Strategic Analysis of Nike Corporation
Nike is renowned worldwide as the brand for athletes. It is also the biggest and best sports shoe and apparel brand of the world. Nike’s product offerings are focused at nine key categories that include Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Men’s Training, Women’s Training, Action Sports, Sportswear (sports-inspired lifestyle products) and Golf. While Nike designs products mainly for athletic use, their popularity as leisure wear has continued to grow worldwide. The company has retained its focus upon two important things – product innovation and product quality. Incorporated in 1967, Nike acquired high level popularity globally due to its excellent product quality and marketing strategy. Its ‘Swoosh’ logo and ‘Just Do It’ slogan keep it apart from the large crowd of brands. Nike’s Jordan brand focuses exclusively on basketball and designs, distributes and licenses athletic and casual footwear, apparel and accessories. Hurley is another wholly owned subsidiary of Nike that designs and distributes a line of action sports and youth lifestyle apparel and accessories. Converse is also a wholly owned subsidiary brand of Nike that designs, distributes and licenses casual sneakers, apparel and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron and Jack Purcell trademarks.
The Nike brand has expanded fast internationally which is evident from its growing revenue over the last five years. It share of non US revenue has shot past 50% in 2017. However, U.S. still remains the largest market for Nike accounting for around 46% of its total revenue (Nike & Converse sales) in 2017. Its main strategic suppliers for footwear are 127 footwear factories located in 15 countries. The largest number of Nike suppliers are located in Asia. They accounted for more than 90% of its footwear production during 2017. Nike has several owned and leased distribution facilities all over U.S. to serve the U.S. market. It has six important distribution facilities in Memphis Tennessee, two of which are owned by Nike and rest are leased properties. Apart from that, Nike has several leased facilities all over the U.S. to serve the U.S. market. The number of Nike’s retail stores in United States was 384 for 2017 whereas those located outside U.S. were 758 in number. In 2017, Nike spent 3,341 million dollars on marketing and promotions. Competition in the athletic footwear, apparel and equipment industry has grown intense and it is why all brands are investing in digitization, product innovation and things like AI for a better customer experience and higher satisfaction for consumers. Nike also spends a lot on advertising as well as research and development. The brand is seeing faster growth in e-commerce. Its e-commerce websites are active in more than 45 countries.
Footwear & Apparel Industry external analysis:
The footwear and apparel industry is growing fast and is seeing very high level of competition. In 2017, the U.S. athletic footwear industry achieved a growth of 2%. It generated 19.6 billion dollars in sales and its unit sales grew by 2%. Ladies footwear saw the fastest growth with an increase of 5% over the previous year. Sales across men’s and kid’s footwear grew by 1% each. Sports leisure has become the largest category across athletic footwear in US. It achieved a growth of 17% and generated 9.6 billion dollars in sales. Among the top selling brands in U.S. (based on dollar sales), were Nike/Brand Jordan, Adidas, Skechers, Under Armour, and New Balance. However, Adidas was one with fastest growth rate with its sales having grown at 50 percent. Nike and Jordan dominated the top ten selling models with two models from Adidas also making it to the list.
Globally too, the athletic footwear industry is growing at a very fast rate. In 2015, the global athletic footwear market was valued at 75.2 Billion dollars. It is expected to rise past 115.6 Billion dollars by 2023. The demand for sports shoes is expected to rise steadily in the near future based on rising health consciousness and growth in sports and gym infrastructure across U.S. Growing concern for fitness as well as rising health consciousness and better economic activity have all led to higher demand for sports shoes. Europe and North America are dominating the global athletic footwear sales with a large part of sales also coming from the developing economies. Nike however, remains a dominant name in this market whose sales and revenue have grown steadily over the past five years.
Below is a SWOT analysis listing Nike’s key strengths, weaknesses, opportunities and threats:
- Brand Image – A strong brand image is a major strength for an international brand which does not just mean higher popularity but also higher sales and revenues. Over time, Nike has built a very strong image in the global market as an ethical, innovative and customer oriented brand. It is a brand known for product innovation, excellent marketing and for good quality products. Most of its fame comes from its stylish products and a great marketing strategy. Its swoosh logo is easily identifiable among the crowd of brands. It is mainly Nike’s focus upon design, quality, innovation and ethics that has resulted in stronger reputation and faster growth.
- Excellent Marketing capabilities – Marketing can be a source of competitive advantage and can help gain higher popularity and better sales. In the 21st century especially, the focus on marketing has grown. Marketing constitutes a very large part of the entire business strategy and excellent marketing capability of a brand means excellent sales and revenue. However, not just Nike, but its competitors including Adidas are also investing heavily in marketing. Apart from making innovative products, Nike spends a major sum on marketing and promotions. In 2016 and 2017, it spent $3.2 and $3.3 Billions on marketing and promotions. In the recent years, its reliance on digital and social media advertising has grown.
- Financial strength – Strong financial performance is also a key strength for any brand in the 21st century. Nike’s financial position in the U.S. and global market is much stronger than its competitors. In the fiscal year 2017, Nike achieved record growth in revenues and earnings per share despite continuing foreign currency headwinds. Its revenues saw 6% growth over 2016 rising to $34.4 billion in 2017. Its net income also rose by 13% and diluted Earnings Per Share by 16% to $2.51.
- International presence – Nike has expanded internationally fast. Its number of non U.S. retail stores grew to 758 in 2017. The total number of Nike brand factory stores is now 642 and that of brand in line stores is 71. The number of Converse stores internationally has also grown to 45. The total number of non U.S. stores is now close to double that of the U.S. stores.
- Large and well managed supply chain and distribution network – A large and well managed supply chain and distribution network can help a brand achieve outstanding results. Nike has a quite large and well managed supply chain and distribution network. It relies almost fully on independent manufacturers for the production and supply of its products. It has partnered more than 500 suppliers across 42 nations and has formed strategic partnerships with 363 apparel factories in 37 countries and 127 footwear factories in 15 countries. Asia has the highest number of Nike suppliers and a very large number of them are in China, Indonesia and Vietnam. The brand has 1,142 stores internationally of which around a third are in U.S. and two third outside U.S. The brand has Nike and Converse websites in 45 countries and is working on new innovative models for getting closer to the customers.
- Overdependence on the U.S. market – Nike still depends heavily on the U.S. market for sales and revenue. In 2017, U.S. accounted for around 46% of its revenue whereas around 54% came from outside U.S. While Nike has expanded fast overseas, the U.S. market continues to remain its biggest source of income.
- Increasing marketing and overhead operating expenses: Rising competition in the sports shoe and apparel market has resulted in an increase in Nike’s marketing related expenses. In 2016 and 2017, Nike spent higher than 3 Billion USD on marketing. From 2016 to 2017 its marketing expenses rose by more than 60 million dollars. Operating overhead expenses for 2016 and 2017 were also higher than 7 Billion for Nike.
- Digitization and product innovation – For further growth, Nike needs to remain focussed on digitization and product innovation. Digital marketing and e-commerce are going to have the highest effect on growth and profits in the coming years. Its competitors are investing heavily in these areas. Focusing on these things will affect the consumer experience of Nike as well as its sales and profits.
- Acquisitions – To find faster growth Nike can acquire related businesses. Acquisitions can be a good method to find growth faster nationally and internationally.
- International expansion – Faster international expansion is essential if Nike wants to see faster growth. Currently, it is operating its e-commerce websites in only 45 countries. It can exploit both e-commerce and physical retail channels for faster overseas expansion. Asia is particularly a very fast growing market full of space and opportunities for Nike. This will also work to reduce its dependence on the US market.
- Backward integration- Nike depends nearly completely on independent manufacturers for production and supply of its products. It can either acquire some of them or build some of its own to have a more agile and stronger supply chain and find faster growth. This will also reduce the manufacturing costs and help invest in other areas like marketing and R&D.
- Stronger U.S. dollar hurting earnings – A stronger U.S. dollar is the biggest enemy of U.S. brands affecting their profits to a large extent. It is also having an adverse effect on the earnings of Nike. A stronger U.S. dollar leads to higher inventory costs and reduces the consolidated earnings of Nike. In both 2016 and 2017, the detrimental effect of fluctuation in foreign currency was felt strongly by Nike. It felt a detrimental impact of $542 million and $1,985 million on its consolidated revenues for 2017 and 2016 respectively due to currency fluctuations. A similar detrimental impact was felt on Income before income taxes because of fluctuating foreign exchange rates. The total detrimental impact on Income before Income taxes was close to around $115 million and $449 million for 2017 and 2016 respectively.
- Increased competitive pressure – The competitive pressure in the sports shoe and apparel industry has kept rising. Nike is also feeling the pressure strongly leading to growing investments in marketing as well as operations. Adidas and Under Armour are also focused on innovation and marketing. This has led to higher competitive pressure on Nike. To manage the competitive pressure, Nike must retain its focus on product quality, innovation and supply chain management as well as research and development.
- Growing HR and marketing expenses – With growing size of business, the HR and marketing expenses of Nike have also grown fast. It has spent more than 3 billion on marketing in 2017. The brand is experiencing higher wage related and compensation expenses.
- Higher legal pressures – The legal pressures have grown globally causing higher pressure related to compliance on international businesses. This has also led to an increase in compliance related costs for Nike. Failure to comply with regulatory standards can lead to financial losses as well as risk the brand’s reputation.
PESTEL Analysis of Nike:
The international brands face several kinds of pressures while operating in a highly competitive market. These forces can have a direct impact on their sales and profits. The PESTEL framework can be used to analyse how the most important forces in the international environment can affect large and global businesses. This is a PESTLE Analysis of Nike :
Political factors have kept growing in importance for the business industry over the years. It is because the government oversight and regulation of businesses has kept rising. The global brands like Nike are most affected by this trend. It is because they have their supply chain and distribution network spread all over the world. In such an environment while it remains generally easier to do business in the countries with a stable political environment, those facing political instability can be difficult to operate in. However, the political environment is not stable globally in all the countries. This may sometimes lead to business and supply chain disruption. Moreover, it is easier to operate in the countries having good trade relationships with U.S. since there are fewer barriers before U.S. businesses in the friendly nations. So, political factors can impact international businesses in many ways apart from taxes and regulations. This is also true in case of Nike and its competitors.
The importance of economic factors can be understood from the fact that low economic activity results in lower sales and revenue for international brands. Moreover, the sports shoe and apparel brands depend on high economic activity and higher disposable income for sales and revenue. The world has been through a bitter period of recession just some years ago which had resulted in low employment and lower disposable income. This resulted in lower sales and revenue for fashion and sport shoe brands. Economic activity has returned globally and apart from a few markets most are seeing surging economic activity. The Asian markets particularly have seen faster growth. In U.S. too, growing economic activity has resulted in healthy spending by the consumers. The employment level has grown giving people extra spending power which is good for brands like Nike. In this way, economic forces play a major role in shaping the fortune of global brands. Condition of the global economy has a sharp impact on Nike’s business because of its international nature.
Sociocultural factors have grown to be more dominant in the 21st century. It is because the taste of people differ from society to society and culture to culture. Society and culture have a major effect on purchasing habits of consumers. Focusing on specific markets and their consumers’ tastes helps predict trends better and can have a healthy effect on sales level in particular markets. These factors are also dominant in the area of marketing. Marketers are utilising these factors to formulate local marketing strategies and to grow market share and customer base in specific markets.
Technological factors are also playing an increasingly dominant role in the expansion and growth of businesses. It is not just in marketing but down the supply chain and inside the distribution network too, the role of technological factors has grown. Technologies like AI have grown very important to design superior customer experience whether it is in-store shopping experience or online shopping. Moreover, technology is helping brands market themselves more efficiently. Investing in research and development is helping brands create innovative products and grow their sales and market share. Brands are engaged in a race for remaining technologically ahead of their rivals. Technology is not just bringing higher efficiency but also creating new opportunities of engaging customers and attracting higher sales. Nike has continued to increase its investment in R&D as well as marketing of the brand.
Environmental factors are now more important than ever in the context of inert national business. It is not just the governments but other agencies are also actively watching for the carbon footprint of businesses. While the governments have made stringent laws for environmental protection, businesses themselves are actively investing in CSR and environmental responsibility for better reputation and faster growth. Apart from their own manufacturing and distribution processes, Nike also keeps a watch over its supply chain partners since they have remained a source of problems rising from environmental issues in the past.
Law is also a dominant factor in the area of international business. The legal net has kept growing stiffer and stiffer for international businesses. The EU has passed several laws that are not so favourable for international brands operating there during the past few years. From environmental to labor and product quality related there are several laws, several of which differ from market to market and affect businesses deeply. The effect of legal factors on businesses has kept growing as compliance related burdens have kept adding to their manufacturing costs.
Nike Five Forces Analysis:
Bargaining power of suppliers:
The bargaining power of Nike’s suppliers is low. It is because while they are very small in size as compared to Nike, they are also scattered all over the world and do not hold significant financial strength. A very large part of Nike’s supply chain is located in Asia and this is because apart froth availability of raw materials, labor is cheap there. Moreover, Nike only partners those who can match its quality standards. It has made rules and regulations regarding labor, product quality and other things including environmental impact which the suppliers must follow. All these factors mean lower bargaining power of the suppliers against the brand.
Bargaining power of customers:
The bargaining power of customers in the 21st century has kept rising fast and the case is same with Nike. Its customers too hold significant bargaining power. The control has shifted into the hands of the customers in the 21st century. Brands like Nike are focusing not just on product innovation and quality to cater to the needs of the new generation better. They are also designing better customer experiences to retain these customers. Another important factor that has led to increase in the bargaining power of the customers in the rise in competitive rivalry in the sports shoe industry. The overall bargaining power of customers is high which gets moderated to a small extent by the brand’s strong image, marketing capabilities, and the level of trust and customer loyalty.
Threat from substitute products:
The threat of substitute products arises mainly from the brands selling similar products. There are a large number of brands operating locally and internationally in the global market that are selling sports shoes and apparel. The overall threat from substitute products is moderate which is because of Nike’s brand image as well as trust and customer loyalty.
Threat from new entrants:
The threat of new entrants is moderately low which is because while brands enter at a smaller and local level, it is generally very difficult to build a major market leading brand from a small investment. There is a very large investment in building a big brand like Nike which requires investment in infrastructure, technology as well as human resources and marketing. There are legal barriers too which discourage new brands from exerting the market. Based on these factors threat of new entrants remain low.
Competitive rivalry among the existing brands:
The level of competitive rivalry between the existing brands is high. While the number of major brands playing in the international market is limited, the level of competitive rivalry is still very high because of each brand investing heavily in product quality, innovation and marketing as well as research and development.
Core Competencies of Nike:
Some of the main core competencies of Nike are as follows:
Brand name: Nike is a globally renowned brand of sports shoes, apparel and equipment.
Modern technology and innovation: Nike’s focus has always been on modern technologies, product innovation as well as growth through investment in a better customer experience.
Product quality and style: Product quality and stylish designs have always been a priority for Nike leading to the popularity of its products as leisure wear.
Marketing capabilities: Nike’s excellent marketing capabilities differentiate it from the crowd of brands. Its excellent marketing has ranked it among the best marketers of the world.
Nike Value Chain Analysis:
Nike’s global procurement team is responsible for obtaining raw material from around the world. Its responsibilities include selecting and contacting the right suppliers for quality goods and services. During the recent years, Nike’s focus on sustainability has grown and it is seriously focusing on making its supply chain more sustainable. In this regard, it also reduced the number of suppliers to have only those onboard who are committed to quality and sustainability. The suppliers who are willing to go beyond the minimum standards and can follow the sustainability rules strictly are allowed to be a part of Nike’s supply chain. Nearly all of the production for Nike is done by the independent contractors. Currently, Nike is supplied by 127 footwear factories in 15 nations and 363 apparel factories in 363 nations. The focus throughout Nike’s manufacturing facilities is on transparency, quality and sustainability. Therefore, only the most responsible suppliers get to be a part of its supply chain. Products sourced from these suppliers are sent to various markets through the regional offices and distribution centers of Nike.
Nike’s headquarters are at Oregon in North America. It is also Nike’s biggest office that has the highest number of Nike employees. Nike has more offices in Europe, Middle East, Africa, Greater China, Asia Pacific and Latin America. The brand is present globally and each of its offices caters to large geographical areas of several countries. In North America alone, more than 2,000 retail stores of Nike are served by a single headquarter. More than 70,700 workers were employed in Nike’s offices in 2017. (Source: Fortune)
Outbound logistics are a very critical part of Nike’s value chain. More than 550 factories in 42 countries make Nike products. These products are shipped to the Nike Distribution centers and then to retail stores for sales. Nike has used a chain of regional distribution centers to service its retail stores. This reduces the waiting period for the customers after a new product’s release. An efficient distribution system also leads to timely deliveries and shipments. In 2015, Nike opened its largest distribution center at Tennessee. The Memphis, Tennesee based distribution system holds footwear, apparel and equipment of Nike and Jordan brands. From there, the products are distributed to the individual and wholesale customers apart from Nike’s own retail stores. Its European logistics campus is located at Belgium. Overall, Nike has been able to manage a fast and smart supply chain.
Marketing and sales:
Apart from great quality products and innovative designs, Nike is known globally for its excellent marketing strategy. Its Swoosh logo and can be found on nearly all of its products. However, Nike still invests heavily in marketing and uses sportspeople like Football celebs for brand promotion and product endorsement. Its video marketing strategy has ardent fans around the world. Nike mainly utilises two sales channels – physical and online. Its own stores including in-line and factory retail stores and its websites and mobile sales channels sell to the customers directly. Nike has also used a mix of independent distributors, licensees and sales representatives globally for sales.
Nike’s production strategy has innovative technology at its core. While Nike has retained its focus on great quality, sustainability is also become an important focus down its production and supply chain. Nike uses best in class technologies to reuse the waste its factories generate. It has adopted technologies that specifically create material which is user friendly and sustainable. Its use of technological solutions has helped it minimize its impact on the environment and improve the quality of its products continuously.
A global organization like Nike depends on a large and skilled staff. Globally, Nike employs more than 70,000 people. It has established a culture and environment which fosters diversity and inclusion. For its excellent HR management, it featured as one of the best employers and as one of America’s Best Employers for Diversity on Fortune’s list. HR management is also an important focus down its supply chain. Nike suppliers are required to follow strict rules and regulations related to labor and HR management.
Good quality products can be made only from good quality raw materials. For Nike, quality is a very important focus. So, its entire procurement team is dedicated to the analysis and evaluation of eligible suppliers. Only suppliers who can guarantee more than the minimum quality requirements get to remain in its supply chain. It procures raw materials from several countries around the world.
Nike is a global company with a large and global infrastructure made up of its offices, retail stores and distribution and logistics centers. A very large infrastructure is essential to manage its global presence well. Nike is headquartered in a state of art building that has a lake and more excellent and extraordinary facilities for its staff.
Nike Business Strategy and Competitive Advantage:
Nike is the leading brand in sports shoes and apparel industry. Its industry leading performance is backed by excellent product quality and great customer focus as well as a fantastic marketing strategy. The brand has occupied the top position for several years in the industry. There is undeniably a great business and marketing strategy behind a great and global brand. Its marketing tactics have earned it some serious appreciation over time. In past apart from other marketers, Steve Jobs too appreciated the marketing strategy adopted by Nike. The glory that Nike has earned over time is a result of its focus on its customers and mainly athletes. It invests a lot in innovation which is a major part of its business strategy. Apart from product innovation, its focus remains on customer engagement. These are two specifically important areas that have brought it to the point it has reached today. Nike’s products have always remained the best sellers in the US market. US is an important market for most of its competitors too including Adidas, Under Armour, Skechers and New Balance. This market holds immense potential which became clear from the sales that the sports shoe industry achieved during the last two years. For further market growth, Nike has focused on sustainability and higher focus on innovating its products that better cater to the sports and leisure wear needs of the new generation customers and athletes. The sports shoe industry has grown highly competitive in the recent years with pressure increasing from the likes of Adidas and Under Armour. This industry is being shaped by new trends and mainly the sports leisure trends. However, behind Nike’s success are great business and marketing strategies as well as some excellent sources of sustainable competitive advantage listed below:
– Global presence – The global presence of the brand is also a key source of advantage for it.
– brand image/equity – The brand enjoys a very high level of trust among its customers and the overall market.
– Customer loyalty: Based upon the high level satisfaction Nike generates, it enjoys high customer loyalty than its rivals.
– Supply chain management: Its excellent supply chain management is also a key source of competitive advantage for the brand.
– Marketing capabilities: Nike is known as one of the best marketers in the entire industry.
– Innovation: Its focus on innovation has enabled it to continuously bring new and greta products to the market and keep its customers engaged and satisfied.
Apart from these things, Nike’s focus is also on innovative HRM since HR is now also a critical source of sustainable competitive advantage for a brand. Some of these sources have cerated sustainable advantage for Nike and the rest can be strengthened further through focus on customer experience, marketing and innovation in future. Consistent focus on product innovation helps the brand respond to its customer’s expectations and achieve an advantage compared to its competitors.
VRIO Analysis of Nike:
Resources and capabilities of Nike:
Global presence: Nike is a major global brand with commerce in 45 countries. Its number of international stores grew to 758 in 2017.
Brand image and size: Nike has a very good brand image in the sports shoe industry. Infact it is the leading brand in the industry closely followed by adidas and Under Armour.
Customer loyalty: Nike also enjoys a very high level of customer loyalty and trust among its customers. The credit goes to its product innovation, quality and excellent marketing of the brand.
Product innovation: Since always, Nike’s focus has remained on product innovation. Its products always dominate the top selling shoe models in US and abroad.
Marketing capabilities: The marketing capabilities of Nike are quite advanced and it is known for its excellent marketing which is absolutely outstanding.
Market share and customer base: The market share of Nike among the sports shoe brands is the largest and it has the largest customer base of all of them.
Supply chain: Nike has a large and well managed supply chain a very large part of which is located in Asia.
Nike revenue for fiscal year 2017 rose 6 percent to 34.4 Billion dollars, up 8 percent on a currency neutral basis. Nike Brand’s revenue was 32.2 Billion dollars, up 8 percent. NIKE Brand sales to wholesale customers grew by 5 percent while Direct To Consumer revenues grew to $9.1 billion, up 18 percent. This growth was driven by a 30 percent rise in digital commerce sales, growth in number of stores and 7 percent growth in comparable store sales. As of May 31, 2017, the NIKE Brand had 985 Direct To Consumer stores in operation. This was 66 higher than the number of DTC stores previous year.
NIKE Brand’s revenue growth was driven by growth in all geographical regions apart from growth in key categories including Sportswear, Running and the Jordan Brand. Converse Revenues grew 6 percent to $2.0 billion, driven by growth in the United States and Europe. Net income also grew by 13 percent to 4.2 billion dollars. It reflected the string global revenue growth. There was an increase of 16 percent in Diluted Earnings per share which rose to $2.51. this reflected the growth in Net Income and declining weighted average diluted common shares outstanding.
Conclusion & Suggestions:
Nike is the world’s largest sports shoe and apparel brand of which has focused on product innovation and marketing for growth. Its excellent marketing capabilities have helped it outshine among the crowd of brands. Nike’s e-commerce websites are now active in 45 countries. However, despite its international growth the brand depends heavily on US market for revenue and income. A stronger US dollar and regulatory pressures are some of the most important threats before Nike. Competitive pressures against the brand have also kept growing. To retain its growth rate, the brand must retain focused on product innovation and marketing. It can also try backward integration since it is heavily dependent on independent manufacturers down its supply chain. Apart from these things Nike must focus on the customer experience in its stores and on its websites to improve it using modern technologies like AI.
Nike Annual report 2017 (https://s1.q4cdn.com/806093406/files/doc_financials/2017/ar/docs/nike-2017-form-10K.pdf)