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NIKE: CASE ANALYSIS
Can ŞAHAN
Muzaffer ÇAĞLAR
Gökhan TAŞLIÇUKUR
Halime GERÇEK
Business Policy
Yeditepe University
Case-Study Overview
Internal: History, Nike overview, Key Facts, Our
Brands and Stock Information Nike Actual & Proposed Vision and
Mission Economic Performance Evolution of Financial Ratios Strengths and weaknesses
External: Industry overview and comparison of
financial ratios Manufacturing Opportunities and threats Competitors
Market Share Analysis: CPM
Analysis SWOT Matrix SPACE BCG IE matrix Grand Strategy Matrix
Possible strategies: Matrix Analysis
Decisions Why our decision? Strategic implementation Actions
Evaluation Procedure Conclusion
History
1962: Phillip Knight, a Stanford University business graduate and former member of the track team, arranges to import athletic shoes from Japan and sell them in the U.S.. Knight created Blue Ribbon Sports as a cover name for his small-scale shoe-selling operations
1964: William Bowerman becomes a partner by matching Knight's investment of $500.
1965: Hires a full time employee, and annual sales reach $2,000.
1966: Blue Ribbon Sports, also known as BRS, rents its first retail space; employees can now stop selling shoes from their cars.
1969: It now has several stores and 20 employees; sales are close to $300,000.
1971: Nike, capitalizing on the Greek goddess of victory. The first Nike product sold with the new symbol is a soccer shoe.
1970 – 1975: Steve Prefontaine was turned to the University of Oregon by Bill Bowerman and wore Nike products.
1976: The popularity of jogging increases revenue to $14 million.
1978: The company changes its name to Nike. 1980: Nike goes public, offering 2 million shares of stock.1990: Nike files suit against competitors for copying the
patented designs of its shoes, and also engaged in a dispute with the U.S. Customs Service over import duties on its Air Jordan basketball shoes.
1997: Feb., Stocks reaches a high of $76 per share.1998: Sept., Stocks tumbles to $31 per share.2000: The National Football League declines to renew its
exclusive apparel licensing arrangement with Nike.2001: Nike opens its first Nike Goddess store, a unit targeting
women, in Newport Beach, CA.2003: Nike purchases Converse Inc. for $ 305 million.
History
Evolution of the Swoosh Logo
Nike Overview
Nike’s principal business activity is the design, development and worldwide marketing of high quality footwear, apparel, equipment, and accessory product
Distributed in over 160 countries around the world: (Asia, Australia, Canada, Europe, Latin America, and the United States)
Nike is the largest seller of athletic footwear and athletic apparel in the world.
Fiscal year ended May 2003: Revenues of $10,697 million (increase of 8.1% against 2002)
Employees: 26,000 worldwide. 650,000 in Nike contracted factories around the
globe. Facilities: in Oregon, Tennessee, North Carolina and The
Netherlands. Also operates leased facilities for:
* 14 Niketowns, * Over 200 Nike Factory Stores, * 12 NikeWomen stores * Over 100 sales and administrative offices.
Brands
Cole Haan, based in Maine, sells dress and casual footwear and accessories for men and women under the brand names of Cole Haan, g Series, and Bragano.
Brands
Nike Bauer Hockey, based in New Hampshire, manufactures and distributes hockey ice skates, apparel and equipment, as well as equipment for in-line skating, and street and roller hockey.
Brands
Hurley International, based in California, designs and distributes a line of action sports apparel for surfing, skateboarding and snowboarding, and youth lifestyle apparel and footwear.
Brands
Converse, based in Massachusetts, designs and distributes athletic and casual footwear, apparel, and accessories.
Brands
Nike Stock (NKE) Information
Stock Symbol: NKE. Went public in December 1980 and is traded on
the New York Stock Exchange. Price:
Dec 31st, 2003: $68.46 May 1st, 2006: $82.21 Nov 24st, 2008: $56,45
Shares Outstanding (July 2003): 263.7 mill
Stock Price Performance
Vision Statement
“To bring inspiration and innovation to every athlete* in the world”
(* “If you have a body, you are an athlete”
Bill Bowerman, co-founder)
Proposed Vision Statement
Continue to bring inspiration to present and future athletes, while maintaining the company's standard of quality for its products.
Mission Statement
Nike is the "largest seller of athletic footwear and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry. We believe we are competitive in all of these areas." The company aims to " lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike."
Proposed Mission Statement
To continue to offer quality products with increasing growth in the industry and expanding globally. Our mission has always been to provide a competitive edge by developing the most technological products. Keeping in mind fair labor practices in all our suppliers’ factories, while maintaining a competitive advantage, with the shareholders interests, and company profits in mind. We also believe our employees are one of our most important assets. To increase the responsibility towards the environment by evaluating the impact of day to day operation and attempts to change operations that have a negative impact.
Internal Assessment
MARKETING:
Target Market :Male and Female; 18 – 34 y.o.
Positioning : High performance shoes designed with hi-tech features
Have many brands and products model for each type of consumers.
Have high allocation of advertising budget for endorser contract, TVC, print ads, and sponsorship activities.
Have top endorsers that are the champion in their sports areas.
Internal Assessment
DISTRIBUTION:
Nike has worldwide distribution line
Nike has good distribution line to retailer
Nike has new ordering system, named Futures Ordering Program
Internal Assessment
RESEARCH & DEVELOPMENT :
Nike has NSRL (Nike Sport Research Laboratory) and APE (Advanced Product Engineering) which cooperated in developing and executing idea.
Nike did direct research to the athlete by accompanying their daily activities to find the best suitable product.
Nike always developing superior technology to compete with others.
Internal Assessment
Management Style & Culture
Knight as CEO Nike, is an former athlete of long distance run
Nike working culture is established as camaraderie and cooperative culture.
Factory design in Oregon is especially designed to create natural circumstances and equipped with complete sport facilities.
Internal Assessment
Nike placed VP for social responsibility in 1998
Nike joined Fair Labour Association (FLA) and Global Alliance for Workforce and Communities (GAWC)
Nike funded many NGO such as WWF, etc.
Nike do public relation activities to keep the company’s image
External Assessment
Economic Forces
EU is changing into one currency.
USA economic growth is in slow growth because of WTC.
Contract manufacturing is chosen by many athletic shoes company.
External Assessment
Social Forces
Since 70-s, customer is more brand-minded.
Sport Consumer preferences is changing into more fashion-oriented.
Young consumer is believed much in advertising promotion and use internet as
the primary sources of information.
Buying motives of young consumer is dominated for leisure activity
Since 90-s, woman’s consumer dominated the athletic shoe market because of
the changing lifestyle.
External Assessment
Political Forces
World is entering global trade climate with NAFTA and GATT
There is anti-dumping regulation existed in EU
External Assessment
Technology Forces
Nike has integrated technology system to develop their product
Nike always adopted latest technology for their product and matched with
their vision
External Assessment
Competitive Forces
Competition is more tight with the coming of Reebok and Adidas
Competition is happened around the world, globally, not locally
Athletic shoe trend is going to be fashion-oriented
Branding: powerful marketing mechanism used by Nike
Leads to higher and more consistent product quality.
Increases innovation by giving producers an incentive to look for more new features that can be safeguarded by the patent.
Branding results in more product variety and choice for consumers.
Branding provides consumer information about products and where to find them.
Nike’s Market Expansion Strategies
Economies of Scale. Shared distribution channels among varied product
lines lower costs. Large size provides opportunity for more leverage
against competition. Efficient use of production facilities lowers costs.
Brand Image
Ability to charge premium price by establishing an “image”
• Access to new/different markets • Premium product placement in retail leading to higher
sales • Image and celebrity endorsements create
hopes/dreams/emotional attachment to product
Innovation
Innovation may be difficult for competitors to imitate. Difficult for competitors to compete with rate of
innovation/production. Ability to capture market for different attitudes/values
across cultures with product variety. Strong emphasis on R&D leads to continuous
improvement in products.
Geographical Outreach
Ability to reinforce brand and create loyalty across cultures leading to a broad customer base.
• Increased company growth potential. • Cross-subsidization of weaker markets.
Product Diversification
New products introduced by Nike will be more readily accepted by customers due to strong brand image
PRODUCT MIX
Product Mix
A product mix is the set of all products and items that a particular seller offers for sale to buyers also known as product assortment.
Product Width It refers to how many product lines the company
carries.
PRODUCT MIX Cont’d
Product line A product line is a group of products that are closely
related because they perform similar functions
Product lengthIt refers to the total number of items in its product mix
Product depth
It refers to how many products are offered of each product line.
PRODUCT MIX for Nike
• Footwear • Studs for Striker• Mid fielders • Defenders• Apparel• Headwear• Tops/Polo• Jersey• Jackets• Shorts • Shocks• Equipment• Ball • Bags• Watches• National Team Gear• Jersey for Brazil, England, etc.• Club Gear • Club Jerseys like Man U, Real Madrid, etc
Evolution of Financial Ratios (2004-2008)
Internal strengths and weaknesses
STRENGTHS: Strong brand recognition Internet sales Growing international presence Superior research and development
department Strong financial returns Strong sense of culture in the working
environment Great celebrity spokespersons Automatic replenishment system Successful experience being competitive Nike doesn’t own any factories Successful marketing campaigns
WEAKNESSES: Lack of stores catering to the active
females Poor employment practices at their
international manufacturing sites giving a bad reputation
Heavy dependency on footwear sales Issues with Footlocker
Industry Overview
Athletic footwear manufactures captured nearly one-third of the total footwear market in the early 1970s.
Over a span of more than 25 years, American consumers spent $300 billion on 7.5 billion pairs of athletic shoes.
Reebok international Ltd. and Adidas became $ 3.5 Billion companies, while Nike Inc. became the first ever $ 9.5 Billion company.
By 1996 the number of establishments had dropped to about 52, with 12 factories closing since 1995.
China's imports increase by 6 percent to 1.26 billion pairs in 2003 . Brazil's share increased 2.3 percent to 83.5 million pairs in 2003. Vietnam's share jumped 91.9 percent to 23.5 million pairs in 2003. The US markets continue to be dominated by imports from countries with low-cost
labor. From 1997 to 2001, the value of industry shipments declined from $ 219.6 million to
$106.5 million. U.S. shoe manufacturing plants declined by 775 between 1967 and 2001, the number
of new plants opening dwindled to nearly zero.
Key Ratios: Overall Comparison (2007)
Key Ratios: Overall Comparison (2007)
Key Ratios: Overall Comparison (2007)
Manufacturing: Nationality of Contract Suppliers
External Opportunities and Threats
OPPORTUNITIES:• Customer use of company’s
products change from athletic purpose to a fashion item
• Development of international trade (GAAT and NAFTA)
• Generation Y children (born between 1979 and 1994) will reach 60 million
• General demand for clothing/footwear for leisure activities continues to increase
• Growing e-commerce’s positive effect since one of company’s competitive advantages is Internet sales
• Women demand for athletic footwear and clothing is increasing significantly
THREATS:• Competitors which copy company's
business model (high value branded product manufactured at a low cost)
• Reebok's strong presence with 204 factory direct stores
• Adidas-Salomon AG, top European competitor
• The impact of foreign currency fluctuation and interest rates, and political instability
• Labor and political unrest in the suppliers countries
• Cost orientated customers vs company’s higher-end market.
Athletic Shoe Market Share (2007)
SWOT Analysis
Business Structure
Operating Segments: Footwear Apparel Equipment
Operating Regions: US Europe, Middle East
and Africa (EMEA) Asia Pacific Americas
BCG Matrix
Cash-Cow
Stars
Dogs
Question marks
Cash-Cow
Stars
Dogs
Question marks
The Grand Strategy Matrix
Potential Strategies: - Market
Development - Market Penetration - Product
Development - Backward
Integration - Forward Integration - Concentric
Diversification
Cash-Cow
Stars
Dogs
Question marks
Comparative Balance Sheet
Acoount Heads 2007 2006 Increase/Decrease % Change
Current Assets 8077 7359 718 9.76%
Total Non current Assets 2612 2511 101 4.02%
Total Assets 10689 9870 819 8.30%
Current Liabilities 2584 2623 -39 -1.49%
Total Non-current Liabilities 1079 961 118 12.28%
Total Liabilities 3663 3584 79 2.20%
Total Equity 7025 6285 740 11.77%
Cash-Cow
Stars
Dogs
Question marks
Current Assets Non Cur. Asset Total Assets C. Liabilities Total Non cur. Liab. Total Liabilities Total Equity0
2000
4000
6000
8000
10000
12000
8077
2612
10689
2584
1079
3663
70257359
2511
9870
2623
961
3584
6285
20072006
Cash-Cow
Stars
Dogs
Question marks
Accounts 2007 2006Increase/Decrease % Change
Revenue 16326 14954 1372 9.17%
COGS 9165 8368 797 9.52%
Gross Profit 7161 6586 575 8.73%
SG&A Expense 4759 4187 572 13.66%
Depreciationa & Amortization 270 291 -21 -7.22%
Operating Income 2132 2108 24 1.14%
Nonoperating Income 68 32 36 112.50%
Income Before Taxes 2200 2140 60 2.80%
Income Taxes 708 750 -42 -5.60%
Net Income After Taxes 1492 1390 102 7.34%
Comparative Income Statement
Reven
ue
COGS
Gro
ss P
rofit
SG&A E
xpen
se
Dep
r. & A
mor
t. Exp
ense
Ope
r. In
com
e
Non
oper
ating
Inco
me
Inco
me
Befor
e Tax
es
Inco
me
Taxes
Net
Inco
me
afte
r Tax
es0
2000
4000
6000
8000
10000
12000
14000
16000
18000
16326
9165
7161
4759
270
2132
68
2200
708
1492
14954
8368
6586
4187
291
2108
32
2140
750
1390
2007
2006
COMPARATIVE INCOME STATEMENT
Quick Ratio Current Ratio Debt To Equity Ratio0
0.5
1
1.5
2
2.5
3
3.5
2.32
3.11
0.08
2.16
3.36
0.06
Financial Strength
CompanyIndustry
Receivable Trunover Inventory Turnover Asset Turnover0
1
2
3
4
5
6
7
8
6.93
4.39
1.63
7.3
4.26
1.64
Efficiency
CompanyIndustry
P/E Ratio Price to Sales Price to Cash Flow Price to Free Cash Flow0
2
4
6
8
10
12
14
16
18
20
Valuation Ratios
CompanyIndustry
Return on Assets Return on Investment Return on Equity0
5
10
15
20
25
16.15
21.2
24.49
16.68
21.79
21.79
Management Effectiveness
CompanyIndustry
Dividend Yield Dividend 5 Year Growth Payout Ratio0
5
10
15
20
25
1.48
24.23
22.88
1.52
24.59
19.23
Dividends
CompanyIndustry
Porter’s Five Forces Model
Bargaining Power of Suppliers:-Subcontracts to more than 500 small scale factories -Low bargaining power due to Nike’s big volume
Bargaining Power of Buyers:-Competitive products all compete on differentiation-Low switching costs
INDUSTRIAL ANALYSIS
Porter’s Five Forces Model
Threat of Substitute Products:-Non-existent
Threat of Potential New Entrants:-Economies of Scale-Strong and Well Established Brand Name-High Capital requirements-Low threat
INDUSTRIAL ANALYSIS
Porter’s Five Forces Model
Intensity of Rivalry between Firms in the Industry:
-High competitive in an Oligopoly (other leading firms include Adidas, Puma, Fila, New Balance) -Strong brand identity and product differentiation -Intensity of Rivalry is moderate
INDUSTRIAL ANALYSIS
Porter’s Five Forces Model
INDUSTRIAL ANALYSIS
High Moderate Low
Bargaining Power of Suppliers
Bargaining Power of Buyers
Threat of Substitutes
Threat of New Entry
Intensity of Rivalry Between Firms
DECISIONS
• Primary: Focus on finding the most promising customers (kids and women) and introduce more products or improve current ones to satisfy potential increase in demand
• Alternative: – Keep expanding into current and future foreign markets by being aggressive and the
worldwide leader of the footwear industry– Accelerate funding for numerous marketing campaigns in order to get to specific
markets or customer groups– Focus on improving working conditions and human rights at international
manufacturer centers and at the same time increasing their productivity– Implement product diversification with company’s newest technologies so resulting
increased earnings could be reinvested into R&D plans
Implementation
Actions:• Women:
– Open 25 specific stores specialized only for women– Increase R&D expenses by 7% in women products– Increase Marketing expenses by 10%, designing a specific campaign for
women using female endorsements– Create a new logo for women market which would be associated with fashion
trends and introduce new products• Kids:
– Increase R&D expenses by 7% in kids products– Increase Marketing expenses by 10%, designing a specific campaign for kids– Introduce more soccer and basketball products targeting potential youth
market• Research in international market to find out what are the new trends
related with women and kids products (Long-term)
References
• http://finance.yahoo.com• Nike Annual Reports (2003 & 2007 )• Annual ranking of America's largest corporations, Magazine: Fortune 500 (2007):
cnn.money.com• www.nikebiz.com (Investor Relations)• www.bigcharts.com• www.businessweek.com• Strategic Management Concepts and Cases; Fred R. David, 10th Ed.
Thank You…