Nike Strategy Analysis Essay Example

soccer baseball football bicycling volleyball wrestling cheerleading aquatic activities and auto racing.

In addition to sports-related products, we cater to various other athletic and recreational uses. Regarding our sales and income trends in the fiscal year ending on May 31st 1999; revenues declined by 8% to $8 million.

777 billion. The graph below demonstrates the initial decrease in revenues since 1994. However, Nike Inc. accomplished an impressive 300% increase in revenue within a decade, starting with $2.235 billion in sales back in 1990. As mentioned in the 1999 Annual Report, despite the decline in revenues during that year, net income saw a rise of 13% compared to the previous year.

The graph below shows the changing net income in the late 1990s. The decreases in net income for 1998 and 1999 can be attributed to restructuring charges. However, if we exclude these charges, the income would have remained stable during both years. Despite a decline in revenues, effective cost control and inventory management contributed to an increase in net income in 1999. It is important to mention that there was a significant growth rate of 43% in 1997 compared to the previous year, resulting in a net income of $795.8 million.

Obtained from Nike, Inc. 1999 Annual Report Challenges Our greatest challenge in 2000 will be to maintain the operational and financial initiatives we worked so hard to implement in 1998 and 1999. We must keep our inventory levels low enough to adapt quickly to changing market trends. Financially, we must remain conservative in our cost structure. Operating expenses were reduced by almost $200 million last year, showing that despite our dominant size in the industry, we can be

agile. With the economic recovery in the Asia Pacific region, we can target financially stronger customers. Our sponsorship of the 2000 Olympic Games in Sydney, Australia, and the 2002 World Cup in Japan and Korea will be the beginning of numerous opportunities to bring sports events into mainstream markets, both regional and global.

With increased visibility, we face the task of meeting the growing market need for stylish sports shoes and clothing. To achieve success, we must prioritize quality and performance in our business operations. The online landscape is constantly evolving. As pioneers in our field to adopt e-commerce, we must carefully and discreetly choose a long-lasting strategy that complements our current distribution channels.

History

Bill Bowerman and Phil Knight established Nike Inc.

Blue Ribbon Sports was founded in 1962 by Phil Knight and Bill Bowerman, who had a close relationship at the University of Oregon where Bowerman coached Knight in track and field. During his time at Stanford University, Knight wrote a paper proposing the idea of challenging the dominant position of German athletic shoe industry in the United States with affordable Japanese shoes. To make his theory a reality, Knight traveled to Japan and made a deal with the Onitsuka Tiger company, renowned for producing high-quality athletic footwear, to become their sole distributor in the US. In that same year, Knight took delivery of the initial batch of 200 pairs of Tiger shoes and stored them in his parents' garage in Oregon.

Blue Ribbon Sports (BRS), a partnership between Knight and Bowerman, purchased the shoes with a mere $1,000 in capital. Knight sold Tiger’s shoes at local track meets, earning $8,000 in sales during their inaugural

year. Collaborating with Tiger in 1966, Bowerman utilized his prior experience designing shoes for university athletes to create the Cortez running shoe. The shoe proved immensely successful for the Onitsuka Tiger Company and was subsequently available at the first BRS store. In 1971, with financial backing from creditors, BRS commenced production of their own shoe line.

Later that year, Nike introduced the first BRS soccer shoe. This shoe featured the Nike brand name and the Swoosh trademark, which was designed by a student for $35. The Swoosh represented a wing of the Greek Goddess of Victory. In 1972, the BRS/Tiger partnership ended, leading BRS to change its name to Nike, Inc. The new Nike brand made its debut at the 1972 Olympic trials.

In 1973, Steve Prefontaine, a prominent track star, first wore Nike shoes. This was followed by other athletes such as John McEnroe, Carl Lewis, and Joan Benoit in the late 70’s and early 80’s. By 1979, Nike had captured a 50% share of the U.S. running market, boasting its popularity. The next year, with a workforce consisting of 2,700 employees, Nike became a publicly traded company on the New York Stock Exchange by selling 2 million shares.

The decade of the 1980’s witnessed several significant milestones for Nike. They signed Michael Jordan as a product spokesperson and exceeded $1 billion in revenues through the establishment of Nike International Ltd. Additionally, they launched their iconic "Just Do It" campaign and expanded their product range to include specialized apparel for various sports.

In 1990, Nike's consolidated revenue surpassed $2 billion and its global workforce consisted of 5,300 employees. Moreover, the establishment of Nike World Campus in Beaverton, Oregon

took place during this year. Subsequently, by the following year, Nike witnessed a growth in revenue from $2 billion to $3 billion. This upward trajectory persisted throughout the 90s and culminated in revenues reaching $8 billion by 1999.

The increase in revenues was a result of advancements in shoe technology and successful marketing campaigns. A significant portion of this growth came from international sources, experiencing an 80% increase in 1991 compared to the previous year. In 1992, international revenues exceeded $1 billion for the first time and accounted for more than one-third of our total revenues. Throughout the 1990s, we sustained this growth by focusing on major sporting events like the World Cup and endorsing emerging celebrities such as Tiger Woods, Lance Armstrong, and players from the Women's National Basketball Association (WNBA). According to Nike's company website, their aim by the end of the 90s is to establish themselves as a truly global brand.

Profile of the CEO

Nike, Inc.'s Chairman and Chief Executive Officer is Phillip H. Knight. He is one of the co-founders of the company and has played a crucial role in its success since its establishment in 1964, originally known as Blue Ribbon Sports. Currently 61 years old, Knight obtained his undergraduate degree from the University of Oregon and holds an MBA from Stanford University. Prior to starting Nike, he worked as a CPA and served as a professor at Portland State University. Throughout his career, Knight has demonstrated remarkable innovation and foresight within the athletic footwear and apparel industry.

Thanks to his strategic planning and willingness to take calculated risks, Knight has effectively established Nike as a top company in both national and

international markets. His management style demonstrates transparency and cautious decision-making based on analysis of external and internal factors. Knight favors a participative approach to decision-making, actively seeking input from his trusted management team before making decisions.

A Profile of Nike's Competitor

Reebok shares similarities with Nike in terms of their product offerings.

Reebok is an organization that specializes in the production and sale of athletic and non-athletic footwear and apparel. They also engage in various fitness programs. However, Reebok has a smaller market share of 11.2% in the footwear industry compared to Nike's 30.4% and Adidas' 15.5%. Additionally, their financial situation has worsened over time with an 80% decrease in their stock price within the last four years.

Reebok is facing financial difficulties as shown by the decline in their net sales and net income. In fiscal year 1999, their net sales decreased by 9%, while their net income fell by 17% during the same period. Taking into account these factors and others, Reebok's overall financial situation appears unfavorable.

Industry Profile

In 1998, the shoe industry had a market size of around $38 billion, with Americans buying over 1.1 billion pairs of shoes.

According to the Sporting Goods Manufacturers Association, the wholesale value of athletic shoes in the US market was $8. billion in 1998, showing an 8.5% decrease compared to the previous year. It is observed that athletic footwear accounts for approximately 35% of total footwear purchases, and there is a worldwide pattern of consumers reducing their expenditure on athletic shoes. At present, the domestic industry primarily focuses on manufacturing casual and comfortable shoes.

Despite signs of recovery in athletic footwear sales, the preference still remains for casual footwear, known as "brown

shoe" due to its comfortable and durable style. This shift can be attributed to the growing adoption of casual dress codes in workplaces. The athletic footwear industry faces difficulties due to intense competition, changing fashion trends, and cost-conscious consumers, which have hindered its growth and profitability.

Manufacturers are combatting slow sales by introducing creative new designs and expanding their selection of affordable styles. They are also utilizing direct online sales to consumers as a tactic for increasing sales. Furthermore, numerous companies are enhancing profitability by moving production to cost-effective offshore locations. While this sector has reached maturity in the domestic market and can expect only gradual long-term sales growth, there is a slight improvement in sales, specifically in running shoes, cross-trainers, and basketball shoes.

Companies with powerful brand identities will increasingly focus on international markets to grow their business. The athletic footwear industry experiences consistent sales year-round due to global diversity that balances out seasonal fluctuations. Traditional patterns can be seen during the spring apparel period, back-to-school season, and Christmas holiday season.

The footwear industry's profitability is closely tied to economic cycles, with the economy in fiscal year 1999 being relatively favorable for footwear manufacturers. Factors such as modest inflation, low unemployment, and a booming stock market contribute to healthy consumer spending. Sales in athletic footwear and apparel are particularly sensitive to the Olympics, with surges in growth during years of the games followed by challenging sales periods. The upcoming Olympic Games this year provide an optimistic outlook for increased sales trends. Additionally, Nike can expect a boost in demand from the World Cup events. Despite being a competitive and mature market, entry into the athletic footwear industry

poses barriers.

The dominant forces in the industry, such as Nike and Reebok, have heavily influenced its growth, making it difficult for competitors like Saucony and K-Swiss to establish themselves. The intense competition poses hurdles for new players attempting to enter this fiercely competitive sector. Additionally, the economies of scale act as a further deterrent for aspiring entrants in this industry.

To gain an advantage over industry leaders, companies must compete in areas such as pricing, production efficiency, and product quality. These objectives are challenging to achieve without the resources of a well-established manufacturer. Another important obstacle is the access to conventional distribution channels. When browsing through stores like Sports Authority and FootLocker, it becomes evident that the market leaders dominate the shelves. Retailers perceive lesser-known brands as too risky to replace established ones like Nike or Reebok. However, these barriers appear to be declining with the assistance of the internet. The expenses associated with traditional brick-and-mortar retail distributors are being significantly reduced.

Lower startup costs have made it more financially advantageous for new players to enter markets. When a company decides to leave the industry, it must take into account its debt, ability to fulfill obligations, potential legal actions, and claims on remaining assets.

Company Analysis

The composition of Nike's board of directors includes both management and independent members, creating a combination that benefits the company by having insiders directly involved and outsiders providing external expertise. This diversity brings varied viewpoints to Nike's oversight board, which actively participates in developing strategies. However, one weakness of Nike's board is the average age of its members being 62 years old, with the youngest member at 49 and the oldest at 79.

This

is a possible weakness as there is a lack of younger board members who could bring new perspectives and help Nike achieve its goals. Knight has been with Nike since the beginning, so he has a lot of knowledge and experience about the company and its industries. His strategic planning management style is a strength because he carefully plans and calculates his actions, allowing for both risky and conservative decisions. His participatory decision-making style is also a strength because he is willing to listen to others and generate ideas. He doesn't limit the company to one-sided ideas and decisions.

Environmental Analysis Internal – Strength Nike's management analyzes its internal environment and makes decisions based on that analysis. Due to Nike's marketing research, the company has opted to enhance its apparel division to be more fashion-forward. Consequently, as a result of product and pricing research, Nike has decided to maintain its focus on the high-end market while expanding its market share in the middle and low price ranges in order to diversify its product offerings.

External – Weakness Nike's failure to anticipate problems relating to labor and factory conditions at its production sites has led to negative publicity and a decline in sales, as society and consumers demand more socially responsible companies.

Strategy Formulation Mission - Weakness Nike's corporate mission statement, "To be the world's leading sports and fitness company," closely resembles a vision statement and is therefore considered a weakness.

Despite broadly identifying the sports and fitness industry as our business, our mission does not specify the products and services we provide. Additionally, it fails to mention our distribution channels and customers. However, it does reflect management's

beliefs and values regarding our ambition to be the top leader in the sports and fitness shoe and apparel industry. This lack of published corporate objectives represents a weakness for Nike, as stakeholders should have a clear understanding of the company's direction. Nevertheless, Nike has established corporate objectives in relation to our perceived corporate responsibility.

Our objective is to "lead in corporate citizenship through programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike." However, this objective is not measurable and lacks a specific time frame for implementation.

Nike's grand strategy is to utilize innovation in order to produce top quality athletic footwear and apparel. By dedicating extensive resources to research and development, Nike has become the market leader in this industry.

The competitive strategy introduced by Nike in the late 1990's focuses on refining marketing strategies and product offerings through product differentiation. We recognize that the trend of team-mentality in athletics has been replaced by individualism, with younger consumers seeking individual style through extreme sports and retail outlets like Ambercrombie & Fitch and Old Navy.

We are responding to this movement in several ways. While we continue to prioritize performance through new product development, we are also giving fashion a higher priority in our products and image. As part of the 1999 back-to-school season, we organized fashion shows in twelve U.S. cities. Furthermore, our website showcases individualism, allowing customers to choose the color and design a monogrammed heel insignia for our customized athletic shoes. In terms of strategy implementation, Nike has fostered a corporate culture that promotes employee loyalty and team spirit.

Red "Swooshes" can be seen on

various items at the company's headquarters in Beaverton, Oregon, ranging from screen savers to coffee cups. The company prefers to refer to its headquarters as a "campus" rather than an office, with employees being called "players," supervisors being referred to as "coaches," and meetings being labeled as "huddles." These terms contribute significantly to creating an engaging work experience for the fortunate employees in Beaverton. In 1985, Nike was taken by surprise when Reebok introduced its colorful aerobic shoes. This event prompted us to redefine our business and culture, leading us to develop a strong passion for selling sports and promoting a lifestyle centered around the "Nike way-of-life."

In addition to reorganizing its marketing campaign to prioritize creating an image rather than solely advertising products, the company implemented the iconic "Just Do It" mantra. Since then, Nike has been dedicated to cultivating a corporate culture that embodies this philosophy. As part of this shift, employees are granted an hour and a half for lunch to engage in athletic activities or exercise. Thus, the revamped Nike brand extends beyond footwear and basketball feats, striving to endorse a way of life.

Nike incorporates various methods to inspire and engage its employees. Firstly, new hires are required to watch a video featuring sports highlights, complemented by a soundtrack that explores the essence of athletes and the spirit of competition. Furthermore, management regularly sends out emails to keep the staff updated on the recent triumphs of athletes who are sponsored by Nike. Additionally, the company often arranges guest appearances by spokespersons to motivate and express gratitude to the employees for their contributions to the world of sports. It is not surprising that

having a background in athletics is advantageous for potential employees. Reflecting its sports-oriented approach, Nike emphasizes two fundamental principles for its players: prioritizing honesty above all and placing competition as a close second.

Compete with yourself rather than your colleagues, as stated by Nelson Ferris, a 47-year-old head of Nike's corporate education department. Ferris emphasizes that the Swoosh logo represents more than just a company, but an entire value system. Being a dedicated employee, Ferris even went as far as getting a Swoosh tattooed above his ankle. For him, working at Nike is not just a job but a way to define his life on earth. Communication and strength are prioritized by Nike Retail, the subsidiary responsible for Nike Town shops and employee stores worldwide, as evidenced by their decision to upgrade their hardware and software in the spring of 1999.

Our previous technology offerings were IBM 4690-series point-of-sale cash registers operating on the OS/2 system. We have now transitioned to PC-based systems running the more advanced Windows NT system. We are also upgrading our software, Connect: Remote, made by Sterling Commerce Inc., to the new operating platform. This upgrade will greatly enhance communication between our corporate office and branch locations. Real-time monitoring of sales and inventory data will be possible.

By adding in-store databases, the efficiency of electronic journaling, credit authorization, and sales reconciliation processing will increase. Quicker processing times will be achieved through the use of modems transmitting data at 56K BPS or digital technology, replacing the slower 9600 BPS modems. These innovations will enhance the ability of executives at the corporate office and in other branches to effectively manage operations. Nike's top management exhibits

a team management leadership style, with a committed group of executives who bring their extensive experience and knowledge together. They work both independently and collaboratively, recognizing the shared importance they each have in Nike's success.

This leadership style fosters trusting and respectful relationships. The company's culture has embraced the teamwork style of top management, which has spread throughout the entire organization. However, motivation has become a weakness following cost-reductions in the fourth quarter of 1998, which led to a decrease in the number of employees. It was necessary to focus on enhancing motivation among the remaining employees. Additionally, morale declined due to negative media coverage regarding poor working conditions for our Asian factory workers. Although efforts have been made to boost employee morale, it continues to be a challenge for the company.

Strategy Control Establishment of Standards - Strength Nike has effectively set up profitability standards to assess individual performance and compare it to competitors. These standards include net profit, earnings per share, return on investment, return on equity, sales growth, and asset growth. Regular checks are conducted to ensure adherence to performance standards. Standards have been set in areas such as productivity, competitive position in the US market versus the global market, technological leadership compared to competitors, and overall social responsibility and public perception.

Evaluation of Performance - Strength Nike thoroughly evaluates and compares performance standards with actual results achieved through the implementation of strategies. This analysis helps in assessing past and present performance and forecasting future outcomes in these areas.

Correction of Deviation - Strength However, Nike's process for correcting identified deviations from profitability and performance standards has been slower and less timely.

Management's delay in responding can

be attributed to the thorough examination that is conducted before making decisions. Although this is generally a wise approach, there are instances where Nike would benefit from a more prompt response from its management team. The Functional Level Marketing Market Share has its own strengths and weaknesses. In terms of strength, Nike's global market share was an impressive 30.4% in 1998. Although there was a slight decrease compared to previous years, Nike still maintains the largest market share in the U.S. branded athletic footwear market.

In 1998, Nike held the largest market share at 69.3%, while Adidas was the closest competitor with 15.5%. Reebok held 11.2% of the market share. The remaining competitors, including Fila, Timberland, Asics, Converse, and New Balance, among others, each held approximately 3-5% of the remaining market share. Nike's market share is expected to increase further with the introduction of new products. Its market share is projected to benefit greatly from sponsoring the summer Olympics in 2000 in Sydney, Australia, as well as the 2002 World Cup in Japan and Korea.

S. Speedskating team in the 2002 Winter Olympics in Salt Lake City, Utah. Nike has taken the lead in e-commerce by being the first to market with its e-commerce web-site. Nike launched its e-commerce site in April 1999 by offering 65 styles of shoes to the U.

In November 1999, Nike expanded its e-commerce presence with the launch of NIKEiD, which allows online consumers to customize certain features of their shoes. This groundbreaking program is the first of its kind to offer mass customization for footwear. Additionally, Nike plans to open an online store for the Japanese market next year and eventually make

it available worldwide. By being the pioneer in this market, Nike gains a significant advantage over its competitors who are rushing to catch up with us.

Nike's brand images, such as the Nike name and the trademark Swoosh, are highly recognized globally. This recognition translates into significant revenues for the company. Nike's brand presence can be seen in various forms, including players' apparel, stadium banners, and walls. The brand is further reinforced through aggressive advertising campaigns, endorsements from celebrities, and high-quality products. An illustration of Nike's brand power was seen during the 1999 NCAA Basketball tournament, where 42 out of 64 participating teams wore Nike shoes. Currently, Nike is dedicated to strengthening its connection with women's sports through recent brand-building initiatives.

Some examples of our sponsorship include the 1999 Women's World Cup Soccer Tournament and the U.S. Speedskating team in the upcoming 2002 Winter Olympics. While Nike leads in the apparel division, it does not claim to lead the entire apparel industry. Due to consumer focus on fashion in sportswear, we have had to make efforts to appeal to the fashion savvy market.

Our apparel line is facing challenges not only from traditional industry competitors like Adidas and Reebok, but also from clothing and accessories retailers such as Old Navy and Abercrombie & Fitch. Continuous marketing research is essential in assessing the market. Nike plans to establish five structures within the apparel division to focus on women, men, kids, sports graphics and caps, and strategic response independently. We are also dedicating more time to supporting and developing programs to better understand our customers' preferences. Products - Weakness: Nike has experienced much success through collaborations with other companies in

the sports and fitness industry. However, there have been instances where we ventured into markets that were not strategically aligned with our brand. One example is the reduction in available brands due to declining sales of in-line skating and roller hockey products at Bauer Nike Hockey. Consequently, we had to close down two manufacturing operations within our subsidiary, Bauer Nike.

We had to lay off 51 employees. If we had foreseen the decline earlier, we could have made gradual changes to potentially avoid such a definite outcome. In order to prevent similar situations from recurring, we have implemented a more aggressive program to assess product collaborations that fall outside of our core product offerings.

Pricing - Weakness

In general, Nike’s products are considered to be of higher quality and therefore have higher prices compared to our competitors. While these prices are justified considering the nature of our products, there may be instances where our consumers disagree, creating a weakness. To address any future issues with our high quality/high price lines, we are actively focusing on emerging technology and innovation for the development of new products, particularly the Nike Alpha Project, an innovative line of athletic shoes.

Despite having previously overlooked mid- to lower-priced products, which was a weakness requiring improvement, we are now committed to enhancing our competitiveness at all price points. We recognize the potential in the lower price segments and intend to cater to those markets. Our marketing research efforts are ongoing to maintain Nike's position as the industry leader in athletic footwear and apparel. As a result of such research, we have decided to improve our apparel division, an area that has ample room for growth.

We will reorganize our internal business structure based on gender rather than sport category and conduct more research on the buying habits of men and women, targeting specific product lines accordingly. Nike's facilities are strategically situated across Asia and South America.

The locations of our production facilities are strategically dispersed across different geographical regions, enabling us to operate as a truly global company. We have chosen these locations to be near raw materials and inexpensive labor, which helps us achieve cost savings in production. Despite the higher distribution costs incurred by being further from most customers, the overall savings from our strategically placed production facilities allow us to produce our products at lower costs, even after accounting for transportation expenses.

As Nike continues to grow and enhance its presence in the global economy, it is also expanding its market worldwide.