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    1 Nike-Inc

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    264 RANDY HARRIS cutlets in the United States, including 140 Nike factory stores that sell overstock an closeout merchandise, Nike’s U.S. sales accounted for 43 percent of total company -eventues in fiscal 2008. ‘Outside the United States, Nike sells to more than 27,000 retail accounts, including ‘Nike-owned stores and a mix of independent distributors and licensees around the world. Ths ‘company has international branch offices and subsidiaries in 52 countries around the wor land operates 336 retail outlets outside the United States. These Nike-owned retail facilities ‘outside the United States include 184 Nike factory stores, 61 Nike stores, 4 Niketowns: 12 Nike employee-only stores, 74 Cole Haan stores, and 1 Hurley store, as indicated i= Exhibit 3, Nike's non-US. sales accounted for 66 percent of total company revenues in sca 2008, up from 62 percent in 2007, as indicated in Exhibit 4. Exhibit 5 reveals Nike's income, before taxes by region. Nike has five wholly owned subsidiaries: Cole Haan, Converse, Hurley International, Nike Golf, and Umbro Ltd. Cole Haan, headquartered in Yarmouth Maine, designs and distributes dress and casual footwear under the Cole Haan and Bragano brand names. Converse, headquartered in Yarmouth, Massachusetts, designs and distributes athletic and casual footwear under the Converse, Chuck Taylor, and Al ‘Star brand names, among others, Hurley International, based in Costa Mesa, California, designs and distributes a line of sports apparel for surfing, skating, and snowboardins ‘under the Hurley trademark. Finally, Umbro Ltd., based in Manchester, England, designs land distributes athletic and casual Footwear, apparel, and equipment for soccer under tie ‘Umbro trademark. Sales from these five subsidiaries was $2.4 ilfion in fiscal 2008, as indicated in Exhibit 6. EXHIBIT 3 Nike's Retail Outlets Outside the U.S. International Markets Non-US. Retall Stores Numba ‘Nike factory stores 138 ‘Nike stores Niketowns Nike employee-only stores Cole Haan stores Hurley stores Total Source: Nike's 2009 Form 10K. EXHIBIT 4 Nike's Revenues by Region EXHIBIT 4_Nike’s Revenues by Region US. Region EMEA Region ‘Asia Pacific Region ‘Americas Region ‘Total Nike Brand Revenues Other ‘Total Nike, Inc. Revenues Soarce: Nike's 2009 Form 10K FY09 vs. Fiscal 2008 Fiscal 2008 FyO8: Fiscal 2007 {in millions) $ 6542.9 S$ 64145 2% $ 6131.7 55122 5,629.2 2% 4,764.1 3322.0 2,887.6 2,295.7 1,284.7 1,164.7 966.7 16,6618 16,096.0 14,1582 2.5143 2,931.0 2,167.7 §19,176.1 $18.627.0 $16,325.9 Nike, Inc. — 2010! Randy Harris California State University, Stanislaus NKE www.nike.com In September 2009, Michael Jordan was inducted into the NBA Hall of Fame. Ironically, that ‘was the same time that Jordan became the first athlete to be worth over SI billion; and it was the same time that his Nike brand, Jordan, topped SI billion in annual revenue, That event ‘came 23 years after the company Nike reached $1 billion in revenue for the frst time. [ike is all about marketing. Nike's other men, Tiger Woods and LeBron James, are expected to be the next athletes to be worth $1 billion, Tiger should reach this milestone in 2010. The rise of Jordan as a marketing icon is an amazing story. The kid from the University of North Carolina, who had never worn Nikes before he signed his contract, ‘made buying Air Jordans an annual ritual. And now, years after he played his last game, the business continues to grow. At more than $1 billion in sales, the Jordan brand now ‘makes up roughly 5 percent of Nike’s overall revenues. Regarding Jordan’s importance to Nike, consider the following two facts provided by SportsOneSource, a sports matket retail trackin L. 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 ‘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, ‘The Nike’s fiscal 2009 year ended May 31, 2009. As indicated in the company’s income statement provided in Exhibit 1, Nike’s 2009 revenues increased 2.9 pereent to $19.1 billion; their net income decreased 21 percent to $1.48 billion, History Based in Beaverton, Oregon, Nike isthe world’s largest designer, marketer and distributor of athletic footwear and athletic apparel. The company also designs, markets, and istib- utes sports-related apparel, equipment, and accessors. Led by the company’s flagship Nike brand footwear, as well as Nike Golf, the company also owns a number of subsidiaries, such as Cole Haan, Converse, Hurley International, and Umbro Lid ‘Nike was founded in 1964 as Blue Ribbon Sports by Bill Bowerman, a University of Oregon track and field coach, and Phil Knight, talented middle-distance runner, Knight, ‘who had recently completed an MBA at Stanford University, had written a paper where he proposed that quality inning shoes could be manufactured in Japan that would compete ‘vith the more established German brands. Knight originally so theic shoes out ofthe trink of his green Plymouth Valiant at trick meets, andthe company opened its in Santa Monica, California, in 1966 The company introduced is Nike brand of shoes in 1972, justin time forthe U.S. Track & Field trials, which were held in Eugene, Oregon, that ye took its name from the Greek goddes of vetory, had its famous "swoosh” logo designed by Carolyn Davidson, a graphie desig student at Portland State University. The company ‘sropjvfaueys 149205 onqea apraoud pur vonadwoo yp wy ude ayy 1 14 Sontumuoddo ssoujsng aaa 0 pu TevaIod fay stg Yoeas Age Jo [OX] {1949 Jo soroqupe dq my stonpoud doyaxop“Suryunyn aaesoUut 30 Soe] 5, ueUUDMO.| UO ue O St orssu sa ‘suods uf onuoyod umuuny so sanguayssod ssapua wes uoWOMOg , ore up a nos “pq v ancy nox J, “Sunses kq ara|IT Ue pauyap ‘opunO|-o9 ay “HENLONOAL Ia PHO ayy uF ayy Kz240 0} worAOUUT pur UOREAIdSUE FUG, 01! 24EN Jo UOSTA 2H S]e09 a1B9xeN5 pue ‘uorssiy ‘UOIsIA sanssy jeusa3uy ‘8007 Ur PIT axguny, fIqemuaA2 pur *(L90Z PerseaIp “FoOz PaxINbov) seuss (007 Pammnboe) asiaxto3 *(Z9gz pasinbse) Keying “(S661 PaxiNboe) soNeq se Yans “sping romno aninboe oF uo oF pjnow ayIN “UIOd sup Worg SuBdtt09 2oys ssaxp pute jens 3 ‘saoys meyy ajo; Jo aseyaand aut quia ouN YD I ApISIOAIp 0} Weg osfe AudLIOD AL “R86T Aq Ansnput arp Jo dor axp or 39eq EN pariadoud “cg61 UF aoys TeqIaySeq astopud-uep1of JaeqoxyY F Jo oonposiur ayp Ajze[Na;UEd NUTTY ye 4 AuedUIOD 2u1 1 sofueyD “Ansmpur swomjoo} onaTUNL 2yI Jo ISas ay SuIpEH BIN PUNO} ‘poutsd ‘ump eM Jo Wioog sorgor9e au SuneIno[easiU ApojRonaed “sogeL ayp tm sdarssIyy ‘Suedwoo papen ty oos'ter'z ooveerz oos‘ese't $5077 10 auoouy Bunesado = = 7 sosuadyg Sumsadg feo, = = = 219 = 7 oe'96s Summnoay won’ ooL'sz0's oov'ese's o09'6rI'9 annenstanupy pur eat Sujog = raundoyaxacy yameasoa} sasuadyg Sune1od) oos‘0or't oor'ese's oor-r09"8 ayo ss03s5 v0r's9r'6. 009°6€7'OT 002’ 1Ls‘01 MNUDADY JO 180 06'sze918 000°Az9'81S OOr'szr'6ts anuaaay [e0y, LO-AeW-LE B0-AeW-LE 6o-AeW-LE DNIGNS GORad ‘Gouesnoys W sraquinu Te) —_)]..q _____ syuauierers Suloduy 3Uarey SAHIN | LIBIH NA sRuvH AaNyE —z9z 3 billion in revenues by the end of fiscal sbitious target, Parker states, “When I stepped into the CEO P irmed a simple concept that [knew was true from my neatly 30 years of experience here—Nike isa growth company.” Parker saw the company’s strategy as based on tree principles: pursuing the greatest growth opportuni, leveraging Nike resources and capabilities, and serving customers with premium products and experiences, Company Operations Nike's Beaverton, Oregon, world headquarters is a 176-aere facility that encompasses 17 buildings, and houses almost 6,000 employees. Nike has a smaller facility in Hilversum, the Netherlands, that serves asthe headquarters for the company's Europe, Middle East and Africa (EMEA) region, Inside the United States, Nike has three significant distribution and customer service facilities. Two are located in Memphis, Tennesse, one of which is leased and one facility located in Wilsonville, Oregon, which is also leased. Nike subsidiary Cole Haan aly perates a distribution facility in Greenland, New Hampshire. Ousie the United States, Nike owns and operates two main distribution faites, one located in Tomisatomachi, Japan, andthe other in Laakdal, Belgium Almost ll of Nike's footwear is manufactured outside the United States by indepen- dent contractors. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia“ ond ‘Thailand manufactured 99 percent of Nike's footwear worldwide. No individual manatee {urer accounted for more than 6 percent of total Nike footwear production. Nike brand ‘pparel is produced in a similar manner, though independent contractors located ouside the United States, in counties suchas China, Thailand, Indonesia, and Malaysia, among others, The largest apparel factory accounted for approximately 8 percent of total Nike ‘apparel production. Raw materials for Nike products are typically sourced inthe ceuntice ‘where production takes place, purchased in bulk, and are typically not dificult te obuan: Nike estimates that they sell products to more than 25,000 retail accounts in the United States. Nike products are found in a wide variety of real locations, including footwear stores, sporting goods stores, athletic specialty stores, department stones, ant skate, tennis, and golf shops. The company also uses independent sales representatives to sell specialty products for golf, skating, and outdoors. The company’s Internet Wee Site, ww.ikebiz.com, allows customers to design and purchase Nike products directly from the company. As indicated in Exhibit 2, the company also operates 38 rey EXHIBIT 2 Nike's U.S. Retail Stores US. Retail Stores Number Nike factory stores (which carry primarily ‘overstock and close-out merchandise) 140 Nike stores (including one Nike Women store) 16 Niketowns (designed to showcase Nike products) n Nike employee-only stores 3 ‘Cole Haan stores (including factory stores) M1 Converse factory stores 4B Hurley stores (including factory and employee stores) 4 Total 338 oo. ‘ote: Nike's apparel and equipment products are shiped from our Memphis, Tennesse, and Foothill Ranch, {Califia istteton cents Cole Haan products are dstibted rina fiom Gecland, New Honea. Converse products are shipped primarily rom Ontario, California, and Harley pradits are dsbtcd ens levine, California Sources Nike's 2009 Form 10K. {ebnseuorts ni zxadmnun Il) 80-yeM-TE 002£EL,S o0s,93 002,60, 0b. 8eb.C 008,500 00.088 001,108, 008,86 001,€8¢ oo.oce Oor.cbe ST 008,008, 00a,¢r1 oot. i8e 002. S66 O01. IB 002,828 008.6 008, 6T0,2 oo2,.ren,c oor.12e 006 28, OT, SbR, SE 2INRAH YOVAR Bas. etoan2 sonslsd ins20 2 avid © TISIHXS enibna bohad aioe sees nom ‘tmoloviupS st bas tes) ainomeaval ansT node, zaldavioasA 191A ‘polnsval aiszeh ast toh etneek tase) latoT einoemeaval misT gaat smamgiupAl bos imei yhaqort iwbood aio22A sldigasinl « nnonesinomA borslumusoA sees yo1hO omit JoeeA mmsT goo bsnsted etoeeA lato eoitilidaid siilidsi wns) oldays znuosoA, ido msT goo mono eiilideid insu) 19040 esitlidsi tngrmD Into ido ams gro 2iilidsi 110180 oxi \pilidsict ons? gnod bamstoC veanainl winoniM lliwb00d svitegalt esitlidsid Into ‘Giupe ‘ersblorzoore. ‘ainmnaW enoiiqO zAvore seid aoore bonsten sidamasbost aloot2 bars Hoot nome guinea bonintosh door vensiT aulqu lige ‘giupS ‘exsblodtta0r2 130 ‘diupS ‘erablorso%2 lato @ bua esitilideit tsioT AOL wr 006 eat son EXHIBIT 5 _Nike’s Income Before Taxes by Region FY09 ws (CASE 27 * NIKE, INC.—2010 265 Fiscal 2009 Fiscal 2008 0s Fiscal 2007 BY Gin milions) US. Region $1,3370 $1,402.0 3% 51,3860 1% EMEA Region 13160 1.2810 3% 1,050.0 22% ‘Asia Pacific Region 8534 694.2 2% S154 35% Americas Region 274.1 2023 13% 199.3 2% Other 196.7) 364.9 ~154% 2997 2% Corporate Expense (629, 10% (1.250) “19% ‘otal Pre-tax Income 51,956, $2,502. 20% $2,199, 14% ‘Source: Nike's 2008 Form 10K. FY09 vs FY08 vs. Fiscal 2009 Fiscal 2008 FYO8 Fiscal 2007 FYO7 {in millions) Revenues Converse S$ 915.3 $729.0 26% 85638 29% Nike Golf 648.3 7252 11% 646.3 12% Cole Haan 46 496.2 “3% 468.6 6% Hurley 202.9 ma 19% 1506 14% Umbro 174.0 53.9 223% - — Bauer = 201.9 100% 166.1 2% Exeter - 35.1 100% 07 48% Other Total $2,412.10 924124 52,063.10 241210 824124 5 Nike Products ‘Nike designs, markets, and sells products in three main categories: footwear, apparel and equipment. In footwear, Nike sells products that are designed primarily for athletic sage, although a significant percentage of Nike customers wear them for leisure or as 8 fashion accessory. Nike places a great deal of emphasis on the design of the fostwens Brees high-quality construction. Footwear designed for running, training, baskets all soccer, and urban wear are among the top-selling categories for the company. Ta fiscal 2000, footwear accounted for 69.5 percent of Nike's total US. sales, as indiested in Exhibit 7 Nike's sports-related apparel is designed to complement the company’s athletic footwear products, and itis often sold through the same location and/or distribution char nel. Typical apparel products include shirts with licensed college or professional team logos, athletic bags and accessories, running shorts, and bascball caps, all emblazoned With the ubiquitous Nike “swoosh.” Apparel accounted for 25.4 percent of Nike U.S. sales in fiscal 2009, as indicated in Exhibit 7. Sports equipment rounds out the Nike portfolio at 24.5 percent of US. sales. Sports auipment, typically sold under the Nike brand name, includes items such as bags, socks, sports balls, eyewear, golf clubs, and bats and gloves, 266 RANDY HARRIS EXHIBIT 7_ Nike's Revenues and Pre-Tax Income by Product within Regions US. Region Fiscal 2008 FY09 vs. FYO8 Fiscal 2007 (in millions) Revenues Footwear Apparel Equipment ‘Total Revenues Pre-tax Income $1,337.0 EMEA Region Fiscal 2008 St 5% 4% 2% 5% FY03 vs. FY 08. $ 4,067.0 1,716.0 348.4 $61314 $1,386 Fiscal 2007 {in millions) Revenues Footwear 83,1364 Apparel 1.9703 Equipment 405.3 Total Revenues $5,5120 Pre-tax Income $1,3160 Asia Pacific Region 83,1120 2,083.9 433.1 $5,6290 51,2810 $2,608.0 1757.1 398.9 54,7640 $1,050.0 Fiscal 2008 FY09 vs. Fy08: {in millions) Revenues Footwear 17274 Apparel 1,322.0 Equipment 272.6 Total Revenues $3,320 Pre-tax Income $8534 Americas Region $1,490 1,400 248.1 §2,887.1 $ 6042 15% 16% 10% 15% 23% Fiscal 2008 FY09 vs FY0s Fiscal 2007 (in millions) Revenues Footwear Apparel Equipment Total Revenues Pre-tax Income Source: Nike's 2009 Form 10K, 13% 8% 2% 10% Nike Customers and Price Points Because Nake primarily in athletic footwear, apparel, and related sportin; sales are heavily concentrated in the youth and young adult market. In par are heavily skewed toward the 12- to 24-year-old age bracket. sonsumers are also less price sensitive in this age bracket and generally spend more on casual and athletic footwear than older consumers, After the age of 40. the typical consumer is not willing to pay more than $35 to $40 per pair for athletic footwear. 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 Key Executives The chairman ofthe board for Nik is Phil H. Knight, age 70, one of the cofounders of the company. Knight has been with the company since its beginning in the 1960s, He holds an MBA from Stanford University and has been a certified public accountant as well an assistant professor of business administration at Portland State University A indicated in Exhibit 8, the chief executive officer (CEO) of Nike is Matk G. Parker, age 52. Parker has been with the company since 1979 and was appointed CEO in January 2006. Prior to being named CEO, Parker had been president ofthe Nike brand fiom 2001 to 2006 The president of the Nike brand is Charles D, Denson, ae 52, Denson has also been employed by the company since 1979 and had been an assistant manager of Nike's fst rel store in Pordand, Oregon. Denson was credited with pioncering Nike's expansion into China, India, and Brazil The chiet financial oficer (CFO) for Nike is Donald W. Blur, age 50, Blair arived aU Nike in November 1999, Proe joining Nike he held several postions at Pepsico, Ln. and had been acertfed public accountant with Deloitte, Haskins and Sells, Nike characterizes its organization as a collaborative matrix organization, Executives often report in several areas, such as by region of the worl, by product or by slobal function. Exhibit 8 presents an organizational chart forthe company and the key Exhibit 9 presents Nike's balance sheets from fiscal 2006 to 2009, Note the company thas very lite long-term debt. EXHIBIT 8 Nike Orgai ational Chart, 2009 =<) Source: Nikbiz.com, CASE 27 « NIKE, INC. 2010 269 Competition ‘Competition in the athletic footwear and apparel industry is extremely fierce. Exhibit 10 provides comparative information of Nike versus al athletic footwear firms. Numerous brands compete worldwide for athlete endorsements, customer loyally, and sales. Worldwide, Nike the leader in athletic footwear, with an estimated 37 percent of worldwide sales. Adidas ‘The number-two competitor in athletic footwear is Adidas, with an estimated 22 percent of worldwide sales. Adidas, based in Herzogenaurach, Germany, was founded in 1924 by the brothers Adolf and Rudolf Dassler. The company took its name from “Adi.” a nickname for Adolf, and “Das” from Dassler. The foundation of what would become the Adidas group began with the equipping of several athletes for the 1928 Olympics, and it was, cemented with Jesse Owen's quadruple gold medal performance at the 1936 Summer Olympics wearing Adidas footwear. ‘Today, the Adidas group is a world-class provider of athletic footwear, apparel, and sporting equipment. Their mission is “to be the leading sports brand inthe world” Led by their flagship Adidas brand, the company posted 2008 revenues of 10.8 billion euros, a 4.9 percent {improvement over its 2007 results. Worldwide, the company employs over 23,000 employees and tallied a record operating profit of 3.8 billion euros with a gross margin of 48.7 percent. Adidas was the Official Sportswear Partner for the Beijing 2008 Olympic Games, supplying ‘more than 3 million products to participants and organizers of the Games, The company also contracts with Chinese basketball superstar Yao Ming to endorse a line of Reebok basketball shoes, contributing to Adidas’s position as a market leader in both Europe and China, ‘The company is organized ito three main divisions: Adidas, Reebok, and ‘TaylorMade Golf, Its core Adidas division sells athletic footwear, apparel, and equipment under the brand name Aciidas. Net sales in this division were 7.8 billion euros, a 10 percent improvement over 2007 performance. Reebok was acquired by Adidas in 2006. With roots in women’s fitness this division sells athletic Footwear, apparel, and equipment under the Reebok, Rockport, and Reebok-CCM Hockey brand names. Net sales for the Reebok division were 2.1 billion euros, a net decline of & percent over 2007 results, Commenting on the Reebok division's results, Herbert Hainer, CEO of Adidas, said, “2008 was a challeng- ing year and I am disappointed not to be able to show the financial improvements we anti ipated atthe beginning of the year” The TaylorMade Golf division was acquired by Adidas in 1997. This division sells golf clubs, balls, footwear, and apparel under the TaylorMade, Adidas Golf, and Ashworth brand names. Net sale for this division were 812 million curos {in 2008, a I percent improvement over its 2007 results. EXHIBIT 10 _ Nike versus All Firms in the Athletic Footwear Industry Athletic Footwear Nike Industry ‘Market Capitalization 26.748 308.96M— # Employees 34,300 740 Qurly Rev Growth 1.40% 4.50% Revenue 19.188 303.83M Gross Margin 44.87% 38.93% EBIT 2.808 21M Oper Margins 12.80% 0.93% Net Income 1498 NA EPS 3.030 0.52 Source: Based on information at wwsinanee. yahoo com, 270 RANDY HARRIS Recently, the company has issued a profit warning, announcing that net profits fae the first quarter of 2009 would plunge 97 percent, and it blamed the global recession far these results, Hainer, CEO of Adidas, also cited rising raw materials prices, falling sales = Europe and the United States, and a weaker dollar against the euro for the sudden dows ‘um in Adidas profits. Hainer also warned that business for the rest of 2009 would be = ficult, with margins and earnings expected to decline further, Puma Puma is the distant number-three competitor in the global market for athletic footweae Puma develops and markets a broad range of athletic and lifestyle articles, including footwear, apparel, and accessories. Its 2008 sales were 2.5 billion euros. Selling prods ‘under the Puma and Tretom brands, the company employs more than 10,000 employes tes its products in over 130 countries around the world. The company founded in 1948 when Rudolf “Rudi” Dassler split his business from his brother Rudi moved his business tothe other side of the Aurach River from the Adidas company. Herzogenaurach, Germany. Puma has the long-term mission of becoming the most desirable spor lifestyle pany, Not one to be outdone by its larger competitors, Puma made a splash in 2008 = Beijing Olympics. Before a stunned Olympic crowd, and wearing gold Puma spikes, Usain Bolt broke world records in the men’s 100-meter dash, 200-meter das. the 4 x 100 meter relay. Other Competitors ‘The athletic footwear industry contains numerous smaller competitors worldwide. K-Swiss, Inc. in the United States and Li Ling Shoes in China. Athletic footwear nies also compete with other footwear companies for sales because consumers ofte= athletic footwear for leisure and fashion. Companies that competed in leisure and footwear included Crocs, Ine., Deckers Outdoor Group, Skechers USA. Inc. ‘Timberland Company. Global Issues ‘The footwear industry is global in scale and scope, with several large, well-cs firms competing worldwide for customers and market share, including firms Eke Adidas, and Puma, These companies have been conducting business worlciwade basis of global competitive advantage, rather than local, by sourcing pr tries that provided a cost savantage, conducting research and development (® their home location, and then marketing and selling their products in numeroes over sometimes as many as four different continents. “These multinational strategies allow the largest competitors to cope = demand in their core markets, such as the United States, by shifting their emphasis ‘and regions that have higher rates of sales growth, such as Brazil, Eastem Europe. China, Companies like Adidas and Nike have moved aggressively into these arcas ‘ze on the rapid pace of expansion in these emerging markets. In addition,

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