Chapter 1 Background and Nike Inc.

, an overview

1.1. Sports apparel market in the 20th century and history of Nike

The Fashion segment has always been the subject of continuous development and
extended interest shown by producers, designers and customers alike. Before the 1900’s the
fashion market was focused on creating and innovating attires suitable for social events or
daily activities rather than developing a niche for functional fashion or simply active-lifestyle
apparel. In the 19th Century seeing a woman being part of a sport was a question of her very
femininity. By the end of 1900’s women have had started to seek to increase their physical
fitness through exercise and started being competitive, participating in sporting events.
(http://visforvintage.net/2012/08/03/olympics-sportswear-a-complete-history/,).
The sports industry was mainly designed for men, which led to an earlier development
of masculine athletic gear and thus forcing women to wear inappropriate clothes which often
caused injuries and lowered overall competitiveness. Even though after the creation of
modern Olympic Games, sports was registering a noticeable interest among various social
categories because of the general evolution of the society, the technology behind the athletic
gear was almost inexistent and there were little to none specially designed sportswear brands.
Men were already benefitting from basic types of clothing for each sport, mainly the ones
which qualify as “Olympic Sports” and so the need for more appropriate sportswear rose
from the emancipation of women who started adopting a more active lifestyle and were
finding the pretentious gowns uncomfortable for activities such as tennis or riding bikes.
Throughout the modern Olympics which were at first designed for upper-middle class
Caucasian people, an evolution in sporting garments and gender-equality competitions can be
observed. Along with the increasing popularity of these events, allowing women to compete
as well facilitated the development of brands made exclusively for sports and led to the
creation of a really competitive market.
(https://stillmed.olympic.org/Documents/Reports/EN/en_report_668.pdf,
The suppliers were mainly the general stores and the market share consisted of a
couple of newly founded sports brands such as Reebok (1895), Converse (1908), Puma and
Umbro (both 1924) which, nowadays, are considered pioneers of athletic gear. The strong
connection between sports and athletic apparel which has drawn focus on the niche has
encouraged newly founded brands to consider their main target existing athletes or people

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who were doing sports as a profession rather than as a leisure activity, hence the limited
number of options available.
After the World War II and significant changes in modern society rules and
mentalities, a new industry had emerged focused on being “ready-to-wear”. The home of this
new, yet appealing, industry was United States of America. While European designers were
trying to emphasize beauty and class, this new industry, which featured mostly women
designers such as Claire McCardell and Claire Potter, was focused on practicality, availability
and encouraging self-expression.(Hills, 2002:144)

The emerged context was favorable for this newly-created niche and soon the handful
of brands that are now key players of this market began to rise. Adidas and Asics were both
founded in 1949 and twelve years after a devoted track and field coach starts Blue Ribbon
Sports, in order to improve college athletes’ shoes, which will later be world-wide known as
Nike Inc. from 1971. BRS’s first sales were initially just distributing for the Japanese
producer of Asics. The following years were productive in terms of revenue which facilitated
the opening of their first retail store in Santa Monica, California and later on in 1967 Blue
Ribbon Sports created a presence on the East Coast as well through the store located in
Wellesley, Massachusetts. After 4 years the collaboration between the Japanese company and
BRS ended as the aforementioned crafted their first collection with the addition of the brand
new logo “The Swoosh” first used on June 18 and registered with the U.S Patent and
Trademark Office 3 years later in 1974. (http://www.fundinguniverse.com/company-
histories/nike-inc-history/, ).
Throughout the last quarter of the 20th century, Nike started gaining notoriety by
working with different advertising agencies such as John Brown and Partners or
Wieden+Kennedy who helped create probably one of the internationally known slogans “Just
do it”, inspired by the last words of Gary Gilmore.
(http://www.clarkprosecutor.org/html/death/US/gilmore001.htm, ).
Along with focusing on marketing, Nike registered tremendous market share in 1980
when the company obtained 50% in the footwear market. The company was starting to
extend their product lines in order to include various sports, cultures and religions.
In the 1980s, Nike, supported by successful product launches and convincing
marketing campaigns, experienced quick growth. Soon, the company moved into other
sports, including baseball, tennis, basketball, football, and cross-training. By the 1990s, Nike
had become recognized for its ground-breaking and captivating marketing, including its
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slogan, “Just Do It.” During the 1990s, Nike made further investments in new sports and
athletes, including soccer and the Brazilian National Team, golf and Tiger Woods, and
cycling and Lance Armstrong. Long connected with iconic sportspersons, Nike prided itself
on working closely with leading professionals to develop high-performance footwear and
equipment Nike’s mission was: “To bring inspiration and innovation to every athlete in the
world. If you have a body, you are an athlete.” The firm had revenues of $20.8 billion, over
35,000 employees on six continents, and sales in 160 countries worldwide. The firm
continued to design and sell footwear, uniforms, apparel, and equipment for a wide variety of
sports. Additionally, Nike managed several wholly owned subsidiaries, including Cole Haan,
Converse Inc., Hurley International LLC, NIKE Golf, and Umbro Ltd. Nike operated 690
retail stores worldwide, managed 23.000 retail accounts in the U.S., and worked with
multiple distributors and licensees around the world. (http://news.nike.com/news/nike-inc-
introduces-2015-global-growth-strategy, ).

1.2. Social media presence

After launching its Nike.com website in 1998 and its first sport-specific website,
NikeFootball.com, in 2000, the company started to try out diverse techniques to use the
emerging medium to bond with consumers. Initial efforts were constrained to working with
the up-and-coming media group Gawker and evolving Internet video site YouTube in order
to better identify with consumer’s interactions with brands on the Internet and through social
media.
(https://services.hbsp.harvard.edu/services/proxy/content/37688559/37688602/f8bf1f
67da56da888d1ab7007bae23f8, ).

“Art of Speed” In 2004, before social networking had earned the society’s full
attention, Nike trialed its first social-based marketing movement. Nike teamed up with the
media company and website, Gawker, to initiate a blog, Art of Speed. The blog featured 15
filmmakers Nike had dared to interpret the concept of speed. For 20 days, the blog featured
content about the directors, the short films, and the digital technology used to create the films.
At the time, Gawker had between 400,000 and 700,000 unique visitors each month.
“Touch of Gold” Nike Football, which engaged to the global football (soccer)
market, continued to guide the charge into digital. In 2005, as part of the grounding for the
2006 World Cup, Nike Football collaborated with social network MySpace, gaining 50,000
friends, to become one of the largest brand communities at the time.

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 The Nike Football marketing team also searched for ways to influence social media to
somehow create a buzz around its products and athletes. In September 2005, the group
decided to produce a homemade-looking video featuring global celebrity and Brazilian player
Ronaldinho. The video featured Ronaldinho receiving a new pair of Nike cleats on a playing
field and then kicking a ball back and forth off the goal’s crossbar, over and over again.
While the video had captivating content, the team members were not sure how best to release
it. They thought about a traditional commercial or a link back to the Nike website on their
MySpace page. At the time, Stollak, a digital manager working on Nike Football, had been
building a relationship with the budding video site, YouTube. Stollak suggested uploading
the commercial to YouTube and creating a Nike Football channel on that site. The video,
entitled “Touch of Gold,” received nearly 20 million views in just a few weeks and it became
Nike’s first “viral” video.
(https://services.hbsp.harvard.edu/services/proxy/content/37688559/37688602/f8bf1f67da56d
a888d1ab7007bae23f8, ).
.
“Joga.com” Around the same time, Nike collaborated with Google to create a social
network, Joga.com. The site was launched in February 2006 and tried to use social networks
to emphasize a fun, creative approach to soccer and correlate it with the Nike brand. Stollak
explained, “Joga.com was a custom social network built on the Orkut platform before social
networks were the norm. Focused on football [soccer] and targeted at the football-obsessed
teen.” Nike trusted that visitors would talk about football and the approaching World Cup
online. In five months, the site signed up 1 million members and Joga.com was rolled out in
140 countries and 14 languages. The site hosted an online TV channel, JogaTV, held by well-
known French footballer Eric Cantona. JogaTV starred well-known football stars performing
tricks and other highlights. Along with the stars, users provided content and were able to
generate football analysis. Discussion groups formed that focused on teams and players, and
a variety of video content was created. However, as the site caught the attention of more and
more users, some complained about the site’s design and usability. Furthermore, the
marketing team acknowledged that most of the content was watched by only a small number
of active participants. Immediately following the World Cup, Nike stopped contributing to
and managing Joga.com.
Trevor Edwards, Nike’s vice president of global brand and category management,
concluded, “It was ahead of its time, but we learned some interesting things. We had a great
ramp-up, we attracted a lot of people to the site which affirmed our effort, we had real
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conversations and user-generated content through which we created a community and
learned about our consumers, but after the World Cup we didn’t stay focused on it. We built
this community of a million people and then we just kind of disappeared and let it drift
away”.
(https://learningcommunication.files.wordpress.com/2012/02/nikecasestudy2010.pdf,
).

“Nike+” Almost immediately following the World Cup, in July 2006, Nike revealed a
new partnership with Apple to create Nike+. Nike engineers, remarking the emerging esteem
and recognition of the Apple iPod, came up with a plan to sync an iPod with a user’s running
data. When Nike pitched the idea, Apple CEO Steve Jobs was enthusiastic. Nike brought
people from across the company, counting managers from the apparel, technology, research,
footwear design, and digital marketing departments, and the unit worked closely with Apple
to develop and perfect the technology. Nike+ was made up of a device placed inside running
shoes that monitored the runner’s speed, distance, and calories burned and conveyed that
information to the iPod, which received and stowed the data. The iPod program, which could
be downloaded from iTunes, included a voice prompt that offered distance remaining if a
distance had been set, an average speed, and the ability to queue up a “power song” when an
extra motivation was needed. The data the iPod collected could be uploaded and viewed on
the NikePlus.com website, which could store the data. The platform also offered working out
instructions and the ability to share training advices with friends, both through the website
and on the surface of social networking sites Twitter and Facebook. The sensor was put up
on the market for approximately $30, while the running shoes were close to $80.42. After its
setting up, Nikeplus.com continued to build a strong following. By 2007, the website became
the leading online running destination. In 2008, Nike added further functionality to the online
platform, offering users more precise data, such as a desired day of the week to run, number
of steps per year, and a list of other runners who jogged at a similar pace. As Nike added
features, outside software designers initiated open source projects to help users manage data.
These programs were capable of exporting the data from the iPod. Nike largely sustained
these developments and ideas.
In 2010, Nike increased functionality by adding the Nike+ GPS application, which
permitted runners to map their runs as well as track pace, distance, time and calories burned.
(http://www.nike.com/us/en_us/c/running/nikeplus/gps-app, )

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 “The Grid” Nike+ and Nike Running also started to embrace location-based social
interface. In 2010, the company gave rise to a game called “The Grid,” a citywide running
game that used the streets of London as its gaming platform. Stollak described the effort: It
turned the city of London into a gigantic game board with the aim of re-energizing running in
the U.K. and inspiring people to view running from a whole new perspective. Contenders
were challenged to run to different checkpoints around the capital to receive points. We
amplified the common running experience, creating an immersive layer on top of the run. The
campaign ran on Facebook in May and October of 2010. The Grid is a matchless example of
amalgamating real-world sport performance with digital and social platform to create a
community that is group oriented. Unlike a standard running one-day event, with a set
distance and a goal time, Grid’s runners participated for 15 full days, logging a total 30.177
runs, which compares to a distance halfway round the Earth: 12.500 miles.
(http://www.fastcompany.com/1698729/nike-turns-london-game-board-get-people-
running, ).
”Run For China” In 2011, Nike Running turned to social media to help influence
public opinion and local awareness about running in China as well. Nike understood, upon
entering the Chinese market that most Chinese young adults saw running as unexciting or as
a punishment. Determined to change the perception and to present the constructive sides of
running, Nike, along with advertising group AKQA, introduced a call-to-action video known
as the “Run For” campaign on social networks and video sharing online platforms. The video
featured Chinese runners chatting about why they jog in order to stimulate users to generate
their own motives for running. An executive from the advertising company stated, “We
wanted to make sure it wasn’t necessarily Nike telling [consumers] why running is good, so
the whole entry point with the communication is really leveraging stories of the few runners
who are out there.” (http://adage.com/article/behind-the-work/nike-popularize-running-
china/230754/, ). Nike was aware of the fact that this video had to encourage young Chinese,
who were often too image-conscious to get out and run. Jeanne Huang, Nike’s
communications director in China, explained, “In China I think people generally understand
the benefit of sports, but we need to give them an inspiration. How can we drive them to
really go out of their house, to get off the couch and do something physical?”
(http://adage.com/article/behind-the-work/nike-popularize-running-china/230754/, ).

Nike built a campaign that presented running as a social movement. The company
came up with the idea of hosting “Lunar Runs” in four of China’s major metropolitan zones.
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The events, which carried the name of Nike’s running shoe, the Lunar Glide, were held at
night and featured music, celebrities, and fitness instructors. Between its Lunar Runs and a
four-day Festival of Sports in Shanghai, Nike connected with over 35,000 possible Chinese
runners. (http://mashable.com/2011/09/22/nike-social-media/#C1xaSFLciGq8, ).

1.3. Management and financials of the company

Nike management structure is represented by a matrix organizational structure

commonly known as a flat organizational structure. In a flat or matrix organization, the
personnel states to project or product groups led by a product manager as well as to the
department manager. Thus, in Nike’s case each brand has a department, and each department
can make decisions without requesting the consent of the CEO. Each department also has
subdivisions or project teams in charge of the mini tasks within each division.
(http://panmore.com/nike-inc-organizational-structure-characteristics-analysis, ).
Nike is one of the few companies that has been capable of applying this model
effectively.
At Nike and in other flat or matrix organizations, the product team and product
managers are the ones responsible for decisions regarding product requirements and
fabrication processes while department managers concentrate primarily on policy-related
matters.(http://panmore.com/nike-inc-organizational-structure-characteristics-analysis, ).
The Compensation Committee is in charge of supervising the performance assessment
of the CEO. The Compensation Committee studies the approved financial performance
measures and targets (such as revenue, net income, and earnings per share), and other
features such as leadership, success of strategic objectives, market position, and brand
strength, which are indicators showing the company’s realizations and weaknesses. The
Compensation Committee is responsible for reflecting the CEO’s performance in the CEO’s
rewards.
The Board plans the sequence of the CEO and certain other senior management
positions with the intention of assuring the well-ordered functioning and evolution of the
management of the company, in case of emergency or retirement of the CEO. As part of this
activity, the Chairs of the Nominating and Corporate Governance Committee and the
Compensation Committee, consulting with the CEO, measure management necessities and
aptitudes in the event a transition becomes compulsory.
(http://www.investopedia.com/articles/basics/03/022803.asp, ).

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 Global competition commands companies like Nike and its competitors to respond
rapidly to marketplace dynamics. In flat organizations, production teams led by product
managers can take measures regarding decisions and react much more quickly than the
traditional department leader, who is often left out of the production line.(
http://2012books.lardbucket.org/books/management-principles-v1.0/s11-organizational-
structure-and-c.html, ).
During the 1990s, Nike considerably extended its share advantage over its time-
honored rival, Reebok. In 1995, Reebok had announced its intention to grow into a sports and
performance company rather than focusing on fashion and fitness goods. Nevertheless,
conflicting advertising and repeated management revenue blocked Reebok’s sales and stock
price. For the time being, Fila acquired share by positioning itself mainly as a fashion rather
than performance product.
At the end of 1997, Adidas, not Nike or Reebok, was the promising firm in the
industry, both on Wall Street and Main Street. Adidas transactions for 1997, reported in
February 1998, were $3.5 billion, up to 42%, and pretax profits were $372 million, up to
52%. (http://uk.reuters.com/article/uk-adidas-nike-rivalry-idUKKBN0G81MR20140808, ).
On February 24, 1998, Nike stated that the company continues to have sales flaws in
Asia and additional inventories in the Japan and the United States. Financial analysts
predicted Nike to lay off 1.500–2.000 of its 9.200 employees and some of them did not
expect financial evolution until the end of 1999.
(http://money.cnn.com/1998/03/18/companies/nike/, ).

Nowadays Nike Inc. is one of the major players on the sportswear market with a net
worth of $100.1 billion, currently battling over market share with Adidas, Asics and Under
Armour for footwear and sports apparel segment, while still monopolizing North America,
China and South America and by leading in revenue, leaving their first competitor far behind
in terms of figures.
(http://www.investopedia.com/articles/markets/012616/adidas-vs-nike-vs-under-
armour-which-2016-nkeua.asp, ).

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 Adidas vs. Nike market share (Figure no. 1).
(Source: http://blog.thomsonreuters.com/index.php/adidas-vs-nike-graphic-day/, )

In terms of acquisitions, Nike conglomerate owned a handful of firms such as

Converse, Hurley International or Umbro during its activity which boosted the market
presence, revenues and operations developed by the company. Today, Nike only owns the
two most profitable subsidiaries Converse and Hurley, a renowned surf company founded by
Bob Hurley. (http://news.nike.com/news/nike-inc-introduces-2015-global-growth-strategy, ).
The company’s financial activity such as the balance sheet and the income statement
serve as another evidence for strict management, innovative marketing and global presence.
The resources of Nike INC., allow the management to finance strong R&D endeavors or
innovative marketing campaigns which allows the firm to gain competitive advantage on the
market by being able to cover the expenses of every bold project they are developing .Also
the positive ratio between the assets and liabilities ensure economic and financial stability
throughout fierce market conditions and unlimited potential of product & service
development. (https://finance.yahoo.com/q/bs?s=NKE, ).

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 Nike company statistics ( Figure no.2)
(Source: http://www.statisticbrain.com/nike-company-statistics/, )

Since 2013 Nike amassed over $25 billion in revenue, having reached the $30 billion
mark two years later. After the cost of revenue and operating expenses is subtracted, the
company earns an astounding $2.5 billion in net income, increasing to over $3 billion in
2015. A more detailed report is presented below.

Nike Income Statement (Figure no. 3)

(Source: https://finance.yahoo.com/q/is?s=NKE+Income+Statement&annual, )

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Financially-wise, Nike is currently in a comfortable, leading position in the footwear and
apparel market, maintaining the gap in market share, revenue and sales between the Oregon-
based company and their competitors. Being a player in such a competitive and saturated
market constantly requires assessing your strong points and the weaker aspects of your
business while acknowledging incoming opportunities or possible threats.

SWOT Analysis of Nike INC.

This global enterprise has unique strengths in terms of competitive advantage

by holding the leadership in the global market of athletic wear and sports-designed shoes.
Moreover, along with the associated logo and motto, Nike is one of the most recognized
brands worldwide and was included in a table of 50 popular companies among the millenials.
Another strong suit of this firm would be represented by their inclination towards
sustainability and corporate social responsibility. This ethical viewpoint labeled Nike as a
climate-focused company which contributes to the brand identity. The availability of products
in a great range of countries and regions represents another strength, allowing customers to
contribute to the large number of sales by supplying according to the demand in important
places and maintaining hype after product launching. Furthermore, the brand constantly
associates itself with celebrities and famous athletes who have their own product lines or act
as brand ambassadors for the company.

In terms of weaknesses, the company has faced some inappropriate labor conditions
allegations due to outsourcing to contractors from different parts of the world such as
Vietnam or Cambodia that are not always in Nike’s decisional reach. These sensitive issues
that involve child labor or low wages have a great impact on how the brand is being
perceived by important customers and could represent a valid reason for a loyal client to
switch to the competition, which is crucial in this saturated market. Also, another ethical
allegation would be an endorsement contract with Justin Gatlin, whose doping-related bans
portray him as a controversial athlete.

Nike’s greatness relies on effective identification and usage of facts that provide substantial
revenue, allowing it to innovate constantly from production to the consumer-producer
relationship. One of the most important opportunities available for the Oregon-based
company would be the Asian segment of the sports goods provider market due to personal
marketing and direct selling to customers, a very valuable approach for clients who expect
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and treasure loyalty. Another important factor would be developing products for market
segments which are not saturated yet such as accessories and or technological gadgets that
aim to deliver the complete athletic experience.

Finally, threats are potential weaknesses of a company which are not relevant
yet but can be proactively identified and covered by a thorough SWOT analysis. Nike’s
major threat is represented by globalization and their international brand status. Operating in
a great spectrum of regions leads to sales in various currencies which can be unstable and
affect business-related forecasting. The competitiveness behind this market could also
represent a potential dangerous threat, as every wrong decision could register a shift in
perception and sales, given the available alternatives in a model-saturated environment. The
genuine factor and the existence of replicas on the market could also represent a liability in
the company’s strategy because it lowers the expectation of customers and could act as failed
quality test for a non-conscious brand consumer.
(Source:http://blog.cayenneapps.com/2015/10/26/nike-swot-analysis/,
http://www.mbaskool.com/brandguide/lifestyle-and-retail/3329-nike.html,

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