Nike Strategic Analysis

EXECUTIVE SUMMARY Even though Strategy is what differentiates a company from another but the strategy is not the overall driver of the company’s success since every strategy a company makes gets copied by rivals and sometimes the rivals copy it and implement that strategy in a more effective and efficient way than the originator. This is why the ultimate ingredient that differentiates the uniqueness of a company is its strategic thinking which is also called the strategic intent. The strategic intent and desire of Nike Corporation to lead the sports industry has caused every other competitor in the sports industry to trail Nike. Nike is always ahead of the competition. It believes in customer loyalty and value to the customers particularly athletes. In order to delight its customers, Nike continuously comes up with innovative ideas and customization in its products. This report contains a strategic analysis of Nike Corporation. The report makes a complete external and internal analysis of Nike thereby highlighting all the pluses and minuses of Nike and their impact on capitalizing the opportunities and mitigating the risks that lie ahead. The report, than moves on to the strategies that Nike could very well undertake to keep up the edge on the competition. The financial analysis of the company is also present which represents the soundness of the company’s financials. A complete analysis of the products Nike is offering is made along with the strategic position of the company in the form of space matrix. Finally the report enunciates a couple of new break through innovative strategies Nike can come up with to give a crushing defeat to its competition.

NIKE AT A GLANCE Industry: Footwear/ Apparel/Accessories Founded: 1964 Country: United States CEO: Mark Parker Website: www.nike.com Employees: 44,000 Sales: $25.28 B Headquarters: Beaverton, Oregon HISTORICAL BACKGROUND The company was founded in 1964 by two men, namely Phil knight who was a middle distance athlete, and he was also a business student of Stanford University, his partner in this venture was Bill Bower man who was a track coach in the University of Oregon. Both of them were talented and they realized the demand of athletic shoes in USA. When the company was formed its initial name was “Blue Ribbon Sports”. The first store was open Santa Monica, California in 1966. The company introduced its Nike brand of shoes in 1972, just in time for the US Track & Field trials, which were held in Eugene, Oregon that year. The Nike name which took its name from the Greek Goddess of victory, had its famous “swoosh” logo designed by Carolyn Davidson, a graphic design student at Portland State University. The company officially renamed itself as Nike in 1978. By 1980 the company had gone public followed by an impressive 50% market share of the US athletic shoe market. Some wrong decisions in 1980s, particularly miscalculating the aerobics boom of that time period caused Nike to face some downfall in the athletic footwear industry. But, changes in the company by Phil Knight, particularly the introduction of a Michael Jordan endorsed basket ball shoe in 1985, propelled Nike bank to the top of the industry by 1988. The company began to diversify at that time with the purchase of Cole Haan shoes, a casual and dress shoe manufacturing company. From this point, Nike would go on and acquire other brands such as Bauer (1995), Hurley (2002), Converse (2003), Starter (2004) and eventually Umbro ltd (2008). PRODUCTS Nike designs, sells and markets are in three different areas:   

FOOTWEAR APPAREL EQUIPMENT

In footwear, Nike designs and sells products that are primarily for athletic usage, although a significant percentage of Nike customers wear them for leisure or as fashion accessory. Nike places a great deal of emphasis on the design of the footwear as well as high quality construction. Footwear constitutes around 70% of Nikes total revenues and sales in US. Nike’s sports related apparel is designed to complement the company’s athletic footwear products, and it is often sold through the same location and/or under distribution channel. Typical apparel products include shirts with licensed college or professional team logos, athletic bags and accessories, running shorts and baseball caps, all emblazoned with the ubiquitous Nike “swoosh”. Apparel accounts for 25% of Nikes sales. Sports equipments typically sold under the Nike brand names which include items such as bags, socks, sport balls, eyewear, golf clubs, bats and gloves. Vision: Build a sustainable business and create value for Nike and our stakeholders by decoupling profitable growth from constrained resources Mission: "Bring inspiration and innovation to every athlete* in the world If you have a body you are an athlete,"

Mission Statement Analysis: Customer Products Market Technology Profit, growth and survival Philosophy Self-concept

Yes No Yes No No No Yes

Public image Concern for employees

No No

Athletes World Bring inspiration and innovation -

Proposed Mission Statement: To bring inspiration and innovation to every athlete in the world, 

by incorporating the use of advanced technology in designing and manufacturing our products

 

by creating business opportunities that set NIKE apart from its competitors by boosting ethical culture and providing values to our employees, shareholders and society

SWOT ANALYSIS STRENGTHS 1. Nike is globally recognized for being the number one sportswear brand in the World. 2. Nike has no factories; rather it uses contract factories to get the work done which makes it quite a lean organization. 3. Nike is quite strong regarding its research and development; quite evident regarding its evolving and innovative product range. 4. It has a strong sense of marketing campaign by sponsoring top athletes. 5. The versatile product range makes it more competitive. 6. NIKE, Inc. includes five distinct brands, each with a powerful connection to its customers. 7. NIKE’s products are sold in approximately 170 countries around the world. 8. NIKEid provides loyal consumers the power to design their own pair (Mass Customization) which eventually boosted sales. WEAKNESSES 1. Even though the organization has a diversified range for sportswear, the income of the business, however, is still heavily dependent on footwear. Revenues generated from footwear $ 13,426 Revenues generated from apparel $ 6,333 Revenues generated from equipments $ 1,202 2. Nike is criticized for making their products on third world countries, breaking many labor laws and paying the workers below minimum wage to make more many as a company 3. Inventory pile up in China and Western Europe is reducing Nike’s profits. 4. Nike products are seemed to be blurring into other product ranges. Within the Nike Free range, there is Freerun 3.0, Freerun 5.0, Freerun+ 2ID, FlyKnit, FlyKnit Lunar1 +ID and it can be confusing when picking a running shoe. 5. Nike is considered as “the expensive brand”

OPPORTUNITIES 1. The brand is strictly defended by its owners who believe that Nike is not a fashion brand, however, a large number of consumers wear Nike product because they derive a fashion trend rather than to participate in a sport. 2. There is a room for NIKE’s Revenue maximization by focusing on products other than footwear. 3. Nike could look at investing into more types of wearable technology. 4. The business could also be developed internationally, building upon its strong global brand recognition. There are many markets that have the disposable income to spend on high value sports goods. 5. Growing segment of women athletes. 6. Nike has the tendency to invest more in their employee development programs because the employees are the key resources for the organization. 7. Nike can go towards related and unrelated product diversification because of its intense R&D and globally recognized brand name.

THREATS: 1. The market for sports shoes and sportswear is quite competitive; the competitors are constantly developing alternative brands and techniques to take away Nike’s market share. 2. Increased awareness of human rights 3. Increased raw material prices 4. Consumer price sensitivity is a potential external threat to Nike 5. For the multinational corporations like Nike the biggest threat is currency fluctuations.

INTERNAL FACTOR EVALUATION (IFE MATRIX) STRENGTHS 1. Globally recognized and number 1 sportswear brand 2. no factories 3. strong research and development 4. strong sense of marketing 5. versatile product range 6. Five distinct brands, each with a powerful connection to its customers. 7. Operating in 170 countries 8. Mass Customization

WEIGHTAGE RATING WEIGHTED AVERAGE 0.10

4

0.4

0.05 0.10 0.10 0.05 0.05

4 4 4 4 4

0.2 0.4 0.4 0.2 0.2

0.10 0.05

4 4

0.4 0.2

0.10 0.10

1 1

0.1 0.1

0.05

2

0.1

0.05

2

0.1

0.10

1

0.1

WEAKNESSES 1. Heavy dependence on footwear market 2. criticized for making products in third world countries 3. Inventory pile up in China and Western Europe 4. products seemed to be blurring into other product ranges 5. “the expensive brand”

Total

1

2.9

ANALYSIS: The weighted average score of 2.9 reflects that Nike incorporation has strong internal position but there is a room for further improvements.

EXTERNAL FACTOR EVALUATION (EFE MATRIX) OPPORTUNITIES

WEIGHTAGE

RATING

WEIGHTED AVERAGE

1. Nike is often considered as fashion brand

0.10

4

0.4

2. Revenue maximization by focusing on apparel and equipments 3. Investing in more wearable technology 4. Expanding business in other markets with high disposable incomes 5. Product diversification 6. Investment in employee development 7. Growing segment of women athletes

0.10

4

0.6

0.10 0.10

4 4

0.6 0.4

0.05 0.05 0.10

4 4 4

0.2 0.2 0.4

0.10 0.05 0.05 0.10 0.10 1

1 2 1 1 1

0.1 0.1 0.05 0.1 0.1 3.25

THREATS 1. 2. 3. 4. 5.

Increased competition Increased awareness of human rights Increased raw material prices Consumer price sensitivity Currency fluctuations

TOTAL ANALYSIS:

The weighted average score of 3.25 reflects that NIKE Inc. enjoys a strong position with respect to its external environment.

SWOT MATRIX STRENGHTS-S 1. 2. 3. 4. 5. 6. 7. 8.

OPPORTUNITIES-O 1. 2. 3. 4.

5. 6. 7.

Nike is often considered as fashion brand Revenue maximization by focusing on apparel and equipments Investing in more wearable technology Expanding business in other markets with high disposable incomes Growing segment of women athletes Investments in employee development Product diversification

3. 4. 5.

Increased competition Increased awareness of human rights Increased raw material prices Consumer price sensitivity Currency fluctuations

WEAKNESSES-W 1. 2.

3. 4. 5.

1. Bring more modifications in Nike’s products to capture more market share, since many customers believe that Nike is not just a sports brand but a fashion brand as well. (S1, S4, S7, S3, O1) 2. Nike can collaborate with more technology companies like Samsung, Google, Apple etc to develop more wearable technology like medicated apparels with massagers and sensors (S1, S3, S4, O3) 3. Target women by using women celebrities in commercials. (S1, S4, O5) 4. Nike can diversify in other products like energy drinks for athletes.

ST STRATEGIES 1.

2.

Nike can create finance divisions specifically to manage their currency risk, most likely using a combination of forward contracts, futures contracts and call/put options.(S1,T5) Nike should consider the consumer price sensitivity in offering their products. (S1,T4)

Heavy dependence on footwear market criticized for making products in third world countries inventory pileup in China and Western Europe Confusing product names “the expensive brand”

WO STRATEGIES

SO STRATEGIES

THREATS-T 1. 2.

Globally recognized and number 1 sportswear brand No factories Strong R&D Strong sense of marketing Versatile product range 5 distinct brands Operating in 170 countries Mass customization

1.

2.

Nike could try training its employees regarding products and their characteristics and streamline the naming of some of their products within certain ranges. This will allow the company to maximize the customers understanding of the products on offer and the features they represent. (W4,O6) Nike should acquire high profile Chinese local players such as Li-Ning, Anta Sports products and Peak Sports Products in order to deal with inventory pileup problem. (W3,O1,O4)

WT STRATEGIES 1. Since greater part of Nike’s revenue is generated from footwear market, it should focus more on apparel because Adidas is giving tough competition to Nike in apparel market. (W1, T1) 2. Increased awareness of human rights results in the collapse of manufacturing units, which impacts the productivity and revenues negatively; in order to prevent such issues Nike should follow the local labor laws and provide good working conditions. (W2, T2)

COMPETITIVE PROFILE MATRIX (CPM) FINDINGS: Critical success factors Market share Global expansion Marketing Revenues R&D Financial strength Brand name Innovation Customer loyalty

Nike

Adidas

Puma

33.2% 25% 170 countries 200 countries $ 2,711 millions $ 2062.85 $ 24128 $ 20416.14 (amount not found) $ 175.8 $ 2,223 (net income) $ 721.65 (net income) To be taken on revenues

8% 120 countries $ 836.81 $ 9248.44 $ 116.60 $ 109.90 (net income)

To be taken on revenues

NIKE

CPM – Competitive Profile Matrix Critical Success Factors

ADIDAS

PUMA

Weight

Rating

Weighted Score

Rating

Weighted Score

Rating

Weighted Score

Market Share

0.15

4

0.6

3

0.45

2

0.3

Global expansion

0.1

3

0.3

4

0.4

2

0.2

Revenues

0.1

4

0.4

3

0.3

2

0.2

Innovation

0.15

4

0.6

3

0.45

2

0.3

Marketing/ Advertising

0.15

4

0.6

3

0.45

2

0.3

Brand Name

0.1

4

0.4

3

0.3

2

0.2

Financial strength

0.05

4

0.2

3

0.15

2

0.1

Customer Loyalty

0.05

4

0.2

3

0.15

2

0.1

Research & Development

0.15

4

0.6

3

0.45

2

0.3

Total

1

3.9

3.1

2

ANALYSIS: The above mentioned competitive profile matrix reflects that Nike is the most competitive of the all with the weighted score of 3.9, whereas Adidas Group is the toughest competitor for Nike Inc.

BCG MATRIX

Footwear Apparel Equipment

Growth rate

Relative market share

1.8% 4% 4%

1 0.7 1

RELATIVE MARKET SHARE IN THE INDUSTRY

HIGH 1.0

MEDIUM 0.50

HIGH +20

INDUSTRY GROWTH RATE

MEDIUM 0

LOW (-20)

  

FOOTWAER APPAREL EQUIPMENT

LOW 0.0

SPACE MATRIX NIKE INC

INTERNAL FACOTRS

EXTERNAL FACTORS

Financial Position (FP)

Stability Position (SP) -6

7

Economic Recession (Biggest threat to consumer income and buying pattern) Soaring Input and freight cost (cotton, leather and labor prices are raising). Regulatory Risk (Risk of government regimes) Competitive Pressures (Bitter competition by Adidas and others) Price Wars among rivals

Profitability Growth (11.86% Increase)

7

Translational Risk (Currency Risk)

-5

AVERAGE

6.5

AVERAGE

-6

Return of Investment (Higher than the competitors) Financial Leverage (Rising debt) Liquidity Position (Very strong liquidity ) Working Capital (In billions higher than other competitors) Inventory Turnover

7 4 7 7

Y-Axis X-Axis

-6 -7 -7

Industry Position (IP)

Competitive Position (CP) Market Share (Biggest market share) Customer Loyalty (Highest customer base) Brand Image (Strongest brand image) High Quality Products (Quality superior than any other competitor) Competitive Pricing (Very expensive product) Marketing Activities (Extraordinary marketing activities) AVERAGE

-5

Growth Potential (Nike has huge potential to grow) Profit Potential (The Company can boost its sales)

7

-1

Financial Stability

6

-1

Ease of entry to market (Entrance is very easy)

2

-6

Capacity for Innovation (Lots of for blue ocean strategies) AVERAGE

7

-1 -1

-1

7

5.8

-1.83

6.5+(-6) (FP+SP) 5.8+(-1.83) (IP+CP)

0.5 3.97

GRAPHICAL REPRESENTATION OF SPACE MATRIX ANALYSIS: After illustrating the space matrix it is obvious that Nike Inc should follow aggressive strategies which includes forward and horizontal integration, market development, market penetration, product development and diversification (related or unrelated).

FINANCIAL POSITION

Conservative Profile

Aggressive Profile

1.00 0.50

COMPETITIVE POSITION

INDUSTRY POSITION 1

2

3

3.97

Defensive Profile Competitive Profile

STABILITY POSITION

ANALYSIS OF BUSINESS MODEL ELEMENTS Value proposition

Customer segmentation Channel Customer relationships Revenue streams Key resources

Key activities

Key partnerships Cost structures

NIKE INC. 

Nike provides the most efficient products to foster the best possible performance of athletes  It offers ground breaking apparel, footwear and equipments with cutting edge technology. Athletes and fitness segment Nike outlets, retailers, online stores and distinctive marketing to appeal more customers Vey high A major portion of their revenues is generated from footwear market  Efficient employees  Strategic marketing innovations  Distribution network  Integrated research laboratories  Brands (Nike, Nike Golf, Converse, Hurley and Jordan)  Highly innovative product designing  Distinctive marketing strategy  Distinctive research and development  Periodic employee trainings  Effective distribution Suppliers, Contract factories, advertising agencies and endorsed athletes  Invests heavily in R&D and Marketing  Lower manufacturing cost due to outsourcing  Low distribution cost due to distribution capability

BLUE OCEAN STRATEGY The proposed blue ocean strategy for Nike is

SWEATFREE APPARELS WITH REPLACEABLE DEO PADS:

FINANCIAL RATIOS NIKE INC., PROFITABILITY RATIOS May 31, 2013

May 31, 2012

Return on Sales Gross profit margin 43.59% 43.40% Operating profit margin 12.86% 12.60% Net profit margin 9.82% 9.21% Return on Investment Return on equity (ROE) 22.28% 21.41% Return on assets (ROA) 14.13% 14.37% Source: Based on data from Nike Inc. Annual Reports

May 31, 2011

May 31, 2010

May 31, 2009

May 31, 2008

45.58% 13.49% 10.22%

46.28% 13.01% 10.03%

44.87% 9.69% 7.75%

45.03% 13.07% 10.11%

21.67% 14.22%

19.55% 13.23%

17.11% 11.22%

24.06% 15.13%

May 31, 2011 2.85 1.94 1.15

May 31, 2010 3.26 2.32 1.53

May 31, 2009 2.97 1.93 1.05

May 31, 2008 2.66 1.68 0.84

May 31, 2011 0.07 0.06 84.65

May 31, 2010 0.06 0.06 70.92

May 31, 2009 0.09 0.09 49.93

May 31, 2008 0.08 0.07 65.18

May 31, 2010 9.84 1.32 1.95

May 31, 2009 9.79 1.45 2.21

May 31, 2008 9.85 1.50 2.38

NIKE INC., LIQUIDITY RATIOS May 31, May 31, 2013 2012 Current ratio 3.47 2.98 Quick ratio 2.31 1.82 Cash ratio 1.52 0.97 Source: Based on data from Nike Inc. Annual Reports

NIKE INC., DEBT AND SOLVENCY RATIOS May 31, May 31, 2013 2012 Debt to equity 0.12 0.04 Debt to capital 0.11 0.04 Interest coverage 144.17 91.39 Source: Based on data from Nike Inc. Annual Reports

NIKE INC., LONG-TERM (INVESTMENT) ACTIVITY RATIOS May 31, May 31, 2013 2012 Net fixed asset turnover 10.32 10.59 Total asset turnover 1.44 1.56 Equity turnover 2.27 2.32 Source: Based on data from Nike Inc. Annual Reports

May 31, 2011 9.86 1.39 2.12

NIKE INC., SHORT-TERM (OPERATING) ACTIVITY RATIOS

Turnover Ratios Inventory turnover Receivables turnover Payables turnover Working capital turnover Average No. of Days Average inventory processing period Add: Average receivable collection period Operating cycle Less: Average payables payment period Cash conversion cycle

May 31, 2013

May 31, 2012

May 31, 2011

May 31, 2010

May 31, 2009

May 31, 2008

7.37 8.12 15.38 2.61

7.20 7.36 15.19 3.15

7.68 6.65 14.20 2.84

9.32 7.18 15.15 2.50

8.14 6.65 18.58 2.97

7.64 6.66 14.46 3.38

50

51

48

39

45

48

45

50

55

51

55

55

95

101

103

90

100

103

24

24

26

24

20

25

71

77

77

66

80

78

Source: Based on data from Nike Inc. Annual Reports