Dustin Nadeau, Donatas Sumyla, David Deprey and Jaime

RodriguezBus 411, May 2006

Nike2003Nike2003

Case-Study Overview• Internal:

– History, Nike overview, Key Facts, Our Brands and Stock Information

– Nike Actual & Proposed Vision and Mission

– Economic Performance– Evolution of Financial Ratios– Strengths and weaknesses

• Analysis: IFE• External:

– Industry overview and comparison of financial ratios

– Manufacturing– Opportunities and threats

• Analysis: EFE– Competitors

• Market Share• Analysis: CPM

• Analysis– SWOT Matrix– SPACE– BCG– IE matrix– Grand Strategy Matrix– QSPM

• Possible strategies: Matrix Analysis

• Decisions– Why our decision?– Strategic implementation– Actions

• Evaluation Procedure• Current Update

History1962: Phillip Knight, a Stanford University business graduate and

former member of the track team, arranges to import athletic shoes from Japan and sell them in the U.S.. Knight created Blue Ribbon Sports as a cover name for his small-scale shoe-selling operations

1964: William Bowerman becomes a partner by matching Knight's investment of $500.

1965: Hires a full time employee, and annual sales reach $2,000.1966: Blue Ribbon Sports, also known as BRS, rents its first retail

space; employees can now stop selling shoes from their cars.1969: It now has several stores and 20 employees; sales are close

to $300,000.1971: Nike, capitalizing on the Greek goddess of victory. The first

Nike product sold with the new symbol is a soccer shoe.1970 – 1975: Steve Prefontaine was turned to the University of

Oregon by Bill Bowerman and wore Nike products.

History1976: The popularity of jogging increases revenue to $14 million.1978: The company changes its name to Nike. 1980: Nike goes public, offering 2 million shares of stock.1990: Nike files suit against competitors for copying the patented

designs of its shoes, and also engaged in a dispute with the U.S. Customs Service over import duties on its Air Jordan basketball shoes.

1997: Feb., Stocks reaches a high of $76 per share.1998: Sept., Stocks tumbles to $31 per share.2000: The National Football League declines to renew its exclusive

apparel licensing arrangement with Nike.2001: Nike opens its first Nike Goddess store, a unit targeting

women, in Newport Beach, CA.2003: Nike purchases Converse Inc. for $ 305 million.

Origin of the Name and the Swoosh

• Nike is the Ancient Greek goddess of victory

“It is one of the most recognized symbols in the world – The Swoosh. Simple. Fluid. Fast.”

(Quote from Nike’s website)

Evolution of the Swoosh Logo

Nike Overview • Nike’s principal business activity is the design, development and worldwide

marketing of high quality footwear, apparel, equipment, and accessory product

• Distributed in over 160 countries around the world: (Asia, Australia, Canada, Europe, Latin America, and the United States)

• Nike is the largest seller of athletic footwear and athletic apparel in the world. • Fiscal year ended May 2003: Revenues of $10,697 million (increase of 8.1%

against 2002) • Employees: 26,000 worldwide.

650,000 in Nike contracted factories around the globe.• Facilities: in Oregon, Tennessee, North Carolina and The Netherlands.

– Also operates leased facilities for: * 14 Niketowns, * Over 200 Nike Factory Stores, * 12 NikeWomen stores * Over 100 sales and administrative offices.

Key facts (2003)

• Headquarters: Beaverton, OR

• Index Membership: S&P 500 S&P 1500 Super Comp

• Sector: Consumer Goods

• Industry: Textile - Apparel Footwear & Accessories• Other Brands: Cole Haan, Converse, Hurley,

Bauer Hockey, Starter Apparel• Market Cap: 21.738 billion• Ticker Symbol: NKE• Ranked 173 in the Annual ranking of America's largest

corporations (Fortune 500 magazine)

Our Brands

• Cole Haan, based in Maine, sells dress and casual footwear and accessories for men and women under the brand names of Cole Haan, g Series, and Bragano.

• Nike Bauer Hockey, based in New Hampshire, manufactures and distributes hockey ice skates, apparel and equipment, as well as equipment for in-line skating, and street and roller hockey.

• Hurley International, based in California, designs and distributes a line of action sports apparel for surfing, skateboarding and snowboarding, and youth lifestyle apparel and footwear.

• Converse, based in Massachusetts, designs and distributes athletic and casual footwear, apparel, and accessories.

Nike Stock (NKE) Information

• Stock Symbol: NKE.

• Went public in December 1980 and is traded on the New York Stock Exchange.

• Price:– Dec 31st, 2003: $68.46– May 1st, 2006: $82.21

• Shares Outstanding (July 2003): 263.7 mill

Stock Price Performance

Historical Stock Price Performance

Vision Statement

“To bring inspiration and innovation to every athlete* in the world”

(* “If you have a body, you

are an athlete”

Bill Bowerman, co-founder)

Proposed Vision Statement

Continue to bring inspiration  to present and future  athletes, while maintaining the company's standard of quality for its products.

Mission Statement

Nike is the "largest seller of athletic footwear and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel, and equipment industry.  We believe we are competitive in all of these areas." The company aims to " lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike."

Proposed Mission Statement

To continue to offer quality products with increasing growth in the industry and expanding globally. Our mission has always been to provide a competitive edge by developing the most technological products. Keeping in mind fair labor practices in all our suppliers’ factories, while maintaining a competitive advantage, with the shareholders interests, and company profits in mind. We also believe our employees are one of our most important assets. To increase the responsibility towards the environment by evaluating the impact of day to day operation and attempts to change operations that have a negative impact.

Economic Performance:Revenues by Regions (2001–2003)

Evolution of Financial Ratios (1999-2003)

Internal strengths and weaknesses

STRENGTHS:• Strong brand recognition• Internet sales• Growing international presence• Superior research and development

department• Strong financial returns• Strong sense of culture in the working

environment• Great celebrity spokespersons• Automatic replenishment system• Successful experience being

competitive• Nike doesn’t own any factories• Successful marketing campaigns

WEAKNESSES:• Lack of stores catering to the

active females

• Poor employment practices at their international manufacturing sites giving a bad reputation

• Heavy dependency on footwear sales

• Issues with Footlocker

IFE Matrix

Industry Overview

• Athletic footwear manufactures captured nearly one-third of the total footwear market in the early 1970s.

• Over a span of more than 25 years, American consumers spent $300 billion on 7.5 billion pairs of athletic shoes.

• Reebok international Ltd. and Adidas became $ 3.5 Billion companies, while Nike Inc. became the first ever $ 9.5 Billion company.

• By 1996 the number of establishments had dropped to about 52, with 12 factories closing since 1995.

• China's imports increase by 6 percent to 1.26 billion pairs in 2003 .• Brazil's share increased 2.3 percent to 83.5 million pairs in 2003.• Vietnam's share jumped 91.9 percent to 23.5 million pairs in 2003.• The US markets continue to be dominated by imports from countries with

low-cost labor.• From 1997 to 2001, the value of industry shipments declined from $ 219.6

million to $106.5 million.• U.S. shoe manufacturing plants declined by 775 between 1967 and 2001,

the number of new plants opening dwindled to nearly zero.

Key Ratios: Overall Comparison (2006)

Key Ratios: Overall Comparison (2006)

Key Ratios: Overall Comparison (2006)

Manufacturing: Nationality of Contract Suppliers

External Opportunities and Threats

OPPORTUNITIES:• Customer use of company’s products change from athletic purpose to a fashion item• Development of international trade (GAAT and NAFTA)• Generation Y children (born between 1979 and 1994) will reach 60 million•General demand for clothing/footwear for leisure activities continues to increase• Growing e-commerce’s positive effect since one of company’s competitive advantages is Internet sales•Women demand for athletic footwear and clothing is increasing significantly

THREATS:• Competitors which copy company's business model (high value branded product manufactured at a low cost)•Reebok's strong presence with 204 factory direct stores•Adidas-Salomon AG, top European competitor• The impact of foreign currency fluctuation and interest rates, and political instability• Labor and political unrest in the suppliers countries• Cost orientated customers vs company’s higher-end market.

EFE Matrix

Athletic Shoe Market Share (2000)

Competitive Profile Matrix (CPM)

SWOT Analysis

SPACE Matrix* Y axis: - Financial Strength: +4

- Environmental Stability: - 1 => Y coordinate: +3 STRATEGY: AGRESSIVE* X axis: - Competitive Advantage: - 2 => X coordinate: +3

- Industry Strength: + 5

Business Structure

Operating Segments:– Footwear– Apparel– Equipment

Operating Regions:– US– Europe, Middle

East and Africa (EMEA)

– Asia Pacific– Americas

BCG Matrix

Cash-Cow

Stars

Dogs

Question marks

IE Matrix

The Grand Strategy Matrix

• Potential Strategies:• - Market

Development• - Market Penetration• - Product

Development• - Backward

Integration• - Forward Integration• - Concentric

Diversification

Matrix Analysis

QSPM

Decisions

• Primary: Focus on finding the most promising customers (kids and women) and introduce more products or improve current ones to satisfy potential increase in demand

• Alternative: – Keep expanding into current and future foreign markets by being

aggressive and the worldwide leader of the footwear industry– Accelerate funding for numerous marketing campaigns in order to get to

specific markets or customer groups– Focus on improving working conditions and human rights at

international manufacturer centers and at the same time increasing their productivity

– Implement product diversification with company’s newest technologies so resulting increased earnings could be reinvested into R&D plans

Why this strategy?

• U.S. Women: Prefer fashion, not footwear, they prefer clothing, we must create a shopping style based in athletic shopping.

• U.S. Kids: E-commerce, influenced by innovation and design, not only comfort or sports

• We need to consolidate US sales compared to international sales and international competitors

• Difficult to expand towards other sports or population segments

ImplementationActions:• Women:

– Open 25 specific stores specialized only for women– Increase R&D expenses by 7% in women products– Increase Marketing expenses by 10%, designing a specific

campaign for women using female endorsements– Create a new logo for women market which would be associated

with fashion trends and introduce new products• Kids:

– Increase R&D expenses by 7% in kids products– Increase Marketing expenses by 10%, designing a specific

campaign for kids– Introduce more soccer and basketball products targeting potential

youth market• Research in international market to find out what are the new

trends related with women and kids products (Long-term)

Showing Cost: EPS-EBIT Analysis

Evaluations

• Nike annual financial reports

• Sales and profits reports (on-line and off-line) based on Women stores and Kids products

• Frequent management meetings between VP Global Brand Management (US), VP Global Footwear, VP Global Apparel, and VP Subsidiaries and New Business Development

• Evaluation reports

Update: 2004-2006• 2004: Nike introduces “Swift” technology.

– Nike Swift increases track times by up to 1.13%.– Football (soccer) wear becomes #1 in Europe.– Nike SHOX footwear introduced in other footwear types and continues to boom.

• 2005: Profits recover, growing nearly 30% to reach $1.2 billion on unprecedented revenue of $ 13.7 billion.

– Nike has 8 NikeWomen stores in key cities in the U.S..– Nike Pro Apparel introduced into NFL and MLB.– Greatly expands SHOX running footwear– August: Main competitors have joined with the recent announced acquisition of

Reebok by Adidas

• 2006: Nike Pro Apparel expands into NBA.– Nike uses Rihanna to help infiltrate the women’s market.– Nike expands women’s product line and website.– Introduced “Nike Consider” to be more environmental conscious.– Introduced new footwear and apparel line “Pre” dedicated to Steve Prefontaine

References• http://finance.yahoo.com

• Nike Annual Reports (2003 & 2005)

• Annual ranking of America's largest corporations, Magazine: Fortune 500 (2005): cnn.money.com

• www.nikebiz.com (Investor Relations)

• www.bigcharts.com

• www.businessweek.com

• Strategic Management Concepts and Cases; Fred R. David, 10th Ed.

Thank you!

• Questions?

• Comments?