Nike Inc.

Nike Inc.
November 17, 2013
Shawn Buitendorp Logan Dean Chelsea Halamka Adrienne Howells Eric Skutt

Table of Contents

Memo of Transmittal.Pg. 4 IntroductionPg. 5 HistoryPgs. 5-6 Strengths...Pg. 6 Weaknesses.Pgs. 6-7 Opportunities.Pgs. 7-8 ThreatsPg. 8 Revenue and EPS GrowthPg. 9 Graphical Revenue GrowthPg. 9 IllustrationsPg. 9 Conclusion...Pgs. 9-10 References..Pg. 11

TO: FROM: DATE: SUBJECT:

Jenell Benard Adrienne Howells, Chelsea Halamka, Shawn Buitendorp, Logan Dean, Eric Skutt October 22, 2013 Nike Inc. Report

Here is the report on Nike, Inc. Our report looks at the competition that Nike Inc. has and how they stay a profitable competitor in their field. In order to understand a company, you must understand their background. Knowing that the founders Bill Bowerman and Phil Knight started the company by creating innovative footwear shows where the business stands and what their mission as a company is. Nike's ability to adapt and change has not only kept them in the game, but put them a step ahead of most of the competition. They constantly are looking for the next trend and marketing it in relevant ways. Looking at a SWOT analysis of Nike Inc. also shows how they stand out in their field. They are very popular which makes them recognized by many people. They also have opportunities ahead. They have the power and resources to expanded even more internationally. In order to be a viable competitor we must also look at the threats and weaknesses of the company. When dealing with many different currencies, it can lead to confusion which in the end could lead to profit loss for the company. Their weaknesses also deal with the sensitivity of their prices. When the economy goes down, their sales go down. Understanding all of these aspects and analyzing them can help to improve Nike Inc.s profit margins and how to stay successful in their field.

Introduction In our economy, there is an ever changing and adapting business structure. It is extremely complex, and when one adds many other countries and cultures into the mix, it takes on a life of its own. The companies that are able to stay alive and thrive in this situation are the ones that are able to adapt, learn, and change. Nike Inc. has certainly accomplished this daunting task, for they have been relevant and thriving for the past 50 years due to a strong brand identity. History The history of Nike Inc. begins as many entrepreneurial stories do, with the desire to create a product that currently does not exist in the marketplace. Although many of these pursuits do not come to fruition, Nikes is filled with a multitude of triumphs, a few losses, and an unparalleled drive for success. For as their motto goes, Just Do It! In the 1950s, Bill Bowerman, a track and field coach at the University of Oregon, sought to improve his athletes performance by developing an innovative type of running shoe. The shoe manufacturers of the time dismissed his ideas, leaving Bowerman to fashion shoes for his runners. One of Bowermans middle-distance runners, Phil Knight, was also intrigued by the possibilities of footwear innovation. After striking a distribution deal with the manufacturer of Tiger shoes, Knight sent several sample pairs to Bowerman, who leapt at the chance to work with an individual as passionate about athletic shoes as he was. The two became partners and founded Blue Ribbon Sports. In January of 1964, Bowerman and Knight, pledged $500 each and placed their first order of 300 pairs Knight sold the shoes out of the trunk of his green Plymouth Valiant, while Bowerman began ripping apart Tiger shoes to see how he could make them lighter and better, and enlisted his University of Oregon runners to wear-test his creations (Nike Inc., 2013). As owners burgeoning company, each man had numerous obligations and tasks that could not be performed alone. Thus, in 1965, Jeff Johnson was hired as the first employee of Blue Ribbon Sports where he created the companys first marketing campaign through brochures, pictures, and advertisements. In fact, it was Johnson who developed the name Nike in 1971. At this time, Nike was merely a shoe distributor, and did not design, manufacture, or sell any products under the Nike name. This was all about to change when, in 1972, Nike debuted their own line of athletic sneakers, emblazoned with their new logo, the Swoosh. The line launched just in time for the U.S. Track and Field Trials, with great success. Nike selected Steve Prefontaine, an accomplished runner from Coos Bay, Oregon, to be their spokesman. Prefontaine helped the public become aware of the brand after he gained national exposure for his world records and his participation in the Olympics. Tragically, Prefontaine died at the age of 24, yet his, fiery spirit lives on within Nike; Knight has often said that Pre is the soul of Nike(Nike Inc., 2013). In 1980, Nike started off the decade with a bang by introducing the wildly successful Nike Air and by becoming a publically traded company. Although, the early 80s found Nike

in a period of decline, for they fell from the industry leader position due to a judgment error of the popularity of aerobics. Nike would once again prove to be the forerunner in the athletic shoe industry when, in 1985, they introduced a new shoe for the NBA, and one very notable rookie, Michael Jordan. The remainder of the 80s ushered in a prosperous time for the brand due to new ad campaigns, especially due to the Just Do It tagline. On a high note, in 1989, Nike regained their industry leader position and has been the first and only brand in the athletic apparel and footwear industry to ever do so. In the 1990s, Nike decided to shift their focus and deeply pursued the fields of soccer and golf. Most notably, in 1996, to critics chagrin, Nike signed a nearly unknown golfer, Tiger Woods, to a 5 million dollar per year contract. After winning the 1997 Masters Tournament in an unheard of 12 strokes, naysayers held their tongues. Nike ushered in the 2000s with a revolutionary design, the Nike Shox, a project that was 15 years in the making. Since then, Nike has focused more on global marketing than product innovation, which has seemed to pay off. Nike projects its 2015 revenue to be between 28 and 30 billion dollars, a hearty sum for a company whose founder cobbled his own athletes shoes. Strengths Nikes biggest strength is its brand power. Nike is a global company and has an easily recognizable logo called the Swoosh. The Nike brand is used for various product offerings from clothing, to golf clubs, to soccer balls, to footwear, and the list goes on. Just having their brand on display in so many venues makes them a very well known and established brand. Another one of Nikes key strengths is that they are constantly trying to improve their products. Having the latest technology and developing new and more effective products creates excited customers who will potentially buy the products. Seeing a new type of product, lures people in to see how is this product better than what has previously been offered. Will it lead to an increase in performance when used? Does it conform to the rules and regulations of my sport? Etc. Location of production facilities is another big strength for Nike. Nike products are made in countries where wages are low and materials are abundant. This leads to very low costs associated with production and in the end, higher profits for the company. Nike has also had some great promotional strength tied to some of the athletes they have partnered with and sponsored over the years. From Michael Jordan, to Bo Jackson, to Tiger Woods, Nike has been associated with championship level athletes who wear Nike apparel, use Nike equipment, and endorse whole product lines using their names such as basketball shoes called Jordans and Tiger Woods logo golf shoes. Weaknesses While Nike is a very successful and popular company, there are some weaknesses that they sometimes come across. First, Nike is labeled as a very expensive brand. With this label, this means that some people cannot afford Nike. Not only can some people not afford

Nike products, some countries, for example many Asian countries, may not afford some of Nikes products (Commercial strengths and weaknesses of nike). This makes is difficult to sell products in other countries since many people cannot afford them. Another weakness is that Nike is very dependent on footwear products. However, some of their other products are not as strong (Swot analysis nike). These products consist of clothing, jewelry, sports equipment, etc. If they concentrated more on these other products, then they might be able to make more sales in these areas. Concentrating on every one of their products could also make Nike an even larger corporation. Even though Nikes sales are strong, the athletic shoe and clothing maker pointed out that there is a possibility for margin pressure in the next two quarters because of cost inflation. Because of this, Nikes headquarters discussed some price increases, but management believes that cost inflation will not be an issue anytime soon. They do expect gross margin pressure due to inflation, but they are not in panic mode (Ratner). While some of these weaknesses are important, this should not make Nike any less successful. As stated before, Nikes products are quite pricy, however, this does not change the fact of how popular Nike is. Customers buy Nike not only of the quality, but also because of their name Nike. Although some people cannot afford their products, Nikes customers will never stop buying because of who Nike is. Nike has the leadership and responsibility to resolve any weaknesses to make their company more successful. Opportunities Nike Incs main focus is athletic shoes and clothing. This is a very large market; however, they have room to expand as well. In the world we live in today, technology is a huge part of everyday life. Nike has the potential to move into the market of athletic technology. This could be applications that can be used with a smartphone. The opportunities are endless if they decide to enter the technology market. They have the money and resources to produce these types of products. Nike also has a chance to enter the accessories market as well. They can sell everything and anything that has to do with working out or any sport. They have some merchandise that is focused on certain sports, such as bags, however if they focus more time and energy on this aspect they have a chance of making this part of their sales even higher. Not only does Nike have the chance of entering both technology and accessory markets, they can also start making work out equipment. Most people, who work out, have heard of, if not purchased Nike products. If they came out with their own line of work out equipment, customers would have brand recognition which would make them more interested in that product. Nike could sell these products to gyms, which would be beneficial in two ways. The first would be they made a sale of a high priced item. The second benefit would be that they would have free advertising in gyms. With the Nike logo on the equipment, people working out would be exposed to the brand without even knowing it. Nike could even open a gym line themselves. With Nike being well known all around the world, it makes it possible for these ideas to be potential opportunities. With Nike being a global company, this itself can be an opportunity. Every region of the world is slightly different from another. Nike can make custom designs for different

parts of the world. One product that works well in India, may not work well in Russia. The climates and terrain are completely different, meaning that there are different needs for each region. If Nike customizes some merchandise to different areas of the world, their sales would increase even more. Targeting a specific country or region makes the product more valued to those people in that area. Threats Nike Inc. may be a shoe tycoon; however, this does not mean that they are threat free. One of the biggest names in athletic shoes will have competitors. According to IBIS World, the revenue of athletic shoe stores is $10 billion per year (Athletic shoe stores in the us). With this kind of income strictly in the United States, there are businesses outside of Nike that will want a part of this revenue. This revenue is only that of the sale of athletic shoes themselves. This does not include the clothes and accessories that shoe stores also sell. This is such a huge market; many competitors are a part of it. There are 1,396 businesses that sell athletic shoes (Athletic shoe stores in the us). Not only is the athletic shoe market very large, it is very dependent on the status of the economy in the United States. Athletic shoes are more of a want than a necessity. When the economy is in its prime, many customers will spend extra money on a second set of running shoes or clothes, even if they do not really need them. On the other hand, if the economy is not very strong, then people are more cautious about their spending. They will skip buying a new pair of running shoes just because they like the new style. The purchase of athletic shoes decreases when the economy decreases, and the sales of athletic shoes increase when the economy is stable. This can dramatically affect the revenue of Nike from year to year. Their revenue is not set for each year because it is so highly dependent on the economy of the United States for sales in the United States. They are an international company, which can offset bad sales when the United States economy is unstable; however, being an international company brings other threats to Nike. A threat of being an international company is there are many different currencies that are being dealt with. There are 700 Nike store all across the world, which has led to an annual shoe sale of 120 million (Nike company statistics). These 700 stores are located in 45 different countries around the world (Nike company statistics). Different countries means there are different currencies Nike has to deal with. This can become a problem when transferring between currencies. Not all of the worlds currencies are equal to one another. If the company is not careful they could potentially lose money if it is not transferred correctly. For example, if they are selling shoes in India, India has a different currency than the United States. If they do not calculate the difference between American currency and Indian currency, they could be selling their product in India cheaper than they had originally planned. It is possible that they would not realize this mistake until shoes have been sold in India, leading to a profit loss. Being in 45 different countries means that this error can occur multiple times, leading to huge profit losses.

Nike Revenue and EPS Growth and Graphical Revenue Growth

(Revenue &eps growth, Revenue and eps growth)

(Geographical revenue growth, Geographical revenue growth) Conclusion The prospects for Nike look good, but there are certainly challenges they will face. Nike is always moving forward with marketing, innovation, and the science behind their products will keep them at an advantage. They have been gaining market share over the past decade and are forecasted to continue to do so as they move into more global markets. The hardest thing to predict about Nike is future technology that has not come out yet that

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could affect the sports clothing product line as a whole. If any company will be able to adapt it will be Nike, for Nike is on, a journey, a long-term journey for the brand (Eliott).

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Elliot, Stuart. "Losing a Step, Nike Seeks to Regain Its Edge." New York Times 14 Apr. 2013: B1. Print. Enderle, K., D. Hirsch, L. Micka, B. Saving, S. Shah, T. Szerwinski, and . N.p.. Web. 11 Nov 2013. <http://condor.depaul.edu/aalmaney/StrategicAnalysisofNike.htm>. "Nike Company Statistics." Statistic Brain RSS. N.p., n.d. Web. 04 Nov. 2013. <http://www.statisticbrain.com/nike-company-statistics/>. Nike inc. - history and heritage. (2013). Retrieved from http://nikeinc.com/pages/historyheritage
Ratner, Jonathan. "Nike Weakness a Buying opportunity." Financial Post Business Nike Weakness a

Buyingopportunity Comments. N.p., 13 Apr. 2011. Web. 13 Nov. 2013.

"Swot Analysis Nike." Top. N.p., n.d. Web. 06 Nov. 2013. http://www.quality-assurancesolutions.com/swot-analysis-nike.html