Nike Strategy Analysis

8/11/2019 Nike Strategy Analysis

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Nike, Inc. and the AthleticFootwear Industry

Strategy and CompetitionAnalysis

Prof. Ben Gomez Casseres

By:Polina Petkova, MBA 2011Sudarsan Pattairaman, MBA 2011

!"1#"2010

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Firm Overview

Nike, Inc. is the biggest manufacturer worldwide of both athletic footwear and apparel

in terms of sales. It specializes in the production and sale of athletic footwear, apparel and

equipment. For the fiscal year 200 it announces re!enues of about "#.2 billion. # It is a

global company that besides in the $%, which accounts for &'( of its re!enue 2, operates in

)urope, *iddle )ast, and +frica. Nike has manufacturing plants and operations throughout

+sia. he global slowdown in both sales and consumption in the retail industry affected Nike

and it recorded a re!enue growth of only about &( in 200. Net income fell by 2#( and was

e-pected to continue to fall in 20#0. &owe!er, net income in the third quarter of 20#0 is

almost double in the net income in the same period of the pre!ious year bringing it up to "'/

million.'

Nikes Global Business Strategy

hen first founded in 1962under the name ofBlue Ribbon Sports, the strategy was

1to distribute lowcost, highquality 3apanese athletic shoes to +merican consumers in an

attempt to break 4ermany5s domination of the domestic industry.67

oday Nike offers athletic shoes at e!ery marketable price point to a global market.

Nike sustains its leading position through emphasizing quality products, constant inno!ation,

and aggressi!e marketing. Nike sells its products in more than #80 countries under not only

its namesake brand but brands such as 9ole aan, 9on!erse, urley International, and $mbro

Inc./ It uses distribution channels such as companyowned stores and websites or sports

retailers, such as Foot :ocker.

#$ike, %n&. 10'(, 200#, ). 2*.2%id., ).+* $%(-, %n&. e)orts /is&al 200# /ourt uarter and /ull ear esults3

4ikiinvest.&om, $ike, %n&.!5Strate6i& Analysis of $ike, %n&.,7 8ePaul 9niversity, Mar& 13, 2000./4ikiinvest.&om, $ike, %n&.

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http://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090624006086&newsLang=enhttp://www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20090624006086&newsLang=en


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+s mentioned earlier, Nike is a truly global company, which means that its success

story is transferrable o!er borders. It di!ides its sales into four main regions the $%, )urope,

*iddle )ast and +frica ;)*)+ and 2008,

due to the growth of 27( of re!enues in emerging markets, such as ?ussia, and other )*)+

countries but also a substantial re!enue growth of 70( in 9hina.#0 $nlike footwear, which

main market is the $%, the ma@ority of apparel sales come from the )*)+ region accounting

for &8( of total apparel re!enue.

%id.+$ike, %n&. 10'(, 200#, ). +#

%id.#04ikiinvest.&om, $ike, %n&.


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Bran%ing Strategy: Nike5s strategy in this front is to de!elop a "remium bran%

associated with high quality product that satisfies customer needs. Nike5s brand is associated

with an aggressi!e attitude portrayed by, 1you don5t win sil!er, you lose gold,6 #2 which

clearly suggests that winning is !ital. he Nike customer associated the Nike brand with being

the D+merican5 wayE Being indi!idual and aggressi!e like *ichael 3ordan and 3ohn *c)nroe.

Nike built its brand around sports, attitude and lifestyle. Nike backed this strategy with

marketing campaigns like 13ust do it6 and with the companies front athletes like *ichael

3ordan and iger oods.

Selling Strategy: Nike5s strategy in early 2000s was to de!elop, flag ship stores,

NikeTownshops in bigger cities, first national, and then abroad. Nike was the first company to

establish flagship stores and it turned out to be a sensation. #&here are independent small

retail stores that sell Nike products all around the world as well. +lso, on seeing the potential

of the low price market, Nike took efforts in 2007 to tap in to the low price segment by

striking a deal with big retail discount stores likealmart and rolled out starter shoes at a

cheaper price, competing with pri!ate label brands. owe!er, to a!oid brand dilution, Nike

did not use the swoosh logo in these shoes. 9urrently, Nike has a high quality website and

uses it as an online selling channel. NikeId14, a part of the website allows a customer to

customize his own shoes and buy it. he website is a!ailable in #' languages and is different

according to the country requirements.

&anu!aturing Strategy:

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Nike manufactures all of its footwear from outside $nited %tates. Nike has contract

suppliers in 9hina, Aietnam, Indonesia and hailand#7.hese countries accounted for &/(,

&/(, 22( and /( of total NI) brand footwear respecti!ely. Nike also has manufacturing

agreements with independent factories in +rgentina, Brazil, India, and *e-ico to manufacture

footwear for sale primarily within these countries. =rimary reason for this is that it is cheaper

to manufacture in %outh )ast +sia and transport it to $%+ and )urope, regardless of the

transportation and tariff costs in!ol!ed.

Organi)ational Strategy:

ith o!er 2#,000 employees worldwide, the company was organized into departments

by both geographic di!isions and product categories, which created o!erlapping management

responsibilities and a fluid leadership structure. For e-ample, a footwear manager in )urope

answered to both the Aice =resident of Footwear and the Aice =resident of )urope. owe!er,

there was no formal communication link between the regional !ice presidents ;those in the

$nited %tates, )urope, +sia=acific, and :atin +merica< and the product !ice presidents

;footwear, apparel, equipment


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and what they can contribute to the team. For this reason, Nike does not call its employees,

Demployees5 but rather Dteam members5 because each part of the team has something to add to

the business.

hey ha!e also admitted that they ha!e a !ery large array of workers and this brings

many di!erse cultures and points of !iews together. +ccording to one of its statement,

di!ersity and inclusion is a crucial factor in Nike5s diplomacy in their many locations and

globally. In identifying the differences they ha!e set apart the opportunities to better

understand how their teams will work together and what ad!ersity they may face because of

this. In order to stri!e to reach this mission they ha!e put into action these strategiesE#>

9ulti!ate di!ersity and inclusion to de!elop worldclass, highperforming teams

Ignite change and inspire critical con!ersations around di!ersity, inclusion and

inno!ation

9reate !enues and en!ironments for open dialogue, di!erse opinions and a multitude

of perspecti!es

+ll of the abo!e will in future !enture apply and assist them in working more efficiently and

ha!ing more satisfied employees for longer periods of time.

Strategy (nalysis

o analyze and e!aluate the abo!e strategy, it is necessary to understand the internal

and e-ternal forces in the en!ironment. o begin with, we did a basic %C analysis of Nike

and then performed an e-tensi!e =orter5s fi!e forces analysis of the footwear industry in the

$% and the emerging markets from Nike5s point of !iew.

S,O- (nalysis:

Strength ,eakness O""ortunities -hreats

1Nike ebsite httpEwww.nikebiz.comcompanyJo!er!iewdi!ersity
http://www.nikebiz.com/company_overview/diversity/http://www.nikebiz.com/company_overview/diversity/http://www.nikebiz.com/company_overview/diversity/


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Brand Image

*arket leaderin most of theworld

Gi!erse

product portfolio %trongad!ertising

)-perienced*anagement team

$nder constantscanner of umanrights companiesdueto its history ofunethical labor

practices =remium player ina price sensiti!esector

)mergingmarkets

9an be aleader inde!eloping

en!ironmentallysustainable

business

*ature industry,susceptible torecessions

Gependence oncontracted suppliers

H compliance issues )!er 9hangingcustomer preferences

Gependence onendorsed athletes

%easonalbusiness

.orters Five Fores / Footwear 0n%ustry in the S 3evelo"e% 4ountries:

+ivalry : 5ery *igh7

+

Threat of New entrants(ow!"#igh $arriers to %ntryCa)ital %ntensiveStron6 Brand /ollo=in6-&onomies of s&ale


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%ince the athletic footwear industry in the $% is a mature industry, competition is

targeted towards attaining market share. 9ompanies need to introduce products at numerous

price le!els in order to compete and reach all areas of the market.

In this sense there are only a few players who are able to compete in all sectorsE Nike,

+didas?eebok, and New Balance. %maller firms in this industry focus on specific type of

shoes hence targeting specialized submarkets, i.e. +sics on running shoes.

?i!alry among the big players isfierce. %ince they cannot compete on price they need

to differentiate their product through constant inno!ation. +lso, continuous efforts are needed

towards strengthening their brands.

In order to stay competiti!e and ha!e presence in all sectors, many mergers and

acquisitions, i.e. +didas and ?eebok, are taking place and the market is going towards

consolidation. +s a result, maintaining a single brand image for companies like Nike becomes

really a tough ask. e will discuss ri!alry more in details in the 9ompetitor +nalysis later on.

-hreats o! New # ntrants: 58ow7

Barriers to entry in the athletic footwear industry are highdue to se!eral factors.

It is as !ery capital intensi!e industry. )!en though it would not be difficult for a new

company to obtain the raw materials and the labor needed to produce shoes, there is almost no

chance for them to gain popularity in such a mature industry with some of the strongest brand

names in the world. Brand loyalty is e-tremely strong and it would be !ery hard for a new

entrant to 1steal6 loyal customers from the already e-istent players.

)conomies of scale play a huge role as well and the bigger players ha!e an ad!antage

of producing the products at a lower price than compared with newer entrants. +s the output

is bigger and the fi-ed costs of factories, machinery, marketing and ?KG will be decreased

per unit. Both marketing and ?KG constitute high costs and since new entrants will not be

able to take ad!antage of the economies of scale they will be less competiti!e.

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Buyer .ower: 5ery *igh7

he buyers for this industry are retailers and end users.

he footwear retailers, i.e. Footlocker, al*art, range in sizes. owe!er, the top 27

retailers account for twothirds of the sales of athletic footwear appro-imately "#7 billion in

!alue.2&New retailers are entering the market, such as 1big bo- stores6 and !endors that open

their own stores. he lack of concentration among buyers brings down the margins and gi!es

the power to the !endors. ?etailers also ha!e no power in determining the design of the

product. herefore the big footwear manufacturers generally dictate the price of their shoes.

In order to gain more power buyer companies ha!e started merging Footlocker Foot

+ction, %port +uthority 4art. his consolidation will transfer some of the power from the big

players because in order to be industry leaders they will need these wellrecognized retailers

as well. 4rowing margins suggest that buyer power has been increasing.2'

he end user of the industry is also considered a buyer and he has unlimited power.

)!ery company is fighting for the loyalty of the end user through constant inno!ations and

brand management. owe!er, if the user is dissatisfied, he can easily switch the brand to

another one. herefore, o!erall we consider buyer power to be high.

.orters !ive !ores analysis: #merging &arkets

2%id.23%id.

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Threat of New entrants(#igh!ess"$ot eD)lored Markets

i.e. everyone =ill einterested

$on So)isti&ated marketneeds

o&al )layers advanta6e >Conservative 6overnment

)oli&ies to el) lo&al)layers

&i'alry (*ery #igh!/ier&e Com)etition from

6loal rands -.6 Adidas,Puma, $e= Balan&e et&

o&al )layers =it &ulturaladvanta6e and )ri&e&om)etition

Sustitutes (ow!Bare foot, =alkin6 =it

sli))ers e.6. %ndiaeater oots and sli))ers

$uyer )ower (*ery#igh!Customer needs to

e edu&ated


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+s we see in the fi!e forces analysis picture abo!e, most of the attributes pertaining to

%upplier power and %ubstitutes remain the same. owe!er, there are considerable changes in

the nature of the market, the buyers and hence we see some changes in ri!alry, new entrants

and buyer power.

-hreat o! New entrants: 5*igh7

%ince the markets are quite new and une-plored, e!ery big player in the world is

looking to enter into these markets.

he market is less sophisticated and customers will get satisfied with basic le!el

products. ence, less capital is needed to produce basic le!el goods.

%ince there is no ma@or brand following, it is not capital intensi!e for a new entrant to

enter into a regional market.

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)!en though the global players can ha!e low production cost, the marketing and other

e-penses grow high and they are competing with smaller players here unlike in de!eloped

countries. +s a result, o!erall threat of a new entrant is considered high here.

Buyer .ower : 5ery *igh7

he buyer power remains high in both de!eloped and emerging markets. owe!er, the

reasons for that differ as followsE

he customer is not aware of the product or brand. ence, he needs to be educated

about the features and the comfort the footwear pro!ides.

)merging markets in general are !ery price sensiti!e. he premium sector will grow

with time as the market becomes more sophisticated.

he retailers and distributors need education to do the business and operations and

hence, it is a daunting task for making them mo!e from their regular local !endors to a new

!endor.

-hreat o! +ivalry: 5*igh7

he o!erall threat of ri!alry is high here as well, arising from two dimensionsE

4lobal competitors like +didas, ?eebok, =uma etc

:ocal competitors who are already in the business and ha!e a cultural ad!antage in

understanding the customer.

In general, with three out of fi!e forces being high, emerging market does not look like a

fa!orable en!ironment. owe!er, on continuous marketing and educating efforts, this market

might be transferred into a growth region for all companies.

4om"etitor (nalysis

o understand the position of Nike in the industry, it is important to perform a

competitor analysis. Nike5s ma@or competitors in the footwear industry are +didas K ?eebok,

New Balance, =uma, %ketchers and other players combined together.

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&arket Share:

+s of 200>, Nike has a dominant global market share of ( followed by +didas and

?eebok together at 22(.he corresponding figure in $% ho!ers around &/( followed by +didas

and New balance at distant second and third.27

Source+Cristo) 8olles&al, Fadidas,F -uity esear&, Commerzank, 2+ /eruary200+.

Finanial analysis:26

Com)any -arnin6s

)er sare Mkt Ca)

Cur

ra

Puma 1.* .**B 2.1#

Adidas 1.#! +.+0B 1.!+9nder Armour 0.#+ 1.*B .:

$e= Balan&e Priv

From the analysis shown abo!e between the ma@or competitors, it is quite ob!ious that

Nike is leading the market in most of aspects. owe!er, the company to note here is $nder

+rmour as this company has high growth rate despite the fact that other companies are

e-periencing a slow sales growth. Nike should put some effort to study the strategy of this

company.

2!Cristo) 8olles&al, Fadidas,F -uity esear&, Commerzank, 2+ /eruary 200+.2*aooL /inan&e, Goo6le /inan&e, S-C /ilin6s of te &om)anies

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.ro%ut .ort!olio (nalysis: 2

2Com)any =esites.

;Atleti& /oot=ear %ndustry Analysis,7 ufts 9niversity, -&onomi&s of Mana6ement andStrate6y, May, 200*.

1*

ype of

%hoeL9ompany Nike

(%i%as

+eebok

NewBalane

:'Swiss

4onverse

.uma

(sis

6ans

Brooks

(N31

Stri%e+ite4o

r"

S"ira

&i)uno

Sauony

+unning M M M M M M M M M M

,alking M M M M M M

Basketball M M M M M M

4hil%rens M M M M M

-ennis M M M M M8i!estyle M M M M M M M

Skating M M M

4ross'-raining M M M M

Soer M M M M


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It can be seen that Nike has products in all lines. Guring early 200/, Nike was lacking

products in the skating category. owe!er, they quickly recognized this shortcoming and

introduced a skate boarding shoe. +lso, it can be noted that there are o!erlapping product

category lines between +didas and ?eebok. ence, there is a high possibility that +didas is

competing with ?eebok and hence cannibalizing its own sales after the merger. ith such a

product line, Nike will be able to compete with all players in the industry. herefore, Nike is

at a strategic ad!antage.

(%vertising strategy:

he ad!ertising strategy differs from company to company. 4enerally, Nike belie!es

in spending 7>( of its re!enues in ad!ertising and endorsement. Nike has planned to spend

"'.2 Billion until 20#' for endorsements alone. ith the huge size of Nike, it is tough for

other companies to allocate a big amount for their marketing e-penses. *oreo!er, Nike has

always an edge when it comes to ad!ertising and marketing. he table below shows the

ad!ertising strategy for the ma@or players in the industry.

4om"any Strategy

Nike

)ndorsing +thletes

%ponsoring %ports e!ents 9ity based ad!ertisements

Banners K Billboards

hemes on bringing inspiration and inno!ation to e!ery athlete in world

+didas, ?eebok %ponsoring %ports e!ents

)ndorsing +thletes

hemes on impro!ing performance of e!ery athlete in the world

=uma28

*i-ing influence of sports, lifestyle K fashion

=uma concept retail stores

=uma fashion shows

New stuff ad!ertising campaigns

Building seasonal momentum during holiday seasons

Cther companies *inimal or less ad!ertising based on stores

Bran%ing Strategy:

Nike has in!ested a lot so far in de!eloping a premium brand that implies high quality

and care for the customer. Nike has a wide range of products ranging from athletics to life2+;Puma > Brand Communi&ation analysis,7 rent (aute, 200*

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style and also in different price ranges. herefore, it is always a challenge to fight against

brand dilution within Nike. he following gi!es an idea of the customer5s perception of the

brands.

4om"any Bran%ing message an% strategy

Nike

+thletic, Influential, Cutgoing, +ggressi!e, hi tech, futuristic, retro cool+merican way of li!ing+ssociated with +thletes at top of their sporto bring inspiration and inno!ation to e!ery athlete in world

+didas, ?eebok

9lear, orderly, =ractical, hi tech, %ophisticated, %incere9onser!ati!e )uropean styleo impro!e performance of e!ery athlete in the world+ssociated with elite soccer playersteams, NB+ stars, ip hop artists

=uma)legant, colorful, fresh, spontaneous, indi!idual, metropolitan,international*i-ing influence of sports, lifestyle K fashionFashion brand, performance K casual footwear, fringe, e-treme sports

Cther companies Based on their product lines. 4enerally not a strong brand message

In general, Nike5s shoes are associated to be of high quality and stylish. ?eebok5s are

comfortable and casual, and the +didas brand boasts superior performance and is 1percei!ed

as a professional, technically orientated brand with strong )uropean roots62.

-ehnology an% 0nnovation strategy:

Nike fields some of the best in class technological practices and has a few patents to

its credit. Nike emphasizes on these and has de!eloped a lot of new products with use of high

technology and sophistication. +n e-ample of that is the microprocessor shoe to gi!e great

e-perience and comfort to the customer. owe!er, +didas is also working on high tech

inno!ations to pro!ide high quality shoes. :ately, +didas and Nike ha!e been doing

entertainment based marketing campaign by forming alliances with technologyentertainment

companies. Nike had an alliance with +pple to sell Nike shoes with +pple i=ods while +didas

tied up with *icrosoft to sell +didas goods with *icrosoft Mbo- gaming systems. %o far the

success of these alliances is yet to be quantified.

&anu!aturing strategy:

2#(an6, Ste)anie. ;S)orts Soe ivals Ste) 9)7. The Wall Street Journal, * an 200*.

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Nike follows a #00( outsourcing strategy. *ost competitors follow the outsourcing

strategy. )-ceptions to this are New Balance and other smaller players. New Balance claims

that >7( of its production is from the $% and other small companies produce in the $% as

well.

4om"etitor (nalysis in #merging & arkets:

In general, competition in the emerging markets is granular and from a lot of players.

owe!er, the case in 9hina is !ery different. +ccording to a research report by Bof+ *errill

:ynch, Nike was the most popular sport brand in 9hina with #( market share in 2008, while

+didas ranked second with #7( share and :i Ning third with ##(. he brokerage estimated

:i Ning to ha!e o!ertaken +didas in 200 as the secondlargest player in 9hinas "#0 billion

sportswear industry. here are speculations that :i Ning has o!ertaken Nike as well. &0

0ssues o! onern

It is not easy to stay as the market leader always because e!erybody wants to be in

your place. Nike5s o!erall $% re!enue growth is declining as discussed earlier. C!erall

growth in other geographical regions has also dropped considerably. ith the merger between

+didas and ?eebok taking off slowly and strongly and surging of companies like New

Balance, Nike5s sustainability of its market leadership becomes challenging. here are a few

challenging issues that Nike is facing at this point of time.

1; &aturing in%ustry in S(

a. Tightening competitionH growth of +didas, New Balance, =uma etc. as shown

in the pre!ious competitor analysis sections. =roduct differentiation alone will

not help as customers will not be able to understand the ad!antages of

technology beyond a certain le!el. here should be a price ad!antage as well.

. Problem of brand dilutionH Nike has been de!eloping a premium and high

quality brand image so far. ith Nike entering lowprice segments, there is a0;Cinese S)orts Brand akes on $ike,7 Nivian 4ai'yin (=ok, /ores.&om

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in!entory and to ship products to customers on a timely basis depends significantly on the

reliability of these supply chain systems.

=; #nvironmental sustainability

a. No direct control on compliance issuesH Nike relies solely on its

subcontractors for manufacturing of its footwear. a!ing already faced se!eral

issues on unfair labor practices at these subcontractor factories, Nike always

carries a risk of not ha!ing control o!er compliance to labor code laws. his is

considered by us as a big risk as another scandal of unfair labor practices will

completely collapse Nike5s position in the industry.

. Solid waste from shoesH here will always be a lot of solid waste from Nike5s

footwear manufacturing processes. +lso, being a market leader, it is the

responsibility of Nike to de!elop en!ironmentally sustainable business and stand

as an e-ample for others to follow. + possible option will be recycling, but Nike

still has no concrete strategy in this place.

+eommen%ations

Fous on -ehnology an% 0nnovation

o ith the market being mature in $% and de!eloped countries, product

differentiation is the best tool to gain market share. Nike should continuously

in!est in product design and inno!ation to be always with a leading edge o!er

the trailing competitors.

o Focus on setting up a reliable Information system that is capable of handling

comple- supply chains in a fool proof manner.

o =roperty, =lant K )quipment costs for 200 stood at "#.7> B as opposed to

"#.80 B in 2008 which is a &.7( increase. owe!er, this needs to increase by

7 H >( e!ery year. C!erall, #7 H 20( of re!enues need to be spent on this

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because the product design and inno!ation forms the backbone of the

company.

+evisit bran%ing strategy by %eou"ling hea" an% low ost !ootwear !rom

!lagshi" items

o 9heap and low cost footwear should be decoupled from the e-isting Nike

brand. hey might be sold under a different name, but not Nike. his might

help sa!or the premium brand image of Nike and help con!ey one message to

our brand. For e-ample, Nike starter shoes should be sold as @ust starter and

not Nike starter.

Follow both 3i!!erentiation an% .riing base% strategy

o ith the market matured in the $% and de!eloped countries, the competition

comes down to getting more market share than any other competitor in the

business. hus, an aggressi!e strategy that combines both differentiation and

pricing based strategies together will definitely ser!e better than @ust

differentiation. e saw that the operating margins for Nike are around ''(.

his means that Nike has the scope to do a combined differentiation and

pricing strategy

o In a de!eloping market, the market grows with a price competition and later

transforms into a high quality based market with nonprice competition. %ince

the industry in the de!eloping economies is growing, it is necessary to ha!e an

aggressi!e pricing based strategy as well. +s Nike has been building a high

quality brand image so far, it makes good sense to follow both differentiation

and pricing based strategy together.

4om"ete in !ull !le%ge in #merging markets> "artiularly in hina make a website

store

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o Nike is currently the market leader in 9hina. But competition is catching up

and :i Ning has been growing strongly. In this situation, Nike has to operate in

full fledge to capture market share in emerging markets. Basic things like an

online store in a country like china will seriously help dri!e a lot of business.

0nvest on sustainability researh

o It is high time Nike begins to in!est more on its sustainability research.

9ompanies like 9orpatch are consistently watching Nike and this issue of

en!ironmental pollution will e!entually come up.

o +lso, if a proper recycling chain is established between the end user and the

company, the o!erall fi-ed costs will go down and hence profits might go up,

along with en!ironmental sustainability.

o Nike should also work with its collaborators in all forms to ha!e efficient

sustainable supply chains. his o!erall might reduce the costs for Nike and

benefit the whole society as well.

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Nike Strategy Analysis