Strategic Analysis of Nike

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Strategic Analysis of Nike, Inc. Submitted to: A.J. Almaney, Ph.D. ISS 395 DePaul University Chicago, IL 60604 March 14, 2000 TABLE OF CONTENTS Executive Summary…………………………………………………………………….…………p.4 History…………………………..…………………………………………………………………..p.6 Profile of CEO………………….…………………………………………………………………..p.7 Competitor’s Profile………….…………………………………………………………………….p.7 Industry Profile……………………………………………………………………………………..p.8 Company Analysis…………………………………………………………………………………p.9 Industry Analysis…………………………………………………………
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  Strategic Analysis of Nike, Inc. Submitted to:A.J. Almaney, Ph.D.ISS 395DePaul UniversityChicago, IL 60604March 14, 2000 TABLE OF CONTENTSExecutive Summary…………………………………………………………………….…………p.4History…………………………..…………………………………………………………………..p.6Profile of CEO………………….…………………………………………………………………..p.7Competitor’s Profile………….…………………………………………………………………….p.7Industry Profile……………………………………………………………………………………..p.8Company Analysis…………………………………………………………………………………p.9Industry Analysis………………………………………………………………………………......p.24Top Competitor Analysis………………………………………………………………………….p.25Other External Forces…………………………………………………………………………….p.26Key Opportunity……………………………………………………………………………..….…p.27Key Threat…………………………………………………………………………………………p.27Major and Subordinate Problems………………………………………………………….……p.28Strategic Match…………………………………………………………………………………...p.29Primary Strategic Match Position……………………………………………………………….p.30Strategic Plan……………………………………………………………………………………..p.33Conclusion………………………………………………………………………………………...p.38LIST OF EXHIBITS1.Sales Trends Graph……………………………………………………………………………p.52.Net Income Trends Graph…………………………………………………………………….p.53.Nike Board of Directors Table………………………………………………………………...p.114.Table of Key Financial Ratios………………………………………………………………...p.225.Net Income Trend Graph………………………………………………………………….…..p.246.Primary Strategic Match Position Chart……………………………………………………..p.307.Industry Attractiveness Matrix………………………………………………………………..p.318.Business Strength/Competitive Position Chart……………………………………………..p.329.Grand Strategy Chart………………………………………………………………………… p.3410.Marketing Short-term Strategy Chart………………………………………………………..p.3511.Production Short-term Strategy Chart……………………………………………………….p.3612.Research and Development Short-term Strategy Chart…………………………………..p.3713.Human Resources Short-term Strategy Chart……………………………………………...p.3714.Finance Short-term Strategy Chart.………………………………………………………….p.38 EXECUTIVE SUMMARYNike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnershipunder the name, Blue Ribbon Sports. Our modest goal then was to distribute low-cost, high-quality Japanese athletic shoes to American consumers in an attempt tobreak Germany   s domination of the domestic industry. Today in 2000, Nike Inc. not only manufactures and distributes athletic shoes at every marketable price point to a global market, but over 40% of our sales come from athletic apparel, sports equipment, and subsidiary ventures. Nike maintains traditional and non-traditional distribution channels in more than 100 countries targeting its primary market regions: United States, Europe, Asia Pacific, and the Americas (not including the United States). We utilize over 20,000 retailers, Nike factory stores, Nike stores, NikeTowns, Cole Haan stores, and internet-based Web sites to sell our sports and leisure products. We dominate sales in the athletic footwear industry with a 33% global market share. Nike Inc. has been able to attain this premier position through quality production, innovative products, and aggressive mark  eting. As a result, for the fiscal year end 1999, Nike   s 20,700 employees generated almost $8.8 billion in revenue.1ProductsOur primary product focus is athletic footwear designed for specific-sport and/or leisure use(s). We also sell athletic apparel carrying the same trademarks andbrand names as many of our footwear lines. Among our newer product offerings, we sell a line of performance equipment under the Nike brand name that includes sport balls, timepieces, eyewear, skates, bats, and other equipment designed forsports activities. In addition, we utilize the following wholly-owned subsidiaries to sell additional sports-related merchandise and raw materials: Cole Haan Holdings Inc., Nike Team Sports, Inc., Nike IHM, Inc., and Bauer Nike Hockey Inc.Our most popular product categories include the following:ãRunningãBasketballãCross-TrainingãOutdoor ActivitiesãTennisãGolfãSoccerãBaseballãFootballãBicyclingãVolleyballãWrestlingãCheerleadingãAquatic ActivitiesãAuto RacingãOther athletic and recreational uses Sales and Income TrendsRevenues in the fiscal year ended May 31, 1999, declined by 8% over the prior year to $8.777 billion. As illustrated in the graph below, this marked the first time since 1994 that revenues have declined. Regardless of this year   s decline, Nike Inc. achieved 300% revenue growth over a 10-year period, rising from 1990 sales of $2.235 billion.Exhibit 1 * Obtained from Nike, Inc. 1999 Annual ReportAlthough revenues declined in 1999, net income increased by 13% over the prior year. As the graph below illustrates, net income has been volatile in the latterhalf of the 90   s. Sharp decreases in 1998 and 1999 net income were due to restructuring charges. If these charges had not been incurred, income would have beenflat for both years. Efficiency in cost control and inventory management has allowed net income to increase while revenues decreased in 1999. Note that the largest growth rate was 43% in 1997 over the prior year with net income of $795.8 million.Exhibit 2 * Obtained from Nike, Inc. 1999 Annual ReportChallengesOur greatest challenge in 2000 will be to maintain the operational and financialinitiatives we worked so hard to implement in 1998 and 1999. We must maintain o  ur inventory levels low enough that will allow us to adapt to quickly changing market trends. Financially, we must remain conservative in our cost structure. Cuts to operating expenses of almost $200 million this past year demonstrated thatwe are in a position to be nimble in light of our industry-dominating size. With the gradual economic recovery in the Asia Pacific region, we can capitalize oncustomers who are financially stronger. Our sponsorship of the 2000 Olympic Games in Sydney, Australia, and the 2002 World Cup in Japan and Korea will be the start of many opportunities to bring sports events into the mainstream for regional and global markets. With added exposure, we are challenged to respond to a market demand for fashionable athletic footwear and apparel. In this quest, we will succeed if we keep quality and performance at the core of our business.The Internet is a rapidly changing medium. As the first company in our industryto offer e-commerce capabilities, we must proceed with caution and stealth in order to select an enduring strategy that will complement our existing distribution channels. HISTORYBill Bowerman and Phil Knight founded Nike Inc. as Blue Ribbon Sports in 1962. The partners began their relationship at the University of Oregon where Bowermanwas Knight’s track and field coach. While attending Stanford University, Knightwrote a paper about breaking the German dominance of the U.S. athletic shoe industry with low-priced Japanese shoes. In an attempt to realize his theory, Knightvisited Japan and engineered an agreement with the Onitsuka Tiger company, a manufacturer of quality athletic shoes, to be their sole distributor in the UnitedStates.In 1962, Knight received the first shipment of 200 pairs of Tiger shoes to his parent’s garage in Oregon. The shoes were bought by Blue Ribbon Sports (BRS), thename of the partnership between Knight and Bowerman that they formed with only$1,000 in capital. Knight peddled Tiger’s shoes at local track meets grossing $8,000 of sales in their first year. In 1966, Bowerman, who had previously designed shoes for his university athletes, worked with Tiger to design the Cortez running shoe. The shoe was a worldwide success for the Onitsuka Tiger Company and was sold at the first BRS store. In 1971, BRS, with creditor support, started manufacturing their own line of shoes. Later that year, the first BRS shoe was introduced. The shoe was a soccer shoe that bore the Nike brand name, referring to the Greek Goddess of Victory, and the Swoosh trademark. A student designed the Swoosh trademark for a paltry fee of $35. The Swoosh was meant to symbolize a wingof the Greek Goddess.1972 marked the breakup of the BRS/Tiger relationship. BRS soon changed its nameto Nike, Inc. and debuted itself at the 1972 Olympic trials. In 1973, Steve Prefontaine was the first prominent track star to wear Nike shoes. The late 70’s and early 80’s also saw John McEnroe, Carl Lewis, and Joan Benoit sporting Nike shoes. Nike popularity grew so much that in 1979 they claimed 50% of the U.S. running market. A year later with 2,700 employees, Nike went public selling 2 million shares on the New York Stock Exchange.The 1980’s were marked by the signing of Michael Jordan as a product spokesperson, revenues in excess of $1 billion, the formation of Nike International Ltd., and the Just Do It campaign. Nike also expanded its product line to include specialty apparel for a variety of sports. In 1990, Nike surpassed the $2 billion mark in consolidated revenue with 5,300 employees worldwide. In addition, we opened the Nike World Campus in Beaverton, Oregon.In 1991, Nike pushed revenues to $3 billion, up from $2 billion the prior year.This mark would continue to grow throughout the 90’s, with revenues in 1999 reaching $8.8 billion. These revenues grew based on improvements in shoe technologyand successful marketing campaigns. International revenues fueled a great portion of this growth with an 80% increase in 1991 from the prior year. In 1992 international revenues topped $1 billion for the first time and accounted for over one-third of our total revenues. Such growth continued throughout the 1990   s as wecontinued to focus our marketing efforts on major sporting events like the World Cup, and the next generation of celebrity endorsers, such as Tiger Woods, Lanc  e Armstrong, and the players of women   s professional basketball (WNBA). At the end of the 90’s, Nike’s goal, as stated in our company web site, is to become a truly global brand. PROFILE OF THE CEOPhillip H. Knight, Chairman and Chief Executive Officer, is the co-founder of Nike, Inc. He has been the driving force behind our company   s success since its inception in 1964 under the name Blue Ribbon Sports. Knight is 61 years of age andholds an undergraduate degree from the University of Oregon and an MBA from Stanford University. Knight practiced as a CPA and taught at Portland State University prior to founding the company known today as Nike. He has been an innovativevisionary in the industry of athletic footwear and apparel. His efforts have helped to establish Nike as an industry leader in both national and internationalmarkets. Knight   s managerial mode is one that is characterized by strategic planning. This mode is representative of an open-minded CEO, one willing to take calculated risks and make conservative decisions based on careful analysis of external and internal environments. Knight   s decision-making style favors the participative approach. He is not hesitant to make unilateral decisions, but prefers tolook to his trusted management team for their insight and ideas before choosinga course of action. PROFILE OF THE COMPETITORReebok, in terms of their products, is not entirely different from Nike. Reebokis involved in the design and marketing of both athletic and non-athletic footwear and apparel, as well as other various fitness projects. Reebok’s market shareis a distant third in the footwear industry at 11.2% (compared to 30.4% and 15.5% for Nike and Adidas respectively). Reebok’s financial position has been gradually slipping for a number of years. This is evident in their declining stock price, which has fallen by over 80 percent in the last four years. Reebok’s financial woes are illustrated in their declining net sales. Reebok’s net sales declined 9% during the first three-quarters of fiscal year 1999. During that same period, net income declined 17%. Taking these and other factors into account leavesReebok’s current financial position, as a whole, looking bleak.PROFILE OF THE INDUSTRYIndustry SizeIn 1998, Americans spent approximately $38 billion to purchase more than 1.1 billion pairs of shoes. The wholesale value of athletic shoes for the US market totaled $8.7 billion in 1998 down 8.5% from the year before. According to the Sporting Goods Manufacturers Association, athletic footwear accounts for almost 35% of all footwear purchases.In general, consumers are spending less worldwide for athletic footwear. The current domestic industry focus is on casual and comfortable shoes. Although athletic footwear sales appear to be recovering, demand is still leaning toward the brown shoe casual footwear with a comfortable and rugged design. This switch isdue to the increasing number of workplaces adopting casual dress codes.Industry ProfitabilityThe athletic footwear industry is a challenging and saturated market. Intense competition, fashion trends, and price conscious consumers have slowed growth in this industry. Manufacturers are combating sluggish sales with radical new styles, along with offering more styles at lower price points. Companies are looking for new ways to boost sales by capitalizing on direct Internet sales to consumers. Many companies are also increasing profitability by transferring production tocheaper offshore facilities.This segment has reached a point of maturity in the domestic market and can lookforward to only modest sales growth for the long term. However, sales are improving slightly, especially in the areas of running shoes, cross-trainers and basketball shoes. Therefore, companies with strong brands will increasingly turn tointernational markets for growth.Industry SeasonalityOverall, sales in the athletic footwear industry remain stable throughout the ye
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