Nike, Inc. Strategic Analysis 2010

Presented to: Dr. Imran Hameed

Presented By:Muhammad SaqibMubasher AliMuhammad NaseemSaima Batool2

HISTORY

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CURRENT VISION STATEMENT

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"To bring inspiration and innovation to every athlete in the world"

If you have a body, you are an athlete.Nike co-founder Bill Bowerman

CURRENT MISSION STATEMENT

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To be the leading sports brand in the world.

OBJECTIVES

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• To continue being the world leader in sports equipment and apparel.

• To complete brand reorganization within market regions that will lower cost of sales.

• To create sportswear that would incorporate recycled material.

• To develop new alliances with companies who are well respected regarding social responsibility.

• To invest in additional marketing of existing products that will appeal to new demographic groups.

• To promote products as fashion wear, not just sportswear.

NIKE Strategy

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NIKE Strategy

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NIKE Strategy, structure, & culture

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Goal World’s leading sports products and equipment provider

Business Model

Market high-end consumer products in sports and fitness manufactured in cost-efficient supply chains

Business Strategies

Encompasses the business’ overall positioning in the sports industry and stay competitive due to the Product differentiation and globalization

Competitive Advantage

Brand Name, Product Quality, Inventory turnover, Cost leadership, Effective in-store operations

Org. Structure

Functional departments such as marketing, production, R&D, customer services, operations, distribution, human resource with clearly defined jobs at all levels; collaborative, matrix organization with professional staff; teams work across footwear, apparel and equipment product engines; minimal hierarchy in organization

Systems Automated inventory control; high-tech R&D system; automated warehouse and distribution systems

Processes Highly innovative product design, volume manufacturing, outsourcing for manufacturing, distinctive marketing, effective IT, distinctive R&D, periodic training of employees, tight financial control

Functional Strategy

Effectiveness of operations within its manufacturing, marketing, product development, and customer service processes; highest service standard within industry; build loyal customer relationships around the world to improve its customer services

Culture Well-diversified culture; code of ethics for all employees/suppliers/buyers called “Inside the Lines”; respect & value to employees; fast paced & high-tech culture; safe working conditions for employees/workers

NIKE core competencies

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EXTERNAL ASSESSMENT

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General environment faced by the industry

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INDUSTRY ENVIRONMENT

ANALYSISTHREATS OPPORTUNITIES

Global EconomyEconomic recession/ Consumer purchases slowing down/ Falling international economy; fluctuation in foreign currency & exchange rates

International expansion, building upon its strong global brand recognition; strong economic conditions in other countries

Technology  

Use of IT in marketing information system; Scientific research in products quality & innovation like Motion Analysis (kinematics), Foot- pressure Measurement, Ankle Range of Motion etc

Government/PoliticsIncreased legislation/Higher price of products, Customer right

Macroeconomic stability, low interest rates, stable currency conditions and the international competitiveness of the tax system

Natural EnvironmentNatural disasters like earthquake in Japan resulted in loss of lives, resulting in customer loss

Cold/Rainy climatic condition creates a demand for shoes.

Demographic

Baby boomers pushed into late forties are less inclined for sporty activities like running; lower income of customers; ethnic mix of some countries

Young generation inclination in sports & fitness; large population more customers; high income customer buying at premium price

Socio-Cultural  Inclination towards fitness leading to demand for fitness products particularly exercise apparel, shoes and equipment

Strategic groups in industry

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High Performance

Low Performance

High PriceLow Price

Porter’s five forces model

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CPM MATRIX

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  Nike Adidas PumaCritical Success Factors Weight Rating Weighted Score Rating Weighted Score Rating Weighted Score

Pricing 0.10 3 0.30 2 0.20 2 0.20

Global Expansion 0.07 4 0.28 3 0.21 3 0.21

Diversification 0.10 3 0.30 3 0.30 2 0.20

Technology 0.10 3 0.30 2 0.20 2 0.20

Customer Loyalty 0.08 3 0.24 3 0.24 2 0.16

Market Share 0.10 4 0.40 3 0.30 2 0.20

Advertising 0.12 4 0.48 3 0.36 2 0.24

Product Quality 0.12 3 0.36 2 0.24 2 0.24

Research and Development 0.08 3 0.24 3 0.24 2 0.16

Organizational Culture

Financial Position

0.07

0.06

3

4

0.21

0.24

3

3

0.21

0.18

2

2

0.14

0.12

Total 1.00   3.35   2.68   2.07

OPPORTUNITIES

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1. Younger customers are less prices sensitive

2. Promotion as a fashionable wear, not just sportswear

3. companies have outsourced their production abroad to lower cost and R&D expenses

4. US footwear imports totaled 2.36 billion pairs in 2007, or roughly 7.9 pairs per capita which is was up 0.4 percent from 2006

5. North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), both helped eliminate quotas and tariff barriers for foreign footwear manufacturers to ship their goods

6. The Internet allows footwear companies to pursue a direct to consumer sales channel

7. Sales of apparel, accessories, and footwear on the Internet has been growing at a double digit pace, considerably faster than more traditional sales models such as retail stores

8. Internet sales of apparel, accessories, and footwear could reach 18 percent of category sales by 2012

9. Companies that added a Web-based sales strategy are able to customize footwear and other merchandise directly to the customer’s needs and taste, are enable to achieve considerably better pricing as well as “deepening” the emotional bond consumers have with the brand

THREATS

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1. After the age of 40, the typical consumer is not willing to pay more than $35 to $40 per pair for athletic footwear

2. Competition is strong among athletic footwear and apparel from off brand companies

3. Fluctuation of foreign currency impacts the cost of importing goods to the U.S.

4. Increase in unemployment has impacted the household income which may result in spending less on brand name

5. Barrier to entry is low

6. Level of inventory is increasing in many retail stores due weak economy

7. Changes in society (Healthy Lifestyle)

8. Sports gaining popularity/Sports events/Tournaments

9. Growth through Athletes Sponsorships

10. Increasing manufacturing costs: The basic raw material for most of the athletic footwear is rubber. Price increase in raw material poses a negative impact on industry attractiveness.

EFE MATRIX

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Key External Factors Weight Rating Weighted Score

Opportunities      

• Younger consumers are willing to pay for fashionable and athletic footwear (willing to pay more) 0.08 3 0.24

• Most footwear companies have outsourced their production to reduce cost 0.07 4 0.28

• US footwear imports totaled 2.36 billion pairs in 2007, up 0.4 percent from 2006 0.07 3 0.21

• (NAFTA) and (WTO), both helped eliminate quotas for foreign footwear manufacturers 0.06 4 0.24

• The Internet allows footwear companies to pursue a direct to consumer sales channel 0.07 4 0.28

• Sales of apparel, accessories, and footwear on the Internet has been growing at a double digit pace,

considerably faster than more traditional sales models such as retail stores

0.08 3 0.24

• Internet sales of apparel, accessories, and footwear could reach 18 percent of category sales by 2012 0.07 4 0.28

• Companies that added a Web-based sales strategy are able to customize footwear and other

merchandise directly to the customer's needs and taste,.

0.06 3 0.18

Threats      

• After the age of 40, the typical consumer is not willing to pay more than $35 to $40 per pair for

athletic footwear

0.07 3 0.21

• Competition is strong among athletic footwear and apparel from off brand companies 0.08 2 0.16

• Fluctuation of foreign currency impacts the cost of importing goods to the U.S. 0.06 2 0.12

• Increase in unemployment has impacted the household income which may result in spending less

on brand name

0.09 3 0.27

• Barrier to entry is low 0.06 2 0.12

• Level of inventory is increasing in many retail stores due weak economy 0.08 2 0.16

Total 1.00   2.99

INTERNAL ASSESSMENT

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Value Chain Analysis

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Value Chain Analysis

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I. FINANCIAL ANALYSIS: LIQUIDITYKey Ratio: Net Working Capital

2007 2008 2009 20100

1000

2000

3000

4000

5000

6000

4119.754138.5

4842.75

5696.25

15221290

16491972

Working capital NikeWorking capital Adidas

II. FINANCIAL ANALYSIS: LIQUIDITY

Key Ratio: Long Term Debt Ratio

2007 2008 2009 20100.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

5.84%5.64% 5.03%

4.57%

58.42%

64.64%

24.17%

4.78%

Long Term Debt Ratio NikeLong Term Debt Ratio Adidas

INDUSTRY 10.58%

II. FINANCIAL ANALYSIS: EFFICIENCY

Key Ratio: Total Asset Turnover

2007 2008 2009 20100.000.200.400.600.801.001.201.401.601.80

1.53 1.50 1.45

1.32

1.23 1.21 1.13 1.23

Total asset turnover Nike

Total asset turnover Adidas

Industry: 0.56

II. FINANCIAL ANALYSIS: EFFICIENCY

Key Ratio: Inventory Turnover

2007 2008 2009 20100

1

2

3

4

5

4.4 4.5 4.4

4.6

3.3 3.1 3.3

3.5Inventory turns NikeInventory turns Adidas

Industry 1.76

II. FINANCIAL ANALYSIS: PROFITABILITY

Key Ratio: ROA

2007 2008 2009 20100.0%

5.0%

10.0%

15.0%

20.0%

25.0%

14.5% 16.3% 11.6%13.8%

19.6%19.0%

8.1%

15.2%Return on assets Nike

Return on assets Adidas

Industry 4.9%

II. FINANCIAL ANALYSIS: PROFITABILITY

Key Ratio: Gross Profit Margin

2007 2008 2009 201041

43

45

47

49

43.78

45.8244.9

46.3

47.4

48.7

45.4

47.89

Gross margin Nike

Gross margin Adidas

Industry 17.55

II. FINANCIAL ANALYSIS: ROE

2007 2008 2009 20100.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

22.40% 24.50%

18.00%20.70%

18.20% 18.90%

6.50%

12.30%

Return on equity Nike

Industry 7.36

III. STOCK CHART AND PRICE TRENDS

4 year chart

2007 2008 2009 2010

Basic earning per common share

2,71 € 3,25 € 1,25 € 2,71 €

III. STOCK CHART AND PRICE TRENDS

2007 2008 2009 2010

Basic earning per common share

2,96 $ 3,8 $ 3,07 $ 3,93 $

4 year chart

Internal Factor Evaluation (IFE) Matrix

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Key Internal Factors Weight Rating Weighted Score

Strengths      

• Nike is the dominant competitor for athletic footwear priced above $60 per pair, holding better than

a 50 percent market share for athletic footwear priced $85 per pair or higher

0.08 4 0.32

• Nike characterizes its organization as a collaborative matrix organization 0.02 3 0.06

• The Jordan brand has a 10.8 percent share of the overall U.S. shoe market, which makes it the

second biggest brand in the country and more than twice the size of Adidas' share

0.06 4 0.24

• Three out of every four pairs of basketball shoes sold in this country are Jordan, while 86.5 percent

of all basketball shoes sold over $100 are Jordan

0.08 4 0.32

• Nike's 2009 revenues increased 2.9 percent to $19.1 billion 0.09 4 0.36

• Inside the United States, Nike has three significant distribution and customer service facilities 0.05 3 0.15

• Nike estimates that they sell products to more than 25,000 retail accounts in the United States and

more than 27,000 retail accounts, including Nike-owned stores and a mix of independent

distributors and licensees outside the United States

0.04 3 0.12

• The company's Internet Web site, www.nikebiz.com, allows customers to design and purchase Nike

products directly from the company

0.07 4 0.28

• Nike has five wholly owned subsidiaries: Cole Haan, Converse, Hurley International, NIKE Golf,

and Umbro Ltd

0.07 3 0.21

Internal Factor Evaluation (IFE) Matrix

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Key Internal Factors Weight Rating Weighted Score

Weaknesses      

• Nike's 2009 net income decreased 21 percent to $1.48 billion 0.07 2 0.14

• Almost all of Nike's footwear is manufactured outside the United States by

independent contractors

0.08 1 0.08

• In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and

Thailand manufactured 99 percent of Nike's footwear worldwide

0.06 1 0.06

• Because Nike competes primarily in athletic footwear, apparel and related

sporting equipment, its sales are heavily concentrated in the youth and young

adult market.

0.08 1 0.08

• Accounts payable has increased by almost $1.0 billion in 2009 0.08 2 0.16

• Negative publicity and boycotting of the Nike products due to outsourcing jobs

overseas and the use of child labor in such factories

0.07 1 0.07

Total 1.00   2.65

SPACE Matrix

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FS

CS

ES

IS 6 5 4 3 2 1

Conservative Aggressive

Competitive Defensive

1

2

3

4

5

6

7 -2 -3 -4 -5 -7 -1 -6

7

-7

-6

-5

-4

-3

-2

-1

STRATEGIC ASSESSMENT

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Strength

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1. Nike is the dominant competitor for athletic footwear priced above $60 per pair, holding better than a 50 percent market share for athletic footwear priced $85 per pair or higher

2. Nike characterizes its organization as a collaborative matrix organization

3. The Jordan brand has a 10.8 percent share of the overall U.S. shoe market, which makes it the second biggest brand in the country and more than twice the size of Adidas’ share

4. Three out of every four pairs of basketball shoes sold in this country are Jordan, while 86.5 percent of all basketball shoes sold over $100 are Jordan

5. Nike’s 2009 revenues increased 2.9 percent to $19.1 billion

6. Inside the United States, Nike has three significant distribution and customer service facilities

7. Nike estimates that they sell products to more than 25,000 retail accounts in the United States and more than 27,000 retail accounts, including Nike-owned stores and a mix of independent distributors and licensees outside the United States

8. The company’s Internet Web site, www.nikebiz.com, allows customers to design and purchase Nike products directly from the company

9. Nike has five wholly owned subsidiaries: Cole Haan, Converse, Hurley International, NIKE Golf, and Umbro Ltd

Weakness

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1. Nike’s 2009 net income decreased 21 percent to $1.48 billion

2. Almost all of Nike’s footwear is manufactured outside the United States by independent contractors

3. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and Thailand manufactured 99 percent of Nike’s footwear worldwide

4. Because Nike competes primarily in athletic footwear, apparel and related sporting equipment, its sales are heavily concentrated in the youth and young adult market

5. Accounts payable has increased by almost $1.0 billion in 2009

6. Negative publicity and boycotting of the Nike products due to outsourcing jobs overseas and the use of child labor in such factories

Major Strategic issues

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TOWS MATRIX

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SO Strategy

- Expand into international market more where the economy is stronger

- Increase advertising and promotion through social networking such as Twitter and Facebook

WT Strategy

- Make low priced footwear made in the US and promote it as “Made in America”

- Acquire a less expensive brand of accessories and sportswear and promote them as an off brand of Nike

ST Strategy

- Develop a new moderately priced product line

- Expand distribution by selling to stores other than their own retailers

WO Strategy

- Develop new products for small kids based on cartoon characters

- Sponsor more athletics programs, mostly for young generation

Three Suitable Startegies

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RECOMMENDED STRATEGY

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Market Expansion:

The United States is the largest and most saturated market for NIKE. This is a threat for the company. Thus the Company has to direct efforts on expanding into emerging markets which offer growth opportunities. It has a huge market in Asian countries like India and China. India and China are the fastest growing economies today

STRATEGIC IMPLEMENTATION

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implement the expansion strategy

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Nike has to expand its global retail foothold by opening new stores all over the world.

NIKEs expansion plan may include a mix of discount-minded NIKE Factory Stores in outlet malls

NIKE town stores, which sell newer and exclusive items and are often found in upscale shopping centers.

Company has to attract both the segment of customers i.e. price sensitive and premium class.

NIKE’s should take advantage of distinctive marketing capabilities, innovation and distribution capability.

Long term (Three year ) objective

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Nike has set revenue target of $27 Billion by the end of 2015. NIKE goal for next three years should be on getting maximum exposure

from London 2012 Olympics. Nike can also boast its apparel business by replacing Adidas division

Reebok as the leagues official uniform provider, giving the company even more exposure among local consumers.

NIKE has been the best when it comes to advertising. Some of the celebrities who will advertise for NIKE during the Olympics will be USA Basketball NBA stars like Kobe Bryant, LeBron James, and Carmelo Anthony. In this scenario NIKE will embrace the key success factor of its distinctive marketing capabilities, innovation and distribution capability.

NIKE is also coming up with the new automatic self-lacing sneakers. Thus NIKE will embrace the key success factor of extensive research and development effort to design premium concert athletic products for customers and product differentiation.

SOURCES

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• http://investors.nikeinc.com/Investors/Financial-Reports-and-Filings/Annual-Reports/default.aspx

• http://investors.nikeinc.com/Theme/Nike/files/doc_financials/AnnualReports/2009/docs/Nike_2009_10-K.pdf

• http://investors.nikeinc.com/Theme/Nike/files/doc_financials/AnnualReports/2006/docs/10k.pdf

• http://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=NKE:US&dataset=incomeStatement&period=A&currency=native

• http://finance.yahoo.com/q/is?s=NKE+Income+Statement&annual

• http://www.nike.com/nikeos/p/nike/en_US/?&ref

• Datamonitor.com – UMFK library sites

• http://en.wikipedia.org/wiki/List_of_most_populous_cities_in_India

• www.yahoofinance.com

• https://materials.proxyvote.com/Approved/654106/20090724/AR_44240/HTML2/default.htm

• http://en.wikipedia.org/wiki/Nike_timeline

• http://nikeinc.com/pages/history-heritage

• http://investing.money.msn.com/investments/financial-statements?symbol=NKE

• http://www.nike.com/nikeos/p/nike/en_IN/store_locator

• Strategic Management Concepts and Cases 13th Edition. Fred R. David.

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