INTERNAL REPORT

Name: Lim Nee Ngoh

Student ID: SCPG1900088
Course: Strategic Financial Management
Contents
Executive summary
Introduction
Finance
Segmentation analysis
Product segmentation
Geographic segment
Profitability ratio
Return on equity
Solvency ratio
Efficiency ratio
Cash flow
Liquidity ratio
Investors
Competitor analysis
HRM
CEO and chairman
Employees
Core values
Pay
Gender pay gap
Demographics
Corporate governance
Marketing
Product
Price
Promotion
Place
Boston matrix
Operations
Business model
Primary activities
Secondary activities
Integration
Bibliography
Appendix
Appendix 1: number of customers
Appendix 2: ratios
Appendix 3: cost of production
Executive summary

Nike is an American multinational corporation which is one of the world’s largest

suppliers of athletic shoes and apparel and a major manufacturer of sport equipment. Nike
Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership under the name,
Blue Ribbon Sports. Nike products are inclusive of Air Jordan, Air Force, Nike Golf, Nike
Pro, Nike Dunk, Nike Skateboarding, Nike + and its subsidiaries brand including Converse,
Jordan and Hurley International.

Nike sells an assortment of products, including shoes and apparels for sports
activities, namely basketball, football, tennis, running, hiking, golf and cross training for
men, women and children. Nike not only sell indoor sports activities, but also sell outdoor
activities, such as baseball, volleyball, wrestling, cycling, cheerleading, aquatic activities,
skateboarding and other recreational products. It is well known in youth culture and hip-hop
culture for its urban fashion clothing.

As a global leader in sportwear, Nike is no stranger to the increasingly complex and

volatile environment of the global economy experienced in recent years. Nike products are all
subject to the risks associated with overseas sourcing, manufacturing and financing. The
decline of global capital and credit marketing conditions threaten Nike’s business, operating
results and financial condition. During these times, Nike stands to remain focused squarely
on business to expand profitable long-term growth for its stakeholders.
Introduction

Nike, Inc., formerly (1964–78) Blue Ribbon Sports, American sportswear company
headquartered in Beaverton, Oregon. It was founded in 1964 as Blue Ribbon Sports by Bill
Bowerman, a track-and-field coach at the University of Oregon, and his former student Phil
Knight. They opened their first retail outlet in 1966 and launched the Nike brand shoe in
1972. The company was renamed Nike, Inc., in 1978 and went public two years later. By the
early 21st century, Nike had retail outlets and distributors in more than 170 countries, and its
logo—a curved check mark called the “swoosh”—was recognized throughout the world.

From the late 1980s Nike steadily expanded its business and diversified its product
line through numerous acquisitions, including the shoe companies Cole Haan (1988; sold in
2012) and Converse, Inc. (2003), the sports-equipment producer Canstar Sports, Inc. (1994;
later called Bauer and sold in 2008), and the athletic apparel and equipment company Umbro
(2008; sold in 2012). In 1996 the company created Nike ACG (“all-conditions gear”), which
markets products for extreme sports such as snowboarding and mountain biking. In the early
21st century Nike began selling sports-technology accessories, including portable heart-rate
monitors and high-altitude wrist compasses.

Part of Nike’s success is owed to endorsements by such athletes as Michael Jordan,

Mia Hamm, Roger Federer, and Tiger Woods. The NikeTown chain stores, the first of which
opened in 1990, pay tribute to these and other company spokespersons while offering
consumers a full range of Nike products. In the 1990s the company’s image briefly suffered
from revelations about poor working conditions in its overseas factories.

A brief history of Nike logo

Finance

Financial Highlights 2015 – 2019

Revenue has increased by 27.83% from $30,601M to $39,117M

Cash flow has increased to $217M

Debt increased from $1260M to $3479M

Share price has increased in the past 5 years from $57.61 to $99.51

Segmentation Analysis

The Nike Brand segments are defined by geographic regions for operations
participating in Nike Brand sales activity. Each Nike Brand geographic segment operates
predominantly in one industry: the design, development, marketing and selling of athletic
footwear, apparel and equipment. The Company's reportable operating segments for the
NIKE Brand are: North America; Europe, Middle East & Africa (EMEA); Greater China; and
Asia Pacific & Latin America (APLA), and include results for the NIKE, Jordan and Hurley
brands. The Company's NIKE Direct operations are managed within each geographic
operating segment.

Geographic Segment

Nike Revenue
18000
16000
14000
12000
10000
8000
6000
4000
2000
0
2019 2018 2017 2016 2015

North America Europe, Middle East & Africa

Greater China Asia Pacific & Latin America
Revenues for Converse were $491 million, flat to prior year on a currency-neutral basis,
mainly driven by double-digit growth in Asia and digital which was offset by declines in the
U.S. and Europe.

Product Segmentation

Nike Revenue
30000

25000

20000

15000

10000

5000

0
2019 2018 2017 2016 2015

Footwear Apparel Equipment

Revenues for the NIKE Brand were $9.7 billion, up 10 percent on a currency-neutral basis,
driven by growth across NIKE Direct and wholesale, key categories including Sportswear,
Jordan and Basketball, and continued growth across footwear and apparel.

Profitability Ratio

Profitability Ratio
10.70%
2015 13.64%
45.97%
11.61%
2016 13.91%
46.24%
12.34%
2017 13.83%
44.58%
5.31%
2018 12.21%
43.84%
10.30%
2019 12.20%
44.67%
0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 30.00% 35.00% 40.00% 45.00% 50.00%

Net Profit Margin Operating Profit Margin Gross Profit Margin

Nike Inc.’s gross profit margin ratio deteriorated from 2017 to 2018 but then improved from
2018 to 2019 exceeding 2017 level.

Nike Inc.’s operating profit margin ratio deteriorated from 2017 to 2018 and from 2018 to
2019.

Nike Inc.’s net profit margin ratio deteriorated from 2017 to 2018 but then improved from
2018 to 2019 not reaching 2017 level.

Return on Equity

50.00%
44.57%
45.00%

40.00%
34.17%
35.00%
30.67%
30.00%
25.76%
25.00% 19.70%
20.00%

15.00%

10.00%

5.00%

0.00%
2019 2018 2017 2016 2015

ROE

Nike Inc.’s ROE deteriorated from 2017 to 2018 but then improved from 2018 to 2019
exceeding 2017 level.
Solvency Ratio

Nike Inc.’s debt to equity ratio deteriorated from 2017 to 2018 but then slightly improved
from 2018 to 2019.

Efficiency Ratio

Cash Flow

Cash Flow (US$ in Billions)

7

6
5.9
5
4.96 4.78
4.68
4
3.85 3.93
3.72
3
3.1
2.74
2
1.95
1

0
2015 2016 2017 2018 2019

Net Operating Cash Flow Free Cash Flow

NIKE annual free cash flow for 2019 was $4.78B, a 21.86% increase from 2018.

During the past 5 years, the average Free Cash Flow per Share Growth Rate was 16.00% per
year.

Asset Turnover

Asset Turnover

1.70%

1.65%

1.60%

1.69%
1.55%

1.59%
1.50%
1.54%
1.52% 1.51%
1.45%

1.40%
2015 2016 2017 2018 2019

Nike's latest twelve months asset turnover is 1.69%

Nike's asset turnover for fiscal years ending May 2015 to 2019 averaged 1.58%

Nike's asset turnover hit its five-year low in May 2016 of 1.51%
Liquidity Ratio

Current Ratio

Current Ratio
3.5

3 2.93
2.8

2.46 2.51
2.5
2.1
2

1.5

0.5

0
2015 2016 2017 2018 2019

Nike's operated at median current ratio of 2.56 from fiscal years ending May 2015 to 2019.

Looking back at the last five years, Nike's current ratio peaked in May 2017 at 2.93.

Nike's current ratio hit its five-year low in May 2019 of 2.10.
Investors

Earning per share

Earning Per Share

3

2.5

1.5

0.5

0
2015 2016 2017 2018 2019

During the past 5 years, the average EPS without NRI Growth Rate was 3.90% per year.

Nike's basic eps incl extra items for fiscal years ending May 2015 to 2029 averaged $2.08.

Looking back at the last five years, Nike's basic eps incl extra items peaked in May 2017 at
$2.56.

NIKE's basic eps incl extra items hit its five-year low in May 2018 of $1.19.
Share Price

Competitor Analysis

1. Adidas

Adidas formerly known as Dassler Brother Shoes is the designer, manufacturer and marketer
of shoes, clothing and accessories. In 2005, Adidas acquired Reebok for $3.8 billion. After
takeover both the companies Reebok and Adidas have strong position to compete with Nike
in North America. Adidas group consist three subsidiaries i.e. Reebok, Runtastic and
TaylorMade. According to this, Adidas is the strong competitor of Nike and the second
largest shoemaker in the world. Adidas brand valuation is $14.3 billion, and revenue
amounted for 21.218 billion (Euro).

2. Reebok

Reebok is another competitor of Nike Inc. Reebok is a footwear and apparel company that
designs, manufactures and distributes CrossFit, fitness, running footwear and clothing.
Reebok is a subsidiary of German company Adidas Group. Reebok manufactures variety of
assortment but according to Reebok, customer top rated product is Reebok CrosFit Nano 8.
The company considers itself distinctive and authentic with is consumers. Reebok revenue is
amounted for $2 billion in 2017.
 3. Puma

Puma is a German multinational brand that designs and manufactures variety of athletic and
casual footwear, apparels and accessories. The company offers many sports-inspired products
like training and fitness, golf, basketball, football and motorsports. Interestingly both the
founders of Adidas and Puma were brother and founders of Dassler Brothers Shoes. In 1948,
they were agreed to split the company and founded two companies Adidas and Puma. Annual
revenue of Puma is amounted $5.5 billion. Puma is considered as Nike competitor in sport
footwear and apparels.

4. Under Armour

Under Armour is founded in 1996 by Kevin Plank headquartered in Baltimore, Maryland,

United States. It manufactures casual and sports footwear and apparels. The company is
engaged in development, distribution and marketing its product lines worldwide. Under
Armour products are used by all levels of college and professional players as well as general
consumers who love active lifestyle. The company is a major competitor of Nike. UA
generated $5 billion revenue with a market capitalization of $7.7 billion.

5. New Balance

New Balance Athletics Inc. also New Balance was founded in 1906 by William J. Riley. New
Balance is a Multinational Corporation headquartered in Boston, Massachusetrts, United
States. The company produces athletics shoes, sportswear, equipment and apparels. The
company differentiate its product line with several technical features like heel counters and
blended gel inserts. In the FY 2018 the company was able to generate $4 Billion revenue.
New Balance has a premium brand image and amongst one of the top Nike competitors.
HRM

CEO & Chairman

Mr. Knight, a director since 1968, is Chairman Emeritus of NIKE, Inc. Mr. Knight is a co-
founder of the company and, except for the period from June 1983 through September 1984,
served as its President from 1968 to 1990, and from June 2000 to 2004. Prior to 1968, Mr.
Knight was a certified public accountant with Price Waterhouse and Coopers & Lybrand and
was an Assistant Professor of Business Administration at Portland State University. Mr.
Knight led Nike from a small partnership founded on a handshake to the world’s largest
footwear, apparel, and equipment company.

John Donahoe is President and Chief Executive Officer of NIKE, Inc. Before joining Nike as
CEO in January 2020, Donahoe had served on Nike’s Board of Directors since 2014.
Previously he was president and CEO for ServiceNow and eBay and continues to serve as
Chairman of the Board at PayPal. Earlier in his career, he worked for Bain & Company for
almost 20 years, becoming the firm’s CEO in 1999. Donahoe will lead the continued growth
of the Nike Brand as well as NIKE, Inc.'s global business portfolio, which includes Jordan
Brand and Converse Inc. He received an undergraduate degree from Dartmouth College and
an MBA from Stanford Business School.

Employees

N u mb e r o f N ik e 's e m p lo y e e s w o r ld w id e
90000

80000 76700
74400 73100
70700
70000
62600
60000

50000

40000

30000

20000

10000

0
2015 2016 2017 2018 2019

Nike employed over 70,000 people and operated more than 1,000 retail stores worldwide in
2017.

In 2019, there were approximately 76.7 thousand Nike employees worldwide.

Core Values

Nike's core values

Social respon- Community

sibly

Diversity Sustainability

Pay

Nike, Inc. pays its employees an average of $89,901 a year. Salaries at Nike, Inc. range from
an average of $55,328 to $141,835 a year. Nike, Inc. employees with the job title Finance
Director make the most with an average annual salary of $135,403, while employees with the
title Logistics Analyst make the least with an average annual salary of $54,698.
Gender pay gap
Demographics
Corporate Governance

Key Executives for Nike, Inc.

Philip H. Knight: Chairman Emeritus

Mark Parker: Executive Chairman

John Donahoe: President and CEO

Andy Campion: Chief Operating Officer

Matthew Friend: EVP, Chief Financial Officer

Hilary Krane: EVP, Chief Administrative Officer & General Counsel

Monique Matheson: EVP, Global Human Resources

Heidi O’Neill: President of Consumer & Marketplace

John Slusher: EVP, Global Sports Marketing

Michael Spillane: President of Categories & Product

Ann Miller: VP, Corporate Secretary and Chief Ethics & Compliance Officer

Chris Abston: VP, Corporate Controller

Marketing

Product

This element of the marketing mix enumerates the organizational outputs offered to target
consumers. These outputs are known as the product mix. Nike Inc.’s growth comes with
changes in its product mix. For example, the business continues its investment in research
and development to produce new products and enhanced versions of its current products.
Originally a distributor of shoes, the company now manufactures various shoes, apparel, and
equipment for different sports. Based on Nike Inc.’s generic strategy and intensive growth
strategies, the business integrates new technologies into its product lines to improve product
effectiveness and customer satisfaction. The following broad categories represent Nike’s
product mix:

1. Shoes
2. Apparel
3. Equipment and accessories

Shoes are the most popular products from Nike Inc. The business gradually adds more
product lines in this category. For example, the company now offers running shoes, tennis
shoes, and shoes for a variety of other sports, including cricket. Nike also sells apparel, such
as jerseys, shorts, and related products. In addition, the company’s product lines include
accessories and equipment, such as golf clubs. These products are available under several the
company’s brands, including Air Jordan, Hurley, and Converse. Based on this element of the
marketing mix, Nike expands its product mix to address the needs of its target markets and
market segments.
Price

This element of the marketing mix identifies the prices that the company applies to
maximize profits while attracting the desired share of the multinational market. Nike’s
investments in technology is linked with a strategy to offer its products at a premium. Still,
the company considers current market conditions in setting its price points and price ranges.
Based on these considerations for this 4P variable, the following pricing strategies are applied
in Nike Inc.’s business:

1. Value-based pricing strategy

2. Premium pricing strategy

In using the value-based pricing strategy, Nike Inc. considers consumer perception about
the value of its products. In the context of the marketing mix, this value is used to determine
the maximum prices that consumers are willing to pay for the company’s sports shoes,
apparel, and equipment. In relation, the premium pricing strategy involves high prices, based
on a premium branding strategy that establishes Nike products as higher in quality and value
than competing products. The company’s use of advertisements involving high-profile
celebrity endorsers is indicative of such emphasis on premium branding.
Promotion

This element of the marketing mix is also known as the marketing communications mix,
and involves the tactics that Nike uses to communicate with its target markets. The company
depends on the effective promotion of its products to maintain a strong brand image, which is
one of the strengths determined in the SWOT analysis of Nike Inc. The company uses
promotional tactics to communicate with target customers about its products and persuade
these consumers to purchase the products. The following are Nike’s promotional activities,
arranged according to significance:

1. Advertising
2. Personal selling
3. Direct marketing
4. Sales promotions
5. Public relations

Advertising is one of the biggest contributors to Nike’s ability to attract customers. The
company heavily relies on advertisements, especially those that involve high-profile celebrity
endorsers, such as professional athletes and sports teams. This element of the company’s
marketing mix also includes personal selling through sales personnel who persuade target
consumers to buy the company’s products.

Place

This element of the marketing mix outlines the venues where the company’s products are
sold, accessed or distributed. Nike Inc. sells its sports shoes, apparel, and equipment through
many outlets worldwide. For example, these products are available at major retail stores. The
following places/venues form Nike’s distribution strategy, arranged according to
significance:

1. Retail stores
2. Nike Online Store
3. Niketown retail outlets (company-owned)

Retail stores are the most significant places where Nike products are sold because these
venues are strategically located and easily accessible in various markets around the world.
These retailers include large firms like Walmart, as well as small local and regional stores.
This 4P element also shows that customers can purchase Nike’s sports shoes, apparel, and
equipment through the company’s online store. In addition, the business operates its
Niketown retail outlets. These outlets are company-owned and allow access to business and
market information that supports corporate strategic management regarding marketing
strategies and tactics for current, new, and emerging products. Based on this element of the
marketing mix, Nike Inc. controls the distribution and sale of its products, especially through
its online store and Niketown retail outlets. However, the company has limited control on the
distribution and sale of its products via other retail outlets.

Boston Matrix
Stars

With its rapid growth and 2.8% market share in the clothing and apparel market,
Nike’s apparel business is categorized as a star in the group. (Statista 2018a). In 2018, its
annual revenues increased by 9% to $10.73bn from $9.65bn in 2017 fuelled by growth in
several key categories most notably sportswear, Nike basketball and football according to its
annual report (Annual report 2018). The unit contributed 29.5% to Nike’s annual revenue in
2018. Since growth needs heavy investments, Nike can invest in the apparel business to
facilitate its growth into a cash cow with large market share and revenues to support other
businesses.

Cash Cows

Nike’s footwear business that sells athletic footwear to consumers has been operating
as a cash cow for Nike for many years because of its consistently high revenues and high
market share in the global athletic footwear industry. According to Nike’s 2018 annual
report, its footwear business had a $22.27bn revenue that was a 4% increase from its
$21.08bn revenue from 2017. The increase in footwear revenue was mainly driven by strong
growth in sportswear and running according to Nike’s annual report. With this market
growth, the footwear business does not require huge investments to maintain its high
revenues but rather needs to invest in other businesses such as apparel business and its
equipment business to enable them attain bigger market shares and revenues and develop into
cash cows to support other businesses.

Question Marks

Nike’s equipment business that sells sports equipment is classified as a question mark
in the group because of its ambivalent growth. In 2018, the business unit recorded a revenue
amounting to $1.40bn that was a 4% decrease from its $1.43bn revenue in 2017 contributing
3.8% to Nike’s annual revenue according to its annual report. Given the market opportunities,
Nike can invest in its equipment to enable it to attain a bigger market share and revenues to
support Nike’s struggling businesses.

Dogs

Nike’s corporate business that includes differences between assigned and actual
market shares, foreign currency hedge gains and losses, among others, is considered a dog in
the group because despite heavy capital investments, the business unit has failed to become
popular like its footwear and has failed to show any significant growth. In 2018, the unit had
a revenue amounting to $26million that was a decrease from its $75million revenue in 2017
according to Nike’s annual report. However, given growth of actual market shares, the
business unit can grow attracting large revenues. Therefore, Nike can continue with its
investment in the business unit.

Operation

Business model

Primary activities

1. Inbound Logistics

At Nike, nearly all its products are made by independent contractors. Currently, there are 567
factories across 42 countries where Nike products are manufactured. The focus throughout
these manufacturing facilities remains on transparency, quality and sustainability and it is
why only the most responsible ones get to be a part of its supply chain. Products sourced
from these suppliers are sent to various markets through the regional offices and distribution
centres of Nike.

2. Outbound logistics

Outbound logistics are a critical part of Nike’s value chain. There are more than 500 factories
making Nike products in 42 countries. The products shipped from these manufacturers to the
Nike Distribution centres must be sent to the retail stores for sales. Nike has used a chain of
regional distribution centres to cater to the needs of its retail stores so that customers do not
have to wait long for a new product after its release. An efficient distribution system helps
manage timely delivery and shipments too. In 2015, it opened its largest distribution centre at
Tennessee. The Memphis, Tennessee based distribution system holds footwear, apparel and
equipment of Nike and Jordan brands which are distributed to the individual and wholesale
customers as well as Nike’s own retail stores. Its European logistics campus is located at
Belgium which enables the management of a faster and smarter supply chain.

3. Operations

Nike is headquartered at Oregon in North America. It is also the biggest office which boasts
of the highest number of Nike employees. Apart from that, it has offices in Europe, Middle
East, Africa, Greater China, Asia Pacific and Latin America. Nike is present globally and
each of its office caters to large geographical areas of several countries. In North America
alone, there are more than 2000 retail stores served by a single headquarter.

4. Marketing and sales

Apart from its great quality, Nike is also known globally for its excellent marketing strategy
starting from its Swoosh logo and can be found on all Nike products. However, Nike also
invests heavily in marketing and uses sportspeople like Football celebs for the marketing and
promotion of its products and brand. Its video marketing strategy is especially appreciated by
the Nike fans. The main sales channels for Nike are two – physical and online channels. Its
own stores including in-line and factory retail stores and its websites and mobile sales
channels sell to the customers directly. It also uses a mix of independent distributors,
licensees and sales representatives globally for sales.
Secondary activities

1. Technology

Technology and product quality both are important components of Nike’s production
strategy. While the focus is on best quality, sustainability has also become an important focus
for Nike. It is using best in class technologies to reuse the waste generated by the Nike
factories and other technologies that specifically focus on creating material that is both user
friendly and sustainable. It is using technological solutions to minimize its impact on the
environment and continuously improve the quality of its products.

2. HRM

Management of a global organization is not possible without having a large and skilled staff.
Globally, the brand employs more than 70,000 and has created a culture and environment that
fosters diversity and inclusion. Nike was recognized for its great HR management and
featured as one of the best employers and as one of America’s Best Employers for Diversity
on Fortune’s list. Sound HR management is also an important focus down the supply chain of
Nike and its suppliers also must follow strict regulations related to labour and HR
management.

3. Procurement

Good quality products are manufactured from good quality raw materials. At Nike, quality is
an important focus and therefore, there is an entire procurement team dedicated to this task
which analyses and evaluates the eligible suppliers. It keeps only the ones who can guarantee
more than the minimum quality requirements. Raw materials are procured from several
countries.

4. Firm Infrastructure

Nike is a global firm and as such has a large and global infrastructure composed of its offices,
retail stores and distribution and logistics centres. This large infrastructure also helps it
manage its global presence well. It is headquartered in a state of art building with a lake and
several other extraordinary facilities for its staff.
Integration

Nike brought its revolutionary Nike App at Retail integration to Niketown London.
Soon, it hopes to expand the scheme’s reach and digitalize more of its retail stores around
Europe. Some of the technology has already been implemented at Stateside locations over the
past 12 months, most notably at Nike NYC and Nike by Melrose in Los Angeles.

By using the Nike App in stores, customers can access numerous features that have
been created to streamline the brick-and-mortar shopping experience. Via their smartphone,
shoppers can find and reserve product, redeem NikePlus Instant Unlocks, and scan items for
more information, with further innovations planned.