.2 Core Competencies/Capabilities
5.2.1 StrengthsA MOST (Mission, Objectives, Strategy, Tactics) analysis perspective is utilized to identify the
strengths that make Nike the global leader competitor in the sporting goods industry.
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Strong R&D resources and capabilitiesIt is the mission of Nike “To bring inspiration and innovation to every athlete in the world”
which has been firmly embedded in the entire organization. Therefore, the company has focused
on building R&D capabilities that are key to maintain a leadership position in the athletic
footwear market (Nike, Inc., 2014). Through technical innovation, Nike designs, and
manufactures high-quality products that “help reduce injury, enhance athletic performance, and
maximize comfort” (Marketline, 2014). The company has an “explore team sports research lab”
which is dedicated to providing knowledge and insights to create performance innovations across
Nike’s product offerings. This team focuses on four disciplines: biomechanics, physiology,
perception, and data science and uses a variety of advanced test methods for the capture of
motion: 3D motion analysis, foot pressure measurement, accelerometers, foot morphology, and
others (Nike, Inc., 2014). Nike’s strong R&D capabilities help the company to build brand
loyalty and revenue growth.
Strong Brand PortfolioNike has maintained a global market dominance trough a strong brand portfolio and an extensive
international diversification strategy. It is the largest seller of athletic footwear and apparel is the
world; holds more than 14% global market share. “The company's dominant market position is
built on its portfolio of strong brands like NIKE, Jordan, Converse, and Hurley” (Marketline,
2014).
Strong Financial PositionNike can enhance shareholders value because of its healthy financial performance; it generates
plenty of free cash flow. This cash flow is used to “fund an aggressive buyback program” which
allows the company to invest aggressively in R&D in order to outperform competitors and raise
barriers for new entrants (Hellman, 2014).
Efficient Global Supply Chain Management
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Nike “creates value through the configuration and coordination” of its marketing, design,
procurement, manufacturing, and multi-channel distribution activities. The integration of
diversified and innovative resources and capabilities of the company allow Nike to have a very
strong and interdisciplinary infrastructure base. Some of these resources and capabilities are a
reliable IT system in all the supply-chain activities, e-commerce, top management
empowerment, strong financial position, effective compliance processes, and others (Alqararah,
2014).
VRIO Analysis for Nike’s Resources and CapabilitiesNike’s most relevant strengths are assessed in this section using VRIO framework analysis.
(Table 1.2 in Appendix) The company creates value through a highly reliable and well-
developed supply chain management. The firm’s ability to purchase raw materials in bulk,
establish long-term relationships with local suppliers, use different distribution channels to reach
and serve domestic and international markets, overcoming liability of foreigners, is considered
highly valuable in the sporting goods industry and lead to competitive advantages.
Nike’s R&D capabilities can be classified as rare. Nike has built some of the most cutting-edge
products in its industry (Alqararah, 2014). The company is continuously investing in new
technologies to design quality products with high functionality and sustainable operation
processes (Nike, Inc., 2014) which builds a sustainable competitive advantage.
It is very hard and costly for competitors, or potential new entrants try to imitate Nike’s
resources and capabilities. Its strong financial performance allows the firm to reinvest in its core
competencies: innovation and marketing. Also, according to Forbes, its brand name is among
‘The World’s Most Valuable Sports Brands 2014’; in that year, was estimated to be at $19
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billion. The efficient global supply chain management and the innovative R&D and marketing
activities are also hard to imitate because of the intangible capabilities implicit.
Nike’s valuable and hard-to-imitate assets are exploited by the organization thanks to its ability
to permeate the company’s business and corporate strategies throughout the whole organization.
Knight’s strategic leadership has facilitated the growth of the company; he has built a brand
identity culture fully to engage the organization members with the brand. “The bridge from
organizational brand image to external brand image was readily and tactfully assembled through
Nike’s methodical use of athletes in working to mainstream and assimilate the brand within the
global society” (Neiderhauser, 2013).
5.2.2 WeaknessesLack of Revenue DiversityNike is heavily dependent on footwear sales as the primary source of revenue. As a dominant
brand, with a stranglehold on the worldwide market of athletic shoe sales, Nike has clearly
established itself as a leader in the athletic apparel space. The quandary Nike faces is how to
dominate all aspects of athletic apparel as it has shoes. During the fiscal year 2014, Nike
revenues reached nearly 28 billion US dollars (Graphic 1.7). Of the revenues generated during
fiscal 2014, 16 billion dollars came from footwear (Graphic 1.8).
The company states in its 2014 Annual Report, “Our new products may not receive consumer
acceptance as consumer preferences could shift rapidly to different types of performance
products or away from these types of products altogether.” (Nike, Inc., 2014) Lack of sales
strength over a broad, diversified product set, leaves the company vulnerable to a sagging
market. If the market erodes and consumer spending on higher priced shoes declines, Nike will
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need to react. A broad and deep product portfolio will assist in not only responding to trends, but
also in generating revenues is sales in other areas slump.
It is almost impossible for a company to predict consumer preferences. Attempting to predict
these choices entails a high level of risk and can often have an adverse effect on a company’s
financials. Nike can combat any slumps and lessen the burden of lagging sales by implementing
a product diversification strategy.
High Priced BrandEndorsing superstars such as Michael Jordan, Kobe Bryant, and LeBron James, generates an
enormous global demand for Nike branded products. As a result, Nike charges premium prices
for their brand, which put many of their products out of reach for many consumers. There have
been countless reports of robberies for Nike shoes, and when new versions hit the markets, stores
have been broken into before the shoes even go on sale. The brand dilemma that comes with the
negative press regarding their shoes and other accessories is something that Nike needs to
consider. Price conscious consumers could look to other brands as lower cost alternatives.
The company could look to differentiate themselves further by offering their brand exclusively
through Nike branded stores and online outlets. This would lessen the risk that consumers may
opt for the other brand based solely on price. Nike should look to manufacture and sell less
expensive shoes without sacrificing quality.
5.3 Strategic Fit (SWOT) AnalysisNike has been in business for over 40 years and has shown the ability to adapt to the changing
landscape of sports apparel. The company’s passion for serving athletes is evident is the way
they develop the most innovative products and services to help athletes of all ages reach their full
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potential. The relentless focus on the needs of the athlete fuels growth and powers the company’s
ability to deliver long-term values for shareholders.
The company offers a broad range of products complemented by several services which provides
the unique advantage of cross selling and increasing the average customer spend. With the
following SWOT analysis, Nike’s strengths, weaknesses, opportunities, and threats will be
outlined.
Summary of Nike SWOT AnalysisStrengths (Internal) Weaknesses (Internal)
Global Brand Awareness Efficient Distribution Chain Strong R&D Strong Financial Position
Lack of Revenue Diversity High Priced Brand
Opportunities (External) Threats (External)
Sales in Emerging Markets Women’s Athletic Sector Health Conscious Consumer
Counterfeit Products Aggressive Global Competitors Global Economic Conditions
Strategic Recommendations
(Based on Threat) Catering to higher competition: Nike faces tough competition from
footwear brands such as Reebok, Adidas, Puma, Converse and Fila. In order to deal with these
tough competitors in the market, the organization should be able to reveal itself as valuable
(Andreassen et al. 2008). The competition in the footwear market is tough, but the prevalence of
a highly acknowledged brand value based organization will help the company to re-define itself
in the ever dynamic and globalized world.
(Based on Threat) Global Patent program: Nike needs to adopt further a prominent step in
order to stop imitation of its products. Imitations have caused immense damage to the strength
and brand value of the company. The company can adopt a patent based strategy.
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(Based on Threat) Utilizing free cash flow for adoption to technological advancements: The
Company is a large footwear based brand with free flow cash. The company should utilize it for
establishing more market power through distributors. Retailers mostly have the chief power of
buying from most footwear companies. However, most of these large companies forget that
doing this possesses an immense trouble to the prospects and state of growth for a company.
(Based On Opportunity) Nike should also consider the production of its products in
regionally based laboratories in all the nations where Nike distributes its products. This in
turn will help the company to elongate its opportunities and keep its distribution channels near to
its inventories in turn leading to sustainable supply chain management and efficient production.
This would also imply that the company needs to identify the complete opportunities available in
the market without which the value of the company will not be apprehended.
(Based On Opportunity) Catering to women based products: The industry of athletic
equipment, has an ever evolving and dynamic nature with constant push in the possible
boundaries. Sports no longer have been determined from a classical perspective with two teams
involved but now sports have become personal for people. Today, women and men are both
involved in games with an ever increasing rise in women footwear sales. It will be further
apprehensive for Nike if it provides a chance for segmentation of customers such as women and
small children and differentiate its products in this way further in order to strengthen its
marketing strategy.
(Based on Opportunity) Using brand value to advertise rather than celebrity based
advertisements that involve higher investment: This should be used by Nike while promoting
its products as the company spends more on its advertisements (Ballantyne 2006). Furthermore,
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Nike should embrace the growth that it enjoys in Asian nations, UK, and Australia. These areas
are a hub for Nike’s considerable growth. Nike, therefore, needs to consider the ever-changing
needs of the customers and diversify their shoes or footwear. More opportunities should be
seized by the company in the domain of social media for engaging with broad base of customers
enormously in order to make sure that new high technology gadgets are linked with the platforms
of social media (Berry 2008). Such customer contact has power of phenomenal nature because it
helps in gaining a single click visibility, generating enhanced customer based interaction and
hence helping Nike to collect data on choices of the customers and their further preferences as
well.
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Appendix
Table 1.1- Executive Corporate Officers
Name Age PositionPhilip H. Knight 76 Chairman of the Board of DirectorsMark G. Parker 58 President and Chief Executive
OfficerDavid J. Ayre 54 Executive Vice President, Global
Human ResourcesDonald W. Blair 56 Executive Vice President and Chief
Financial OfficerTrevor A. Edwards 51 President, NIKE BrandJeanne P. Jackson 62 President, Product and
MerchandisingHilary K. Krane 50 Executive Vice President, Chief
Administrative Officer andGeneral Counsel
Bernard F. Pliska 52 Vice President, Corporate ControllerJohn F. Slusher 45 Executive Vice President, Global
Sports MarketingEric D. Sprunk 50 Chief Operating Officer
The information in Table 1.1 was obtained from Nike’s 2014 Annual Report
Table 1.2- VRIO Framework for Nike, Inc.
Graphic 1.0- Organizational Chart
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Graphic 1.1
Fiscal 2014 High Low Dividends DeclaredFirst Quarter 66.85 59.11 0.21
Second Quarter 79.87 63.50 0.24
Third Quarter 80.26 69.85 0.24
Fourth Quarter 80.09 70.60 0.24
Fiscal 2013 High Low Dividends DeclaredFirst Quarter 54.32 43.89 0.18
Second Quarter 50.42 45.30 0.21
Third Quarter 55.55 48.46 0.21
Fourth Quarter 65.91 53.49 0.21
The information in Table 1.2 was obtained from Nike’s 2014 Annual Report
Graphic 1.2- Nike Annual Revenue Growth (previous 10 years)
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Graphic 1.3- Nike Annual Net Income (previous 10 years)
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Graphic 1.3- Nike Key Ratios (previous 10 years)
Graphic 1.4- Comparison of 5 yr Cumulative Return
Graphic 1.5- 5-year stock comparison
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Graphic 1.6- Nike Key Statistics
Graphic 1.7- NKE 3 yr Historical Look-Back
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Graphic 1.8- NKE Global Revenue Breakdown
Graphic 1.9- Textile (Apparel) Competitive Landscape
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Graphic 2.0- Under Armour Income Statement
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Graphic 2.1- Adidas Income Statement
Graphic 2.2- Under Armour Results of Operations
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Graphic 2.3- Under Armour Key Statistics
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