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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………………………………………………………………………………......p.24
Top Competitor Analysis………………………………………………………………………….p.25
Other External Forces…………………………………………………………………………….p.26
Key Opportunity……………………………………………………………………………..….…p.27
Key Threat…………………………………………………………………………………………p.27
Major and Subordinate Problems………………………………………………………….……p.28
Strategic Match…………………………………………………………………………………...p.29
Primary Strategic Match Position……………………………………………………………….p.30
Strategic Plan……………………………………………………………………………………..p.33
Conclusion………………………………………………………………………………………...p.38
LIST OF EXHIBITS
1. Sales Trends Graph……………………………………………………………………………p.5
2. Net Income Trends Graph…………………………………………………………………….p.5
3. Nike Board of Directors Table………………………………………………………………...p.11
4. Table of Key Financial Ratios………………………………………………………………...p.22
5. Net Income Trend Graph………………………………………………………………….…..p.24
6. Primary Strategic Match Position Chart……………………………………………………..p.30
7. Industry Attractiveness Matrix………………………………………………………………..p.31
8. Business Strength/Competitive Position Chart……………………………………………..p.32
9. Grand Strategy Chart………………………………………………………………………… p.34
10. Marketing Short-term Strategy Chart………………………………………………………..p.35
11. Production Short-term Strategy Chart……………………………………………………….p.36
12. Research and Development Short-term Strategy Chart…………………………………..p.37
13. Human Resources Short-term Strategy Chart……………………………………………...p.37
14. Finance Short-term Strategy Chart.………………………………………………………….p.38
EXECUTIVE SUMMARY
Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership
under the name, Blue Ribbon Sports. Our modest goal then was to distribute low-c
ost, high-quality Japanese athletic shoes to American consumers in an attempt to
break Germany s domination of the domestic industry. Today in 2000, Nike Inc. n
ot only manufactures and distributes athletic shoes at every marketable price po
int to a global market, but over 40% of our sales come from athletic apparel, sp
orts equipment, and subsidiary ventures. Nike maintains traditional and non-trad
itional distribution channels in more than 100 countries targeting its primary m
arket regions: United States, Europe, Asia Pacific, and the Americas (not includ
ing the United States). We utilize over 20,000 retailers, Nike factory stores, N
ike stores, NikeTowns, Cole Haan stores, and internet-based Web sites to sell ou
r sports and leisure products. We dominate sales in the athletic footwear indust
ry with a 33% global market share. Nike Inc. has been able to attain this premie
r position through "quality production, innovative products, and aggressive mark
eting." As a result, for the fiscal year end 1999, Nike s 20,700 employees gener
ated almost $8.8 billion in revenue.1
Products
Our primary product focus is athletic footwear designed for specific-sport and/o
r leisure use(s). We also sell athletic apparel carrying the same trademarks and
brand names as many of our footwear lines. Among our newer product offerings, w
e sell a line of performance equipment under the Nike brand name that includes s
port balls, timepieces, eyewear, skates, bats, and other equipment designed for
sports activities. In addition, we utilize the following wholly-owned subsidiari
es to sell additional sports-related merchandise and raw materials: Cole Haan Ho
ldings Inc., Nike Team Sports, Inc., Nike IHM, Inc., and Bauer Nike Hockey Inc.
Our most popular product categories include the following:
• Running
• Basketball
• Cross-Training
• Outdoor Activities
• Tennis
• Golf
• Soccer
• Baseball
• Football
• Bicycling
• Volleyball
• Wrestling
• Cheerleading
• Aquatic Activities
• Auto Racing
• Other athletic and recreational uses

Sales and Income Trends


Revenues in the fiscal year ended May 31, 1999, declined by 8% over the prior ye
ar to $8.777 billion. As illustrated in the graph below, this marked the first t
ime since 1994 that revenues have declined. Regardless of this year s decline, N
ike Inc. achieved 300% revenue growth over a 10-year period, rising from 1990 sa
les of $2.235 billion.
Exhibit 1
* Obtained from Nike, Inc. 1999 Annual Report
Although revenues declined in 1999, net income increased by 13% over the prior y
ear. As the graph below illustrates, net income has been volatile in the latter
half of the 90 s. Sharp decreases in 1998 and 1999 net income were due to restru
cturing charges. If these charges had not been incurred, income would have been
flat for both years. Efficiency in cost control and inventory management has all
owed net income to increase while revenues decreased in 1999. Note that the larg
est growth rate was 43% in 1997 over the prior year with net income of $795.8 mi
llion.
Exhibit 2
* Obtained from Nike, Inc. 1999 Annual Report
Challenges
Our greatest challenge in 2000 will be to maintain the operational and financial
initiatives 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 m
arket trends. Financially, we must remain conservative in our cost structure. Cu
ts to operating expenses of almost $200 million this past year demonstrated that
we are in a position to be nimble in light of our industry-dominating size. Wit
h the gradual economic recovery in the Asia Pacific region, we can capitalize on
customers who are financially stronger. Our sponsorship of the 2000 Olympic Gam
es in Sydney, Australia, and the 2002 World Cup in Japan and Korea will be the s
tart of many opportunities to bring sports events into the mainstream for region
al and global markets. With added exposure, we are challenged to respond to a ma
rket demand for fashionable athletic footwear and apparel. In this quest, we wil
l 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 industry
to offer e-commerce capabilities, we must proceed with caution and stealth in or
der to select an enduring strategy that will complement our existing distributio
n channels.
HISTORY
Bill Bowerman and Phil Knight founded Nike Inc. as Blue Ribbon Sports in 1962. T
he partners began their relationship at the University of Oregon where Bowerman
was Knight’s track and field coach. While attending Stanford University, Knight
wrote a paper about breaking the German dominance of the U.S. athletic shoe indu
stry with low-priced Japanese shoes. In an attempt to realize his theory, Knight
visited Japan and engineered an agreement with the Onitsuka Tiger company, a ma
nufacturer of quality athletic shoes, to be their sole distributor in the United
States.
In 1962, Knight received the first shipment of 200 pairs of Tiger shoes to his p
arent’s garage in Oregon. The shoes were bought by Blue Ribbon Sports (BRS), the
name 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 designe
d shoes for his university athletes, worked with Tiger to design the Cortez runn
ing shoe. The shoe was a worldwide success for the Onitsuka Tiger Company and wa
s sold at the first BRS store. In 1971, BRS, with creditor support, started manu
facturing their own line of shoes. Later that year, the first BRS shoe was intro
duced. The shoe was a soccer shoe that bore the Nike brand name, referring to th
e Greek Goddess of Victory, and the Swoosh trademark. A student designed the Swo
osh trademark for a paltry fee of $35. The Swoosh was meant to symbolize a wing
of the Greek Goddess.
1972 marked the breakup of the BRS/Tiger relationship. BRS soon changed its name
to Nike, Inc. and debuted itself at the 1972 Olympic trials. In 1973, Steve Pre
fontaine was the first prominent track star to wear Nike shoes. The late 70’s an
d early 80’s also saw John McEnroe, Carl Lewis, and Joan Benoit sporting Nike sh
oes. Nike popularity grew so much that in 1979 they claimed 50% of the U.S. runn
ing market. A year later with 2,700 employees, Nike went public selling 2 millio
n shares on the New York Stock Exchange.
The 1980’s were marked by the signing of Michael Jordan as a product spokesperso
n, revenues in excess of $1 billion, the formation of Nike International Ltd., a
nd the "Just Do It" campaign. Nike also expanded its product line to include spe
cialty apparel for a variety of sports. In 1990, Nike surpassed the $2 billion m
ark in consolidated revenue with 5,300 employees worldwide. In addition, we open
ed 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 reac
hing $8.8 billion. These revenues grew based on improvements in shoe technology
and successful marketing campaigns. International revenues fueled a great portio
n of this growth with an 80% increase in 1991 from the prior year. In 1992 inter
national revenues topped $1 billion for the first time and accounted for over on
e-third of our total revenues. Such growth continued throughout the 1990 s as we
continued to focus our marketing efforts on major sporting events like the Worl
d 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 e
nd of the 90’s, Nike’s goal, as stated in our company web site, is to become a t
ruly global brand.
PROFILE OF THE CEO
Phillip H. Knight, Chairman and Chief Executive Officer, is the co-founder of Ni
ke, Inc. He has been the driving force behind our company s success since its in
ception in 1964 under the name Blue Ribbon Sports. Knight is 61 years of age and
holds an undergraduate degree from the University of Oregon and an MBA from Sta
nford University. Knight practiced as a CPA and taught at Portland State Univers
ity prior to founding the company known today as Nike. He has been an innovative
visionary in the industry of athletic footwear and apparel. His efforts have he
lped to establish Nike as an industry leader in both national and international
markets. Knight s managerial mode is one that is characterized by strategic plan
ning. This mode is representative of an open-minded CEO, one willing to take cal
culated risks and make conservative decisions based on careful analysis of exter
nal and internal environments. Knight s decision-making style favors the partici
pative approach. He is not hesitant to make unilateral decisions, but prefers to
look to his trusted management team for their insight and ideas before choosing
a course of action.
PROFILE OF THE COMPETITOR
Reebok, in terms of their products, is not entirely different from Nike. Reebok
is involved in the design and marketing of both athletic and non-athletic footwe
ar and apparel, as well as other various fitness projects. Reebok’s market share
is 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 gradu
ally slipping for a number of years. This is evident in their declining stock pr
ice, which has fallen by over 80 percent in the last four years. Reebok’s financ
ial woes are illustrated in their declining net sales. Reebok’s net sales declin
ed 9% during the first three-quarters of fiscal year 1999. During that same peri
od, net income declined 17%. Taking these and other factors into account leaves
Reebok’s current financial position, as a whole, looking bleak.
PROFILE OF THE INDUSTRY
Industry Size
In 1998, Americans spent approximately $38 billion to purchase more than 1.1 bil
lion pairs of shoes. The wholesale value of athletic shoes for the US market tot
aled $8.7 billion in 1998 down 8.5% from the year before. According to the Sport
ing Goods Manufacturers Association, athletic footwear accounts for almost 35% o
f all footwear purchases.
In general, consumers are spending less worldwide for athletic footwear. The cur
rent domestic industry focus is on casual and comfortable shoes. Although athlet
ic footwear sales appear to be recovering, demand is still leaning toward the "b
rown shoe" casual footwear with a comfortable and rugged design. This switch is
due to the increasing number of workplaces adopting casual dress codes.
Industry Profitability
The athletic footwear industry is a challenging and saturated market. Intense co
mpetition, fashion trends, and price conscious consumers have slowed growth in t
his industry. Manufacturers are combating sluggish sales with radical new styles
, along with offering more styles at lower price points. Companies are looking f
or new ways to boost sales by capitalizing on direct Internet sales to consumers
. Many companies are also increasing profitability by transferring production to
cheaper offshore facilities.
This segment has reached a point of maturity in the domestic market and can look
forward to only modest sales growth for the long term. However, sales are impro
ving slightly, especially in the areas of running shoes, cross-trainers and bask
etball shoes. Therefore, companies with strong brands will increasingly turn to
international markets for growth.
Industry Seasonality
Overall, sales in the athletic footwear industry remain stable throughout the ye
ar. The global variance in our market balances the seasonal fluctuations. Typica
l trends in seasonality appear for spring apparel, the back-to-school season, an
d the Christmas holiday season.
Industry Cyclicality
In fiscal year 1999, the economy was relatively favorable for footwear manufactu
rers. The footwear industry and its profitability are closely tied to economic c
ycles. Modest inflation, low unemployment, and a booming stock market will all c
ontribute to healthy consumer spending.
The theory behind the slowdown in sales is that growth in athletic footwear and
apparel is cyclically sensitive to the Olympics. Historically, years of the Olym
pic Games have demonstrated surges in growth followed by difficult sales periods
. The outlook for increased sales trends is optimistic due to the upcoming Olymp
ic Games slated for this year. Nike can also look forward to a boost in demand f
rom the World Cup events.
Industry Entry and Exit Barriers
Entry Barriers
The athletic footwear industry is a very competitive and mature market. The lead
ers of this industry are very well established. Leaders like Nike and Reebok hav
e made the industry what it is today. Consequently, long-time competitors like S
aucony and K-Swiss have been struggling for years just to keep their brands aliv
e. This cutthroat environment has hindered the entry of new competitors.
Economies of scale also contribute to the lack of newcomers into this market. In
order to have an edge over the leaders, companies must be able to compete at al
l levels such as reasonable pricing, efficient production, and high product qual
ity. These things are difficult to achieve without the resources of an establish
ed manufacturer.
Another key barrier to entry is the access of traditional distribution channels.
When combing the shelves at stores like Sports Authority and FootLocker, it is
evident that the leaders dominate the shelves. Lesser-known brands are viewed by
retailers as being too risky to replace an established brand name like Nike or
Reebok on the shelf.
These walls seem to be breaking down with the help of the Internet. The costs of
overhead that come along with traditional brick and mortar retail distributors
are being significantly diminished. New entrants are now able to slide into mark
ets without these high startup costs, making it more profitable to begin product
ion.
Exit Barriers
When a company decides to exit from this industry it must be aware of things suc
h as indebtedness and its ability to meet those obligations. A company must also
be cognizant of lawsuits filed by its stakeholders and claims made on any resid
ual assets.
COMPANY ANALYSIS
Strengths and Weaknesses of the Corporate/Business Level
Strategic Managers
Board of Directors - Strength
Nike’s board of directors consists of both management directors and independent
directors. The combination of these two types of directors benefits Nike in that
there is a presence of those directly involved with Nike as well as others indi
rectly involved who bring outside experience, provide another frame of reference
and can assist the overall board in thinking "outside the box." Nike’s board wo
uld be classified as an oversight board, playing an active role with regards to
management’s decisions in the area of strategy formulation.
Board of Directors - Weakness
The average age of Nike’s board is 62, the youngest member being 49 and oldest b
eing 79. This constitutes a possible weakness in that there is a lack of younger
members of the board who could serve to bring a new perspective to the company
and assist in achieving Nike’s goals.
Exhibit 3 Nike, Inc. 1999 Board of Directors*
Thomas E. Clarke
President and Chief Operating Officer, Nike, Inc., Beaverton, OR

Jill K. Conway
Visiting Scholar, Massachusetts Institute of Technology, Boston, MA

Ralph D. DeNunzio
President, Harbor Point Associates, Inc., New York City, NY

Richard K. Donahue
Vice Chairman of the Board, Lowell, Massachusetts Delbert J. Hayes, Newberg, OR

Douglas G. Houser
Assistant Secretary, Nike, Inc., Partner – Bullivant, Houser, Bailey, Pendergras
s & Hoffman Attorneys, Portland, OR

John E. Jaqua
Secretary, Nike, Inc., Partner – Jaqua & Wheatley, P.C. Attorneys, Eugene, OR
Philip H. Knight
Chairman of the Board and Chief Executive Officer, Nike, Inc., Beaverton, OR

Charles W. Robinson
President, Robinson & Associates, Santa Fe, NM

A. Michael Spence
Dean, Graduate School of Business, Stanford University, Palo Alto, CA

John R. Thompson, Jr.


Former Head Coach, Georgetown University, Washington, D.C.

William J. Bowerman
Director Emeritus

* Nike, Inc. 1999 Annual Report


Top Management - Strength
Co-founder, Philip H. Knight, has been with Nike since its inception. As a resul
t, he has much knowledge and experience about the company and the industries in
which it competes. Knight’s strategic planning managerial style serves as a stre
ngth in that his actions are planned and calculated, allowing for both risky and
conservative decisions based on careful thought and analysis. His participative
decision-making style can also be viewed as a strength such that Knight is will
ing to listen to others to generate ideas. He does not limit the company’s optio
ns to one-sided ideas and decisions.
Environmental Analysis
Internal – Strength
Nike’s management analyzes its internal environment and makes decisions based on
that analysis. Because of Nike’s marketing research, the company has decided to
revamp its apparel division to be more fashion savvy. As a result of product an
d pricing research, Nike has decided to continue to focus on the high end market
while increasing its market share in the middle and low price ranges in an atte
mpt to broaden Nike’s product spectrum.
External - Weakness
Nike’s failure to foresee problems in relation to labor and factory conditions a
t production locations has resulted in bad publicity and declining sales as soci
ety and consumers call for more "socially responsible" companies.
Strategy Formulation
Mission - Weakness
Nike s Corporate Mission Statement:
"To be the world s leading sports and fitness company."
Nike’s mission statement resembles a vision statement and is therefore a weaknes
s. While the mission does broadly identify the business we are in, namely the sp
orts and fitness industry, it is not specific as to what products and services w
e provide. The mission statement also omits any mention of distribution channels
and customers. It does, however, portray management’s beliefs and values of our
desire to be number one and maintain the leading position in the sports and fit
ness shoe and apparel industry.
Corporate Objectives – Weakness
Nike has no published corporate objectives in relation to the overall company. T
his lack of corporate objectives represents a weakness. Stakeholders should be w
ell aware and informed of a company’s corporate objectives to better understand
the nature of the company and its direction.
Nike has established corporate objectives in relation to our perceived corporate
responsibility. Our objective is to "lead in corporate citizenship through prog
rams that reflect caring for the world family of Nike, our teammates, our consum
ers, and those who provide services to Nike." This corporate objective represent
s a weakness as it does not meet the two requirements of being measurable and ha
ving a time frame in which to complete or accomplish said objective. Nike’s obje
ctive is immeasurable and broad lacking any time specifications for implementati
on of programs to meet this objective.
Grand Strategies - Strength
For our grand strategy, Nike utilizes innovation to produce top quality athletic
footwear and apparel. As a result of devoting vast resources to the research an
d development of its products, Nike has captured the largest market share in the
athletic footwear and apparel industry and continues to be the leader of qualit
y products.
Competitive Strategies - Strength
The competitive strategy that Nike introduced at the end of the 1990 s concentra
tes on honing the focus of our marketing strategies and product offerings throug
h product differentiation. We realize that the team-mentality that captured the
spirit of athletics in the late 1980 s and early 1990 s has been replaced by a s
ense of individualism. Younger consumers especially, look to extreme sports and
retail outlets such as Ambercrombie & Fitch and Old Navy to find a sense of indi
vidual style. We are responding to this movement in a number of ways. While reta
ining our company s long-standing tradition of placing performance through new-p
roduct development as a top priority, a never-before seen element of fashion wil
l receive a second-place priority built into our products and image. For the 199
9 back-to-school season, we conducted fashion shows in twelve U.S. cities. In ad
dition, an element of individualism is most obvious in our Web site. Customers c
an select the color and design a monogrammed heel-insignia for our made-to-order
athletic shoes.
Strategy Implementation
Corporate Culture - Strength
Nike has created a corporate culture rich with employee loyalty and team spirit.
Red "Swooshes" float across everything from screen savers to coffee cups at the
company s headquarters in Beaverton, Oregon. The company chooses to call its he
adquarters a "campus" instead of an office. Employees are called "players," supe
rvisors are "coaches" and meetings are "huddles." These terms go a long way to m
ake the daily work experience less than dull for the lucky employees in Beaverto
n.
In 1985, thirteen years after the company was founded, Nike was blindsided when
Reebok developed its multicolored aerobic shoes. It was then that we decided to
reinvent our business and culture, becoming highly motivated about selling sport
s and a "Nike way-of-life." With this decision the company also restructured its
marketing campaign, focusing more on an image rather than just product advertis
ing, a strategy which led to the "Just Do It" mantra.
Since then, Nike has been striving towards an inner culture that reflects this m
antra. Employees are given an hour and a half for lunch to play sports or simply
workout. The new Nike is not just about shoes and slam-dunks, but about promoti
ng a lifestyle. All new employees view a video of sports highlights accompanied
by a soundtrack that discusses the soul of the athlete and the competitive spiri
t. In addition, management sends weekly emails to update employees on the recent
successes of Nike-sponsored athletes, and often hosts spokespeople to motivate
and thank its staff for contributions to the sports world. It is not surprising
that an athletic background helps a prospective employee. In keeping with its sp
orts approach Nike asks its players to work by two principals above all others -
- "Honesty first, and competition second. Compete with yourself not your colleag
ues."
Nelson Ferris, a 47 year-old head of its corporate education department states t
hat, "The Swoosh represents something other than just a company. It represents a
whole value system."2 Ferris, a longtime employee, even has a Swoosh tattooed a
bove his ankle. "It stops being a job and starts to become a way that your are d
efining the way your are living on earth."2
Communication - Strength
In late spring of 1999, Nike Retail, Nike s subsidiary consisting of the Nike To
wn shops and employee stores around the world, upgraded their hardware and softw
are. Our former technology offerings consisted of IBM 4690-series point-of-sale
cash registers running on the OS/2 operating system. We have upgraded to PC-base
d systems running the more sophisticated Windows NT operating system. The softwa
re we have been using for the past few years called, Connect: Remote, made by St
erling Commerce Inc., is also being upgraded to the new operating platform. Corp
orate office communications capabilities with these branch locations will be imp
roved dramatically. Sales and inventory data can be monitored in real-time. Elec
tronic journaling, credit authorization, and sales reconciliation processing-eff
iciency will increase due to the addition of in-store databases. Modems transmit
ting data at 56K BPS, or even with digital technology, will replace the 9600 BPS
modems and provide for quicker processing times. All of these innovations will
allow executives at the corporate office and in other branches to better manage
operations.
Leadership - Strength
Nike’s top management’s leadership style can be characterized by the team manage
ment approach. Top management consists of a committed group of executives all br
inging together vast experience and knowledge. The group is team oriented, but i
s capable and does work independently recognizing the common stake that each pla
ces in Nike. This style of leadership leads to relationships of trust and respec
t. The company culture lends a hand to the fact that top management’s teamwork s
tyle has spread throughout the organization.
Motivation - Weakness
While Nike employees have been loyal and committed workers, after the cost-reduc
tions that took place in the fourth quarter of 1998 resulting in a reduction of
the number of employees, we have had to place greater emphasis on motivation amo
ng the retained employees. Morale also fell as a result of bad media coverage ov
er reports of substandard working conditions for our Asian factory workers. Whil
e initiatives have been set to increase overall employee morale, this area remai
ns a challenge to the company.
Strategy Control
Establishment of Standards - Strength
A comprehensive establishment of profitability standards has assisted Nike in ou
r evaluation of individual performance as well as a comparison to other competit
ors. Nike utilizes standards such as net profit, earnings per share, return on i
nvestment, return on equity, sales growth and asset growth. Performance standard
s are also established and checked regularly. Some of the areas in which our com
pany has established standards are productivity of productions sites, competitiv
e position in the United States relative to the global market, technological lea
dership in comparison to competitors and overall social responsibility and the p
ublic’s perception.
Evaluation of Performance - Strength
Nike thoroughly examines and compares the aforementioned performance standards t
o the actual results that have occurred as a result of implementing strategies t
o meet or exceed performance standards. These standards are important to Nike as
a comparison of past performance to present performance as well as in our attem
pt to forecast future results in these areas.
Correction of Deviation - Strength
Though Nike has established profitability and performance standards, correction
of discovered deviations has been a slower and less timely process. Management’s
slow response time can be attributed to the careful analysis that is performed
prior to making any decisions. While in general this is a good policy to abide b
y, at times Nike would be better served by a management team that can react more
quickly to given information.
Strengths and Weaknesses of the Functional Level
Marketing
Market Share - Strength
Nike’s global market share was an impressive 30.4% in 1998. Despite a slight dec
line from prior years, Nike continues to have the greatest market share in the U
.S. branded athletic footwear market. In 1998, the closest competitor, Adidas, h
eld 15.5% of the market share while Reebok held 11.2%. The remaining competitors
, including Fila, Timberland, Asics, Converse, and New Balance, among others, ea
ch hold approximately 3-5% of the remaining market share. While Nike’s market sh
are is still in the lead, it is expected to increase with new products. Nike’s m
arket share is expected to do especially well as a result of sponsoring the summ
er Olympics in 2000 in Sydney, Australia, the 2002 World Cup in Japan and Korea,
and the U.S. Speedskating team in the 2002 Winter Olympics in Salt Lake City, U
tah.
Distribution through E-commerce - Strength
Nike has taken the lead in e-commerce by being the first to market with its e-co
mmerce web-site. Nike launched its e-commerce site in April 1999 by offering 65
styles of shoes to the U.S. market for purchase. Nike increased its e-commerce p
resence by launching NIKEiD in November 1999. NIKEiD enables online consumers to
design key elements of the shoes they purchase. The program represents the firs
t time a company has offered mass customization of footwear. Nike’s future plans
include opening an online shop for the Japanese market next year followed by gl
obal rollout. By being the first to market, Nike enables itself to become establ
ished while competitors rush to join us.
Advertising and Promotion - Strength
Nike’s brand images, including the Nike name and the trademark Swoosh, are consi
dered to represent one of the most recognizable brands in the world. This brand
power translates into bottom-line revenues. The Nike name and associated tradema
rks have appeared everywhere from players shirts, pants, and hats to stadium ba
nners and walls. Aggressive advertising campaigns, celebrity endorsements, and q
uality products enhance the brand. Nike demonstrated an example of Nike’s brand
presence at the 1999 NCAA Basketball tournament when 42 of the 64 teams particip
ating wore shoes provided. Nike s most recent brand-building endeavors are focus
ed on strengthening our association with women’s sports. Some examples are our s
ponsorship of the 1999 Women s World Cup Soccer Tournament and our sponsorship o
f the U.S. Speedskating team in the upcoming 2002 Winter Olympics.
Products - Strength
Though Nike leads the apparel division among industry competitors, Nike has not
claimed to be leading the race among the apparel industry as a whole. Due to inc
reased emphasis by consumers on fashion in relation to sportswear, we have had t
o make strides to appeal to a fashion savvy market. Our apparel line is not only
being challenged by our typical industry competitors such as Adidas and Reebok,
but also by clothing and accessories retailers such as Old Navy and Abercrombie
& Fitch. Continuous marketing research could prove to be key in assessing the m
arket. Nike is planning on initiating five structures within the apparel divisio
n to focus on the following areas:
o Women
o Men
o Kids
o sports graphics and caps
o strategic response independently
We are also spending more time on continuing to support and develop programs to
gain a better understanding what our customers would like to see in the market.
Products - Weakness
Nike has had much success as a result of collaborating with other companies with
in the sports and fitness industry. However, at times we expanded into markets f
or which we were not strategically suited. An example is the decrease in brands
made available due to declining sales of in-line skating and roller hockey produ
cts at Bauer Nike Hockey. As a result, we have had to exit two manufacturing ope
rations at our Bauer Nike subsidiary. We had to terminate 51 employees. Had we a
nticipated the decline sooner, perhaps gradual changes could have been made so t
hat the end result may not have been as finite in nature. The desire to prevent
situations such as these from continuing to occur, we have initiated a more aggr
essive program to review product collaborations that are outside of our core bas
is of products.
Pricing - Weakness
In general, Nike’s products are considered to be of higher quality and as a resu
lt have higher prices relative to our competitors. While the prices are realisti
c given the nature of the products we offer to our consumers, at times our consu
mers may not agree. This presents a weakness. To mitigate any future problems in
our high quality/high price lines, we are placing a renewed emphasis on emergin
g technology and innovation towards the development of new products, specificall
y the Nike Alpha Project, a revolutionary new line of athletic shoes. Despite th
e fact that in the past we may have overlooked the mid- to lower-price-point pro
ducts, presenting another weakness with room for improvement, we are dedicating
our time and money to better develop our competitive position at all price point
s to build strengths at each of these levels. We see much potential in the lower
price points and plan to meet the needs of those markets.
Marketing Research - Strength
Nike primarily conducts marketing research on a continual basis to assist in mai
ntaining our company’s position as the leader in the athletic footwear and appar
el industry. Because of such research, we have decided to revamp our apparel div
ision, an area in which we can still greatly improve. Nike will be organizing th
e internal business by gender as opposed to sport category and conducting increa
sing amounts of research addressing the buying habits of men, who tend to be ite
m-driven, and women, who tend to be collection-driven, with specifically targete
d product lines.
Production
Location of Facilities - Strength
Nike’s facilities are located throughout Asia and South America. The locations a
re geographically dispersed which works well in our mission to be a truly global
company. The production facilities are located close to raw materials and cheap
labor sources. They have been strategically placed in their locations for just
this purpose. In general, the facilities are located further from most customers
, resulting in higher distribution costs. However, the cost savings due to the p
lacement of our production facilities allows for cheaper production of our produ
cts despite the higher costs of transporting our products. As Nike continues to
expand in the global economy and increase its market throughout the world, these
dispersed facilities will prove to be beneficial.
Newness of Facilities - Weakness
Our facilities abroad have attracted bad publicity in recent years. Though our f
acilities comply with local labor standards, generally, they have not met U.S. s
tandards. We want to be a leader and set a responsible corporate example for oth
er businesses to follow. As part of Nike’s new labor initiative, we commit to:
o Expanding our current independent monitoring programs to include non-gov
ernmental organizations, foundations and educational institutions. We want to ma
ke summaries of their findings public;
o Adopting U.S. Occupational Safety and Health Administration (OSHA) indoo
r air quality standards for all footwear factories;
o Funding university research and open forums to explore issues related to
global manufacturing and responsible business practices such as independent mon
itoring and air quality standards.
While establishing these policies is a step in the right direction for Nike, the
difficult task at hand will be the implementation of the aforementioned goals t
o ensure the success of the program.
Research and Development
Focus - Strength
Although Nike conducts continuous, basic research that benefits numerous facets
of the sports and fitness industry, our primary focus is directed towards applie
d research. Applied research focuses on short-term initiatives such as successfu
lly developing new product lines. This proves to be a strength in that this meth
od of research is less costly than basic research, and less risky due to the sho
rt-term nature. Successful projects can realize immediate profitability while un
successful projects may be discontinued without enduring materially large losses
.
Focus – Weakness
Focusing on applied research can be a weakness as well. Many new, innovative ide
as come into existence as a result of basic, unspecific research. Though more ri
sky and expensive, Nike would benefit from increasing the amount of basic resear
ch we conduct with hopes of uncovering potential opportunities of which Nike cou
ld take advantage.
Posture - Strength
Our posture is primarily innovative, while at times adjusting to a protective po
sition, and other times a catch-up stance. Nike prides itself on being a premier
e provider of high quality sports footwear and apparel. Innovation has been the
key to aiding Nike in securing its position as the leader in the market. Due to
the lead Nike possesses in the industry, we can afford to look long-term and pla
ce a greater emphasis on innovation as opposed to other companies with a short-t
erm outlook attempting to improve upon existing products and services. At times,
we need to adjust our posture in relation to a particular product line or area
of products. In these instances, Nike may choose a defensive strategy to remedy
the current situation. We may also choose a catch-up strategy and mimic what is
working well for other companies in the industry.
Human Resources
Human Capital - Weakness
No successful company can exist and succeed without utilizing its human capital.
While Nike has had various policies in place, weaknesses still exist in regards
to labor policies in overseas locations. We received much bad publicity as well
as experienced a decrease in sales as a result of poor labor policies and lack
of policies established abroad. Because of this and Nike’s goal to be a responsi
ble citizen of the corporate world, Nike has committed to goals to better the pr
oblems as part of the aforementioned labor initiative:
o Increasing the minimum age of footwear factory workers to 18, and minimu
m age for all other light-manufacturing workers (apparel, accessories, equipment
) to 16;
o Expanding education programs, including junior and high school equivalen
cy courses, for workers in all Nike footwear factories;
o Increasing support of its current micro-enterprise loan program to 1,000
families each in Vietnam, Indonesia, Pakistan, and Thailand.
While establishing these policies is a step in the right direction for Nike, the
difficult task at hand will be the implementation of the aforementioned goals o
f the new labor initiative to ensure the success of the program.
Public Affairs
Ethics – Weakness
Accusations of unethical behavior, whether or not they are true, only serve to i
njure Nike’s image, and, as a result, product sales. One such example of questio
nable behavior relates to Vietnam and the trade embargo placed on the communist
country as a result of United States POWs/MIAs. In 1993, United States President
, Bill Clinton, promised to keep the embargo in place until the U.S. received an
accurate picture of the situation. However, two years later President Clinton n
ormalized trade relations to the dismay of the POW/MIA families involved, yet to
the delight of the corporations operating in Vietnam. White House documents hav
e revealed large donations to the Democratic National Committee by companies wit
h an interest in seeing the embargo lifted. The author of the article, "Nike’s D
irty Little Secret," alludes to the fact that Nike was present on this list. The
image of profitability being more important than American POW/MIAs has led to a
n unfavorable image with armed forces, families and Americans as a whole. This,
combined with the "sweatshop" operations in Nike facilities in Vietnam and other
countries, has negatively impacted Nike’s image. While the worst is over, Nike
is still working on initiatives to change the current situations throughout fact
ories. Whether true or not, the company still suffers from this unethical image
and must sway the minds of the consumer and give them a renewed faith in the res
ponsibility of Nike.
Social Responsibility - Strength
In response to accusations by consumer groups over unfair labor practices, Nike
has developed a Corporate Responsibility Policy that discusses how we will impro
ve working conditions for our international employees. The Policy outlined on ou
r web-site has the following mission, "To lead in corporate citizenship through
operations that reflect caring for the world family of Nike, our teammates, our
consumers, and those who provide services to Nike." The policy includes, but is
not limited to, the following initiatives: raising age limits in factories to 18
years, securing independent monitoring for our factories, extending a commitmen
t to the environment, improving safety and health conditions, and developing pro
grams to provide educational programs. The policy shows Nike’s commitment to res
ponding to the concerns of consumers, as well as a commitment to our employees a
round the world.
Finance/Accounting
(For the following, see Exhibit 4, Table of Key Financial Ratios on page 22)
Management of Cash - Weakness
Our company’s current ratio is 2.26, just slightly below the industry average of
2.28. The current ratio, while not a major strength, shows that Nike is inline
with the industry concerning ease of converting assets to cash to cover short-te
rm obligations. The quick ratio of 1.43 is above the industry average of 1.17. B
eing slightly above the industry indicates that we could sell less of our invent
ory than what other companies in the industry would have to sell to meet current
obligations. Neither the current or quick ratio exceeds the industry average su
bstantially enough to be considered a true strength. The fact that we are not le
aders is ultimately a weakness.
Management of Inventories - Strength
Nike’s inventory turnover of 7.32 exceeds the industry average of 4.34. Reducing
inventory levels was a key initiative for Nike in fiscal year 1999. Due to our
ability to quickly turnover inventory, Nike benefits from greater cash flows, re
duced storage costs, and less spoilage. In addition, quick turnover reduces Nike
’s inventory of out-of-style shoes and clothing. Company management stated, "We
put a considerable amount of effort into improving product buying power patterns
and as a result the composition and levels of inventory resulted in improved gr
oss margins relative to a year ago." Inventory levels are being reduced due to i
ncreased sales in the company s own branch retail stores.
Management of Accounts Receivable - Weakness
Nike does permit sales in cash, cash equivalents and on credit. Our collection p
rocedures have been lax compared to others in the industry resulting in slow pay
ers and defaulting customers. Our collection period calculates to 63.17 days whi
le the industry average is only 7.71 days. Steps are being taken to alleviate th
e problem of collecting accounts receivable in a more timely fashion. We have ju
st recently changed our collection period from 90 days to 60 days as an attempt
to encourage faster payment.
Management of Debt - Strength
Our debt-to-total-assets ratio is 15.36%, which is far below the industry averag
e of 40.69%. Nike is not as leveraged as competitors in the industry and uses le
ss debt financing to finance firm operations. This can be interpreted as a stren
gth as we do not rely as heavily as our competitors on debt financing. However,
our highly liquid position gives us the ability to increase debt financing shoul
d we need or desire additional capital for company operations, research and deve
lopment, or other changes as top management sees fit.
Management of Debt - Weakness
Despite the lower percentage of assets that are borrowed to finance Nike, our ti
mes interest earned ratio is weaker than the industry average. Our ratio of 19.4
3 reflects the number of times funds available from earnings can cover interest
payments. The industry average of 21.88 indicates that the industry as a whole i
s in a slightly better position to cover its interest charges.
Profitability - Weakness
Nike’s profitability is wavering in comparison to the industry average. Our prof
it margin of 5.14% to the industry’s 5.69% is partially due to decreasing sales.
Though net income did increase from 1998 to 1999, this was in part due to a red
uction of our marketing budget by $100 million and terminating 7% of our employe
es. Our return on equity of 13.54% in relation to the industry mean of 18.77 ind
icates that Nike is realizing a lower percentage of earnings on stockholders’ in
vestment. Nike’s low ROE can be linked to the dropping stock price as a reflecti
on of stockholder confidence in our company.
Exhibit 4 Table of Key Financial Ratios
RATIO: Formula: Calculation :
(in millions) NIKE: Industry :
Liquidity Current Current assets/current liabilities 3264.9
1446.9 =2.26 times =2.28 times
Quick/acid test Current assets-Inv./current liabilities 3264.9-1199.3
1446.9 =1.43 times =1.17 times
Activity Inventory turnover Sales/inventory 8776.9
1199.3 =7.32 times =4.34 times
Collection period Accounts Rec./Average sales per day 1540.1
8776.9/360 =63.17 days =7.71 days
Total assets turnover Sales/total assets 8776.9
5247.7 =1.67 times =1.69 times

Leverage Debt to total assets Total debt/total assets 806.2


5247.7 =15.36% =40.69%
Times interest earned Net operating income/Interest expense 856.8
44.1 =19.43 times =21.88 times
Profitability Profit margin Net income/net sales 451.4
8776.9 =5.14% = 5.69%
Return on Equity Net income/net worth 451.4
3334.9 =13.54% =18.77 %
Distinctive Competency
Nike’s distinctive competency lies in the area of marketing, particularity in th
e area of consumer brand awareness and brand power. While the reasons that Nike
is successful in marketing our products are numerous, this key distinctive compe
tency towers over our competitors. As a result, Nike’s market share is number-on
e in the athletic footwear industry. Catch phrases like, "Just Do It," and symbo
ls like the Nike "Swoosh," couple with sports icons to serve as instant reminder
s of the Nike empire.
Two key attributes of a distinctive competency are its inability to be easily re
plicated and the value or benefit it offers to consumers. As Nike becomes a more
integrated part of American and world culture, our brand power becomes increasi
ngly difficult to replicate. The premise of a trademark and a slogan is that the
y are a company’s fingerprints. Nike is able to capitalize on its unique identit
y due to our industry-leading financial strength. Nike reaches millions of consu
mers through large-scale marketing campaigns made possible by significant budget
ary appropriations. Few companies have such a recognizable image and the resourc
es to promote it. This ultimately translates into added value for consumers. The
public benefits from the strength of Nike’s image at the point of purchase. For
decades, consumers have come to associate the Nike image with quality products.
By associating star athletes and motivational slogans like, "Just Do It," with
marketing campaigns that emphasize fitness, competition, and sportsmanship, cons
umers identify their purchases with the prospect of achieving greatness. Younger
consumers especially benefit from this positive influence. This image is someth
ing that competing companies can not easily duplicate by simply enhancing the ph
ysical characteristics of their products.
Key Weakness
The key weakness of Nike, Inc. resides in our financial status. While we are not
in financial trouble, we recognize that strengthening the financial well being
of the company can only assist our company in the short- and long-run. We have m
any areas challenging our continued success such as increasing our profitability
and bettering our management of cash, accounts receivable, and debt. Nike suffe
red a blow to sales and revenue sparked by bad publicity in 1997 about our inter
national labor policies. Since then, we have attempted to overcome the bad press
by raising and enforcing minimum age requirements for employees in overseas fac
tories. Nike attempted to regain its mid-90 s momentum as shown in 1998’s recove
ry, but the loss of Michael Jordan as our spokesman and the Asian financial cris
is put a damper on gains that year. During 1999, the company made some changes i
n its products and deeply cut costs. These initiatives, in addition to the stabi
lization in the Asian financial picture, will combine to fuel the recovery that
Nike expects in the near future. Nike s recent alliance with Fogdog Sports, an I
nternet sporting goods retailer, and our presence in the 2000 Sydney Olympic gam
es will also aid in sales growth.
Exhibit 5
* Nike, Inc. 1999 Nike Annual Report
As a result of reducing our marketing budget by $100 million and eliminating 7%
of our employees, Nike’s net income has increased for fiscal year 1999. In fisca
l year 1998, the company incurred a one-time restructuring charge to better alig
n our overall cost structure and planned revenue levels.
Overall, Nike is recovering from a large decline in 1997’s numbers. As noted abo
ve, the labor controversy has been the biggest factor in the changes shown.
Competitors can exploit our financial weakness by emphasizing their own individu
al strengths and attempting to gain greater shares in the market while we are re
vamping processes from within. This could be a key time during which other compa
nies in sound financial condition, such as Adidas, could utilize their resources
in an attempt to overshadow our existing and new product lines.
INDUSTRY ANALYSIS
Opportunities
• The athletic footwear and apparel industries will benefit from the curre
ntly strong economic backdrop in the United States. Spending is high and is expe
cted to result in sales growth industry-wide.
• Athletic shoes and apparel have become a staple in wardrobes worldwide.
This is due to both the increasing numbers of people exercising and the trend to
wards casual apparel.
• Competition is fierce at all levels in within the industry, especially a
mong the leaders. This creates a sense of security for the companies that have b
een able to create a niche.
• Cost cutting due to restructuring of operations will give many companies
the chance to price products more competitively.
• One area in the industry that is ever changing is research and developme
nt. The strong departments will surely capitalize on the trends of tomorrow if t
heir efforts are successful.
• Increasing financial recovery in overseas markets proves to be an area o
f expansion for the athletic footwear and apparel industry.
• E-tailing, or customer-designed internet merchandise, is threatening the
traditional distribution channels, thus eliminating the "middle-man" distributo
rs and allowing for increasing profitability.
Threats
• The industry has reached a level of maturity. While style and technology
in athletic apparel and footwear has reached a leveling-off point, the importan
t aspect now is for companies to differentiate their lines.
• Inflation is looming over the U.S. economy, which may spark a cutback in
consumer spending.
• Consumers are becoming savvier and may lean towards discounted items.
• In terms of market saturation, many of the key manufacturers in this ind
ustry have been around for many years. Consumers may be scanning the market for
new and different footwear and apparel products.

TOP COMPETITOR ANALYSIS


Distinctive Competency - Marketing (Consumer Loyalty)
Despite the tough times Reebok has recently come upon, reasons for optimism rema
in. Reebok has managed to hold the loyalty of a large portion of the industry’s
female consumers market. While Reebok’s spending on advertising has fluctuated,
individual product designs have come and gone, female consumers have, as a group
, remained loyal to Reebok and their products.
Can Reebok use this distinctive competency to inflict damage on Nike?
Yes, Reebok can use their distinctive competency to wound our company. If Reebok
can expand their appeal to incorporate female consumers who are not currently R
eebok customers, Reebok could expand their market share and take customers away
from Nike products.
Can Nike protect itself against this threat?
Yes, we can protect our market share among female consumers within the industry
by targeting some of our promotions to female consumers. Nike’s sponsorship of t
he 1999 Women’s World Cup Soccer Tournament was a great example of how Nike is a
ppealing to female athletes.
Competitor’s Key Weakness – Marketing – (Advertising/Promotion)
The leading cause of Reebok’s recent tumbles stemmed from problems relating to p
oor marketing. Reebok’s shortcoming in the area of marketing is their key weakne
ss. While other athletic shoe companies bombard the airwaves with commercials pu
shing their product lines, Reebok remains out of sight and out of mind. While Re
ebok’s competitors are known by familiar slogans like Nike s "Just Do It," Reebo
k’s, "Are You Feeling It," does not equate to their brand name in the eyes of mo
st consumers.

Can Reebok’s key weakness damage their competitive position?


Yes, Reebok’s chances of growing their market share are slim as long as their ad
vertising endeavors remain to be so unsuccessful. For Reebok to rebound from the
ir current economic woes, they will have to improve the quality of their overall
marketing operations.
Can Nike take advantage of our competitor’s key weakness?
Yes, Nike can take advantage of Reebok’s marketing woes by doing one of the thin
gs we do best: marketing. Continuing our successful marketing programs should al
low Nike to court the customers Reebok fails to draw in with their weak marketin
g initiatives.
OTHER EXTERNAL FORCES
Demographics
Opportunity
Nike s once loyal market is currently aging. This means that our customers are n
ot as athletic as they may have been in the past. However, this poses as an oppo
rtunity for Nike because they have the ability to influence the next generation
of Nike customers. The older generation of Nike brand purchasers have the power
to influence their children - part of the next generation of Nike loyalists. In
addition, by marketing different types of shoes to this market, these existing c
ustomers will continue to be loyal to Nike.
Threat
The phenomenon of the aging of our most loyal market segment questions whether t
here is a threat that the new generation will not be exclusively loyal to Nike.
In the current market there are a number of other competitors that are not mainl
y athletically oriented. Examples include such manufacturer-retailers as The Gap
and Old Navy. Their clothing and shoes are competing with Nike s. In addition,
Nike is not keeping up with the latest trends and styles like some of its compet
itors have been. For that reason, the newer generation is attracted by Adidas an
d Tommy Hilfiger.
Pressure groups
Opportunity
An opportunity produced by pressure groups is the ability to react in a positive
manner to concerns of the public as well as customers. Consumer watch groups ar
e paying especially close attention to Nike s use of sweatshops and child labor
to produce our products. Nike s opportunity lies in being able to show the consu
mer force that we are indeed taking steps to reduce and eventually eliminate swe
atshops and child labor through new policies and strict implementation procedure
s. Also, by responding to such consumer activism, we are portraying a positive i
mage in that we are promoting ethics even while we are trying to be efficient an
d economical.
Threat
In the same manner, not responding to these consumer activist groups poses a thr
eat to Nike. The negative publicity that Nike has received thus far has lowered
its image to that of being an ethical company. Such publicity has the potential
to ruin a company permanently. By disregarding the voice of concerned citizens,
we are disregarding our customers, one of our most important stakeholders.
KEY OPPORTUNITY
The key opportunity for Nike, Inc. currently is the booming economy of the Unite
d States. Currently the company has the ability and the resources to exploit thi
s opportunity. Nike has capitalized on the recent economic boom with higher sale
s and income. However, we are not using our resources to the fullest degree. The
re are currently many areas in which Nike is not paying attention. We have not c
atered to a large portion of the new generation that demand the latest trends an
d styles. Also, Nike must take into account the changing demographics in this co
untry. There is a much higher proportion of Hispanics, Asians, and African Ameri
cans than there was before. These groups have somewhat different tastes that Nik
e should be able to satisfy.
To exploit this opportunity, Nike needs to focus on who the next generation of l
oyal customers will be and cater to their needs. In addition, the world economy
is recovering currently, which allows Nike to make an impression in foreign mark
ets as well. Nike is strong in many foreign countries, but we need to focus on t
he younger market of consumers. Nike has been doing a great deal of research and
development, but if we want to keep the lead in market share, we must look at t
rends while maintaining our high standards of quality.
KEY THREAT
The key threat for Nike, Inc. is market saturation. The problem is that the athl
etic shoe market is already full of different brands and companies. Now, there i
s very little room for new companies. There is also very little room for new pro
duct innovation and growth of market share for companies like Nike, Inc. Since N
ike is currently holding the lead in the market as far as market share, there is
little room for them to expand. In fact, we must hold onto our market share bec
ause if anything it is ours to lose. Nike, Inc. is now competing with other athl
etic companies as well as companies that just sell clothing or other types of sh
oes. If all of these other companies merely gain a small percentage of the marke
t, Nike will be one of the main companies to start losing market share.
In response to this threat, we would focus on keeping our market share and makin
g sure that competitors like Old Nay do not steal away our market share. We will
do this by focusing our efforts on a broader market. This would include the you
nger generation that is interested in sports as well as extreme sports. We need
to make sure that we not only stay abreast of the athletic shoes market but also
are competitive in the athletic apparel market.
MAJOR AND SUBORDINATE PROBLEMS
Major Problem: Finance
Symptom: Declining stock market price
Causes:
1. Declines in net income of $344M from 1997 to 1999.
2. Declines in sales revenues of $410M from 1997 to 199912.
3. Recent declines in market share in the United States.
4. Operating in a mature market with minimal opportunity for growth.
Subordinate Problem: Strategy Formulation, Competitive Strategies
Symptom: Loss in market share for shoes and apparel to non-traditional athletic
companies (e.g. Old Navy).
Causes:
1. Poor management foresight in predicting consumer and fashion trends movi
ng away from athletic shoes.
2. Cyclicality in footwear and apparel industries.
3. Nike’s product offerings are limited to athletic footwear and apparel.
Subordinate Problem: Marketing
Symptom: Drop in sales revenues in 1999 from 1998.
Causes:
1. An over reliance on Michael Jordan as a central marketing figure, his de
parture caused a decline in sales.
2. Recent marketing campaigns are vague, focusing on relating Nike to a non
-related item. Poor reception of these ads by consumers.
Subordinate Problem: Public Affairs
Symptom: Public outrage over manufacturing and labor practices.
Causes:
1. Underage employment in foreign operations discovered by consumer watch g
roups.
2. Poor work environments in foreign operations reported in the national me
dia.
3. Foreign wages paid are considered unjust when compared to U.S. wages.
Why Finance?
We choose finance as our major problem because continuing success for Nike is ba
sed on our ability to generate future cash flows by producing higher revenues an
d net income. Future positive cash flows are required to invest in research & de
velopment, marketing campaigns, and capital improvements required by our product
ion activities. This choice is also consistent with finance being identified as
our company’s key weakness (see page 23). Additionally, financial performance ef
fects the public perception of Nike in the marketplace. For these reasons, we ch
ose finance as our major problem.
STRATEGIC MATCH
Leverage
Strength: Opportunity:
Ý Effective Marketing Ý Recovering International Economies
Constraint
Weakness: Opportunity:
Ý Declining Profitability Ý Robust Economy
Maintenance
Strength: Threat:
Ý Largest Market Share Ý Market Saturation
Vulnerability
Weakness: Threat:
Ý Poor Competitive Strategy Ý Changing Demographics
PRIMARY STRATEGIC MATCH POSITION
Business Strength/Competitive Position Matrix
Exhibit 6 Against Adidas Against Reebok
Success Factors Weight Rating** Score Rating** Score
1. Market Share .07 5 .35 4 .28
• Breadth of Product Line .10 5 .50 3 .30
• Sales Distribution Effectiveness .06 4 .24 3 .18
• Price Competitiveness .10 3 .30 2 .20
• Advertising Effectiveness .14 5 .70 3 .42
• Facilities location and newness X* X X X X
• Production Capacity .04 5 .20 4 .16
• Relative Product Quality .10 4 .40 3 .30
• R & D position .18 4 .72 3 .54
• Caliber of top management .03 5 .15 4 .12
• Customer Service X* X X X X
• Experience Curve .05 5 .25 4 .20
• Corporate Culture .05 5 .25 3 .15
• Profitability Ratios .08 5 .40 4 .32
TOTAL 1.00 4.46 3.17
* X means that the criterion is not applicable
** 1 means that the firm’s competitive position is very weak
5 means that the firm’s competitive position is very strong
Exhibit 7 Industry Attractiveness Matrix
Evaluation Criteria Weight Ranking Weighted Score
1. Industry Growth .08 2 .16
• Size .06 4 .24
• Profitability .06 2 .12
• Cyclicality .03 3 .09
• Seasonality .03 3 .09
• Entry/exit barriers .01 2 .02
• Customers .05 4 .20
• Competitors .08 2 .16
• Suppliers .06 3 .18
• Government Regulations .02 2 .04
• Labor unions .02 4 .08
• Demographics .12 3 .36
• Culture .10 2 .20
• Economy .12 5 .60
• Politics .02 4 .08
• Technology .10 3 .30
• Pressure groups .04 2 .08
TOTAL
1.00
3.00
* X means that the evaluation criterion does not apply to the particular industr
y
** 1 means that the evaluation criterion (or the industry condition) is very una
ttractive
5 means that the evaluation criterion is very attractive
Primary Strategic Match Position
Average Business Strength/Competitive Position Index = 3.82
Industry Attractiveness Index = 3.00
Exhibit 8
Business Strength/Competitive Position
High
Average Low
Industry Attractiveness

High

Leverage

Constraint

Average

Low

Maintenance

Vulnerability

THE STRATEGIC PLAN


Mission Statement
Our mission at Nike is to be a company that surpasses all others in the athletic
industry. We will maintain our position by providing quality footwear, apparel
and equipment to institutions and individual consumers of all ages and lifestyle
s. We pledge to make our products easy available worldwide through the use of re
tail outlets, mail order and our company web site. Nike’s management believes th
at our success lies in the hands of our teammates, customers, shareholders and t
he communities in which we operate. We vow to keep this in mind with the executi
on of every decision within our company.
Values Statement
Nike will focus its commitment to all stakeholders by continuing to make strides
towards being a company that sets the precedents in social responsibility. Nike
is continuously making efforts to ensure that all employees and members of its
surrounding communities are treated in a manner that is inline with our mission.
Nike has made many alliances with human rights organizations in an attempt to e
nsure labor rights for employees of the industry overseas. We are committed to t
reating our employees with the utmost respect, which is reflected in our compens
ation and human resource policies. We are also committed to making sound decisio
ns in regards to our environment, resources, and the fight against pollution.
Vision Statement
At Nike, our vision is to remain the leader in our industry. We will continue to
produce the quality products that we have provided in the past. Most importantl
y, we will continue to meet the ever-changing needs of our customers, through pr
oduct innovation.
Alternative Strategic Slogan
Nike…as always, a step ahead of the rest!
Alternative Marketing Slogans
• Nike, try to catch us. (Lisa)
• Give yourself an edge. (Brian)
• For the top athlete in all of us. (Kim)
• Finish First. (Sheetal)
***THE WINNER…Second Place is for Losers (Dan)
Long-Term Corporate Objectives
The following are Nike Inc. s 5-Year long-term corporate objectives:
o Continue our improvement in stockholders return on equity to achieve a
20.0% return in 2004. This would be an increase of almost 6.5% from 1999.
o Increase earnings per share to $2.70 per diluted share by 2004 in an ove
rall effort to bolster the long-term resilience of our stock s value. This would
surpass our 1997 record high.
Short-Term Corporate Objectives
The following are Nike Inc. s short-term corporate objectives for fiscal year 20
00:
o Increase net income to $550 million by the end of fiscal year 2000 in or
der to reach our long-term goals of improved return on equity and higher EPS. Th
is 22% increase from 1999 is realistic in light of combined 1st & 2nd Quarter in
come already 32% higher compared to the same time last year.
o Recover the market price of our stock from its 52-week low of $26.50 per
share on February 8, 2000, to a value that approximates its 52-week average of
$50 per share.
Grand Strategy
Nike Inc. can utilize the complete structured approach to select a grand strateg
y in carrying out the above corporate objectives. The table below concludes that
focusing on product development will allow Nike to continue to build upon our f
ounding tenant that has secured us a position that borders on leverage and maint
enance within the athletic footwear, apparel, and accessories markets. Because N
ike has such a strong history of effective marketing in key global regions, conc
entration is an alternate strategy. Market development is a third strategy for c
onsideration due to Nike s ability to geographically expand our product offering
s. The three strategies are very closely linked. To determine which would prevai
l as our overriding strategic position, four evaluation criteria were weighted a
ccording to each strategy: distinctive competency, culture, timing, and demograp
hics. With a total weighted score of 4.40 product development surpasses second p
lace, concentration, and third place, market development.
Exhibit 9 Evaluating Leverage/Maintenance Strategies -- Structured Approac
h
Evaluation Criteria Weight* Concentration Product Development Market D
evelopment
Rating** Weighted Score*** Rating** Weighted
Score*** Rating** Weighted Score***
1. Distinctive Competency .35 4 1.40 5 1.75 3
1.05
2. Culture .25 4 1.00 5 1.25 4 1.00
3. Timing .20 4 .80 3 .60 4 .80
4. Demographics .20 4 .80 4 .80 3 .60
Total 1.00 4.00 4.40 3.45
* represents the value of the criteria to Nike
** effectiveness of strategic option in terms of its ability to satisfy the crit
eria: 1 = undesirable 5 = desirable
*** (weight) x (criteria)
The core of our business is our products. Producing merchandise that is high in
quality, technologically advanced, and fashionable will allow us to achieve our
corporate objectives of profitability and shareholder value. Utilizing this stra
tegy will also allow us to capitalize on our key opportunity. The global economy
is becoming so strong that by improving our products in order to extend their l
ife cycle we will be making a long-term investment in this financial boom. Our p
roducts will be able to better withstand the risk of passing fads. Incorporating
fashion into our products is one way to achieve this strategy. The two alternat
e marketing strategies will be just as necessary in order to incorporate our pro
ducts into the shopping habits of consumers.
Competitive Strategy
In the past, our company has utilized product differentiation as our competitive
strategy. As our reputation dictates, we will continue to place our emphasis in
this area. Nike has built its business on providing products that rise above al
l others; it has made us the success that we are today.
Nike is known for its technologically advanced products. We are the leaders in t
his area, which allows our products to stand out from the rest. Our focus also a
llows us to maintain a somewhat narrow niche that enables us to effectively capt
ure the needs and wants of our consumers.
Nike will also focus on making a strong effort in price leadership. Our products
in the past have been concentrated in the higher end of the pricing category. W
e will now make an entrance into lower price categories with our quality product
s. This will enable us to capture an even greater hold on market share.
Operational (Functional) Strategies
Marketing Objectives
Long-Term: Increase our market share in the Asia Pacific region from 26% to 30%
by 2004.
Short-Term: Increase our market share in the Asia Pacific region from 26% to 27%
by fiscal year end
2000.
Exhibit 10 Short-Term Strategy
Start Date Completion Date* Budget Savings
Market Research
1. Hire a market research firm familiar with Asia, specifically the booming
market of Japan, to study the buying habits of Asian consumers. Determine what
factors motivate their athletic footwear and apparel purchases.
2. Conduct focus groups in Asia to get feedback on our existing products, a
s well as our prototypes.
Pricing
1. Determine price points for our Asian product offerings that are properly
adjusted for regional buying power, competition, and currency valuation.
Advertising and Promotion
1. Sponsor regional sporting events for professional, amateur, and collegia
te teams. Include sponsorship of the 2002 World Cup in Korea and Japan.
2. Run advertisements in the most popular forms of regional media: televisi
on, newspaper, magazines, billboards, and/or radio.
3. Offer rebates and discounts for certain late-model shoes to encourage sa
les and inventory turnover.
4. Conduct fashion shows at top retail venues to display our latest merchan
dise offerings to consumers and the media.
3/1

3/1

3/1

3/1

3/1

3/1
3/1 5/1

5/1

4/1

5/31

5/31

5/31
5/1 $400,000

$80,000
$5,000,000

$10,000,000

$1,000,000
$100,000
Total 3 months $16,580,000
* completion date based on a 5/31 fiscal year end.
Production Objectives
Long-Term: Decrease our cost of sales from 62.59% of sales to 59% of sales by fi
scal year end 2004.
Short-Term: Decrease our cost of sales from 62.59% to 62% in fiscal year 2000.
Exhibit 11 Short-Term Strategy
Start Date Completion Date* Budget Savings
Location, Newness, and Layout of Facilities
1. Hire independent industrial engineers and analysts to work with manufact
uring facilities in order to maximize efficiency of operations: shop layout, pro
cesses, etc.
Inventory
1. Reduce inventory at all levels of production: raw materials, work-in-pro
cess, and finished goods.
2. Work with 3rd party shipping agents to manage the flow of orders from fa
ctories to distribution centers.
3. Work with suppliers to implement the next generation of electronic data
interchange (EDI) technology in an attempt to achieve just-in-time inventory.
3/1

3/1

3/1

3/1 5/1

5/31
5/31

5/31 $10,000,000
$10,000,000 $30,000,000

$40,000,000
$1,000,000

$20,000,000
Total 3 months $20,000,000 $91,000,000
* completion date based on a 5/31 fiscal year end.
Research & Development Objectives
Long-Term: Maintain a range of R&D expenditures that does not fluctuate more tha
n 1.5% or less than
.75% of projected sales in the next 5 years.
Short-Term: Increase spending on R&D to 1.2% of projected revenues in fiscal yea
r 2000 to achieve
increased market share.
Exhibit 12 Short-Term Strategy
Start Date Completion Date* Budget Savings
Focus
1. Shift funding to applied research in "up-and-coming" sports. Experiment
with cutting-edge fashion.
Budget
1. Infuse new funding, in addition to shifting current budgetary allocation
s, for researching sports that could be popular in the future. 3/1

3/1 5/31

4/1

$15,000,000
Total 3 months $15,000,000
* completion date based on a 5/31 fiscal year end.
Human Resource Objectives
Long-Term: Increase availability of educational assistance programs for world-wi
de manufacturing
employees from 50% of factories to 100% by 2004.
Short-Term: Increase availability of educational assistance programs for world-w
ide manufacturing
employees from 50% of factories to 70% by 2000.
Exhibit 13 Short-Term Strategy
Start Date Completion Date* Budget Savings
Recruitment and Selection
1. Hire factory workers who express an interest in educational programs. Th
ese employees would achieve the maximum benefit from educational assistance prog
rams by being more loyal and productive.
Training and Development
1. Offer general education classes for factory workers who want to learn ho
w to read, write, or fill any gaps in their childhood education.
2. Conduct seminars and workshops for supervisors in factories so that they
may improve their production and management skills.
Compensation
1. Increase salaries of factory workers who are promoted as a result of com
pleting our educational assistance programs.
3/1

3/1

3/1

3/1 5/31

5/31

5/31

5/31

$5,000,000
$3,000,000

$5,000,000
Total 3 months $13,000,000
* completion date based on a 5/31 fiscal year end.
Finance Objectives
Long-Term: Increase net income 70% to $767 million by fiscal year end 2004.
Short-Term: Increase net income 22% to $550 million in fiscal year 2000.
Exhibit 14 Short-Term Strategy
Start Date Completion Date* Budget Savings
Management of Accounts Receivable
1. Implement stricter credit terms with retailers to minimize bad debt expe
nse.
2. Hire 10 additional employees in the corporate Accounts Receivable Depart
ment to maintain and collect aging accounts.
Management of Total Assets
1. Sell non-productive equipment or buildings to reduce depreciation and ma
intenance expenses.
3/1
3/1

3/1 5/31
4/1

5/31
$400,000

$300,000 $20,000,000
$25,000,000

$50,000,000
Total 3 months $700,000 $95,000,000
* completion date based on a 5/31 fiscal year end.
CONCLUSION
Nike, Inc. is a company rooted in competition. From equipping athletes with the
finest sports equipment in the world to continuously improving our own financial
performance, Nike dominates its competitors. Phil Knight and Bill Bowerman prob
ably could not have imagined in 1962 to what degree their $500 investments would
yield in 2000. They did know that product quality and innovation would help ath
letes to achieve greater goals. Nike still operates on this philosophy today. It
is one that has helped athletes and stakeholders alike to realize athletic and
financial greatness. Despite a changing marketplace for athletic footwear, we wi
ll continue to expand our product lines and marketing reach to become a more pow
erful global brand.
Mission statement
To bring inspiration and innovation to every athlete* in the world
* If you have a body, you are an athlete."

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