Sports Footwear and Apparel

Industry Analysis

Nike Corporation
Group 4:
Josh Fernino
Brent Hare
Victor Hemmati
Lance Hollister
Chris Kerschen
Ty Parasiliti
Vincent Ukwu

Defining The Industry

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

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

NAICS Codes Example

NAICS Codes
31-33

Name

Classification Level

Manufacturing

Sector

316

Leather and Allied

Product Manufacturing

Subsector

3162

Footwear Manufacturing

Industry Group

31621

Footwear Manufacturing

Industry

316211

Rubber and Plastics

Footwear Manufacturing

U.S. Detail Industry

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
Nikes critical factors for
success are maintaining
current standards, closer
working relationships,
and retaining customer
loyalty by guaranteed
standard of product

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.

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

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

Nikes Biggest Competitor

Consist of 3 companies:
Adidas
Reebok
TaylorMade

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 brands bond with the consumer.

Reeboks 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

TaylorMades 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.

Adidas Group Financials

Net Sales
in millions

Nine Months
2008

Nine Months
2007

Adidas

6,004

5,465

9.9%

Reebok

1,587

1,765

(10.1)%

614

609

0.8%

TaylorMade

Change

Industry Structure

Growth in Recent Decades

Nike and Reebok set the standard
Nike gained popularity
Lurking competitors

Adidas Group
Under Armour

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

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

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 firstmover advantage is minimal

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

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

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

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

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

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?

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 ?

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.

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.

Rivalry Among Participants

Market of Competitive Rivalry

Industry Environment

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.

Nike vs. Ethics

In 1996, the ethical issue of child labor

came to the surface regarding the
hiring of young employees by Nikes
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.

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.

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.

Nike vs. Society

The largest among Nikes objectives,

the womens 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 1960s to almost one million
today.

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 consumers
iPod

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 todays athletes
Nike employs many specialists
including engineers, athletes,
biomechanics, and industrial
designers to work together in the

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

Areas Firms Compete On

Product offerings
Technologies
Marketing Expenditures
(endorsements and advertising)
Pricing
Costs of Production
Customer Service

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

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

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

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: Nikes largest footwear factory
accounts for only 6% of the total footwear
production
Nike claims it can recover from any loss in
production within one years time

Conclusion

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.

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
Nikes products, the company must
find a way to keep their consumers to
see them as being more user friendly
as compared to their competitors.

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.

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.