Nike Industry Analysis

1. Sports Footwear and Apparel
Industry Analysis
Nike Corporation
Group 4:
Josh Fernino
Brent Hare
Victor Hemmati
Lance Hollister
Chris Kerschen
Ty Parasiliti
Vincent Ukwu

2. Defining The Industry

3. Industry Defined
 20,000 retail accounts throughout the U. S.
using independent distributors and also has
contracts with 110 other countries
 Also has agreements with Internet
companies and subsidiaries
 Operates within the sports footwear and
apparel market.
 Originally designing and producing running
shoes, their portfolio has broadened to
include a wide range of sports and leisure
wear. This is all endorsed by top sporting
personalities

4. NAICS Codes
 North American Industry Classification System
 The standard used by Federal statistical agencies
in classifying business establishments for the
purpose of collecting, analyzing, and publishing
statistical data related to the U.S. business
economy
 The first two digits of code designate the sector,
the third designates the subsector, the fourth
digit designates the industry group, the fifth digit
designates the NAICS industry, and sixth digit
designates the U.S. detail industry

5. NAICS Codes Example
NAICS Codes Name Classification Level
31-33 Manufacturing Sector
Leather and Allied
316 Subsector
Product Manufacturing
3162 Footwear Manufacturing Industry Group
31621 Footwear Manufacturing Industry
Rubber and Plastics
316211 U.S. Detail Industry
Footwear
Manufacturing

6. Nike Products
 They design, develop, and
market high quality active
sports apparel, equipment,
and accessory products
 Nike distributes one new
shoe style every single day
 Nike’s critical factors for
success are maintaining
current standards, closer
working relationships, and
retaining customer loyalty
by guaranteed standard of
product

7. Nike Products
 Their products are
made for men, women,
and children of all ages.
 The company presently
sells roughly 300 models
of athletic shoes in 900
styles for 25 different
sports.
 Nike's target market for
their shoes is males and
females between 18 and
35 years old.

8. Nike Products
 They not only see competition from
Adidas and Reebok, but also with Old
Navy and Abercrombie and Fitch
 Continuous marketing research is the key
in assessing the market

9. Nike Expansion
 Nike has success as a result of
collaborating with other companies
within the sports and fitness industry
 But at other times, Nike expanded into
markets for which it is not strategically
suited
 Nike has realized to initiate more
aggressive programs to review product
partnerships that are outside of its core
basis of products

10. Nike’s Biggest Competitor
 Consist of 3 companies:
◦ Adidas
◦ Reebok
◦ TaylorMade

11.  Adidas Purpose:
◦ The production and distribution of apparel, footwear and equipment
for sports and leisure as well as of products of adjoining fields,
furthermore the commercialization of the registered trademark
Adidas.
 Adidas Mission:
◦ To be the leading sports brand in the world.
 The Adidas brand attitude “Impossible is nothing” drives all of
their brand communication initiatives and it helps them
strengthen the Adidas brand’s bond with the consumer.

12.  Reebok’s Mission:
◦ Always challenge and lead through creativity.
 At the core of the Reebok brand is the affirmation of the uniqueness of all
people.
 Reebok Strategic Focus:
◦ to become a consumer-driven brand that reflects the emphasis on individuality.
 Athletes Endorsed by Reebok:
◦ Sidney Crosby
◦ Alexander Ovechkin
◦ Allen Iverson
◦ Yao Ming
◦ Thierry Henry
 Reebok Partnerships:
◦ NFL
◦ NHL
◦ MLB

13.  TaylorMade’s Mission:
◦ To have the leading performance golf brands in the world.
 TaylorMade changed the game of golf by bringing the metalwood
to the public 27 years ago, and today is the market leader in the
metalwood category.
 Strive to continually extend their brands’ positions as leaders in
the development and implementation of advanced performance
technologies in all of their products including clubs, balls, footwear
and apparel.
 Just to give you an idea of how well TaylorMade is doing, they
currently endorse 55 professional golfers, one of which is Sergio
Garcia, and as of February 17, 2009 he is ranked number two in
world.

14. Adidas Group Financials
Net Sales
Nine Months Nine Months
in Change
2008 2007
millions
Adidas 6,004 5,465 9.9%
Reebok 1,587 1,765 (10.1)%
TaylorMade 614 609 0.8%

15. Industry Structure

16. Growth in Recent Decades
 Nike and Reebok set the standard
 Nike gained popularity
 Lurking competitors
◦ Adidas Group
◦ Under Armour

17. Industry Weakening
 Internet skyrocketed sales in late 90’s
 Upcoming companies took advantage of
new technologies
 Sales have slumped tremendously in past
year
 Nike making 4% cut
 Under Armour stated that analyst’s
estimates are far below earlier
predictions

18. Threat of New Entrants
 Highly saturated and challenging industry
 Depend in large part on first mover
advantage and scale economies
 Areas to focus: Technologies, pricing, and
costs of production

19. Innovator
 Sports Apparel and Footwear industry
relies mainly on innovations and creativity
 Innovative Ideas=Key success factor
 Company could have an advantage
 Without proper funding and resources a
firm could be at a severe disadvantage
 Threat of new entrants based on first-
mover advantage is minimal

20. Economies of Scale
 Difficult to compete with large
economies of scale
 Hard to handle all levels, more
experienced firms are able to disperse
 New entrants suffer a severe cost
disadvantage
 Significant amount of assets needed

21. Bargaining Power of Buyers and
Suppliers
 Power of buyers can be determined by
supply vs. demand and number of buyers
 Price sensitivity effects demand
 Customers more affected by price
 Suppliers are more powerful when the
ratio to buyers is more
 The vast range of products in the Athletic
Apparel industry leads to a dissimilar
amount of bargaining power for the
supplier

22. Substitute products and services
 The threat of substitute products
The existence of close substitute
products increases the propensity of
customers to switch to alternatives in
response to price increases

23. Substitute products and services
 Substitutes are a threat because:
1) They are an attractive alternative product or
service, which customers can easily shift to if
there are low switching costs.
2) The availability of substitutes invites customers
to make price, quality and performance
comparisons
3) Competitively priced substitutes impose a
maximum value on prices relevant industry can
charge for its products or services

24. Substitute products and services
1) They are an attractive alternative
product or service, which customers can
easily shift to if there are low switching
costs
OR

25. Substitute products and services
2) The availability of substitutes invites
customers to make price, quality and
performance comparisons
CAN I JUMP
HIGHER? CAN I RUN
FASTER?
IS IT
CHEAPER?

26. Substitute products and services
 3) Competitively priced substitutes
impose a maximum value on prices
relevant industry can charge for its
products or services
What is
worth ?

27. Rivalry Among Participants
 Competitive rivalry
 This is the major determinant of
the competitiveness of the
industry. Sometimes rivals
compete aggressively and
sometimes rivals compete in non-
price dimensions such as
innovation, marketing, etc.

28. Rivalry Among Participants
 Generally competitive rivalry will be
high if:
 There is little differentiation between the products sold
between customers.
 Competitors are approximately the same size of each other
 If the competitors all have similar strategies.
 It is costly to leave the industry hence they fight to just
stay in
 High fixed or storage costs, which encourages fast turnover
of inventory.

29. Rivalry Among Participants
 Market of Competitive Rivalry

30. Industry Environment

31. Nike vs. The Economy
 As the economy slows, consumer
purchases are down. The biggest threat for
Nike would be economic recession.
 Asian economic crisis also affects Nike since
its goods are manufactured in Asia.
◦ The labor costs and material prices are going up.
Nike's growth is not just affected by the local
economy but also in the international economy.
◦ A weak Euro and an Asian recession could mean
weak sales for Nike.

32. Nike vs. Ethics
 In 1996, the ethical issue of child labor
came to the surface regarding the hiring
of young employees by Nike’s Asian and
Latin subcontractors whose ages ranged
from very young to teenagers. The teen
workers would have not been so
controversial; however, there were no
regulations or work permits issued.

33. Nike vs. Ethics
 Without proper management leading and
planning in the Nike Corporation, the
company would have suffered from the
child labor issue.
 Nike has made a true bounce-back from
the negative media attention, and
continues to be successful due to their
strong business ethic philosophy.

34. Nike vs. Society
 People are more health conscious
nowadays. Consequently, more and more
people are joining fitness clubs. There is
an accompanying growth for demands of
fitness products particularly exercise
apparels, shoes and equipment. Nike
naturally is at the forefront of this surge
in demand as people are looking for
sports shoes, apparels and equipment.

35. Nike vs. Society
 The largest among Nike’s objectives, the
women’s athletic market will be a top
priority in the next ten years. The
number of women collegiate athletes
have increased from a few thousand in
the 1960’s to almost one million today.

36. Technology
 Product technology must evolve as fitness
evolves, in order to give competitors an
advantage
 Nike introduced Nike Shox, which
revolutionized the cushioning foam used
in shoes
 Nike also collaborated with Apple and is
launching new apparel and footwear that
will easily carry the consumer’s iPod

37. Technology
 Product innovation is an ongoing process
and is vital to stay ahead of competition
 Companies in this industry invest money
in R&D to keep up with the new
demands of today’s athletes
 Nike employs many specialists including
engineers, athletes, biomechanics, and
industrial designers to work together in
the design process

38. Competition
 The top 3 firms in this industry are Nike,
Adidas, and Puma
 The industry is relatively old, so firms must
fight for market share rather than relying on
market growth

39. Areas Firms Compete On
 Product offerings
 Technologies
 Marketing Expenditures (endorsements
and advertising)
 Pricing
 Costs of Production
 Customer Service

40. Competition
 Firms in athletic footwear and apparel
also compete with firms that provide
other substitutes (such as leisure and
casual wear)
 Skechers, K Swiss, New Balance, and
Aasics
 Nike has created their own lines of casual
shoes to compete in these markets as
well
◦ Example: Converse

41. Competition
 During hard economic times, people
consume less retail goods such as clothes
and footwear
 Bureau of the Census estimates that retail
and food service sales for January 2009 are
9.7% below a year ago
 Consequently, the industry has turned to
emerging markets to continue sales growth
◦ China
◦ Russia
◦ Latin America

42. Geography
 Production is outsourced to plants in Asia,
Latin America, and Africa
◦ This reduces costs because labor is cheaper
◦ Puts sources of production closer to where they
will be sold
 Firms who outsource lose the ability to
closely monitor product quality and working
conditions
 Although some people find this unethical,
firms cannot afford to keep production close
to home and still compete on profit margins

43. Geography
 Plants are also located in many different
countries, rather than being concentrated in
one area
 Diversification of production plants reduces
the risk that a firm will greatly be affected by
a problem in any particular country
◦ Example: Nike’s largest footwear factory
accounts for only 6% of the total footwear
production
◦ Nike claims it can recover from any loss in
production within one year’s time

44. Conclusion

45. Overview of the Industry
• In this industry there is intense
competition, fashion trends, and price
conscious consumers that have slowed
growth in this industry.
• This creates difficult situations for
companies to produce a brand image that
appeals to consumers that want to shop
for cheaper apparel, but also apparel that
has quality.

46. Where the Industry is Now
 Financially, the company must be aware
that economies are not up to par and
that costs must be kept low to bring in
the revenue.
 With the internet being a huge entry to
Nike’s products, the company must find a
way to keep their consumers to see them
as being more user friendly as compared
to their competitors.

47. Cont.
 Ways for Nike to do this is to keep the
site simple, fresh, and easy to use.
 By using new designs and better deals for
orders made online for the customers, it
has the potential to bring in more
revenue, as well as improve the
relationship between the company and its
clients.

48. Industry Forecast
 Technology is always changing, and if
Nike can create apparel and athletic
equipment that the competitors cannot
match, then Nike will grow even higher
than its rivals.
 Technology can be based around
anything from softer and more durable
running shoes, to a baseball bat with a
new metal to make the ball go further.