Sports Footwear and Apparel Sports Footwear and Apparel Industry AnalysisIndustry Analysis

Group 4:Josh FerninoBrent Hare

Victor HemmatiLance HollisterChris Kerschen

Ty ParasilitiVincent Ukwu

Nike Corporation

Defining The Industry Defining The Industry

Industry DefinedIndustry Defined20,000 retail accounts throughout

the U. S. using independent distributors and also has contracts with 110 other countries

Also has agreements with Internet companies and subsidiaries

Operates within the sports footwear and apparel market.

Originally designing and producing running shoes, their portfolio has broadened to include a wide range of sports and leisure wear. This is all endorsed by top sporting personalities

NAICS CodesNAICS CodesNorth American Industry Classification

SystemThe standard used by Federal statistical

agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy

The first two digits of code designate the sector, the third designates the subsector, the fourth digit designates the industry group, the fifth digit designates the NAICS industry, and sixth digit designates the U.S. detail industry

NAICS Codes ExampleNAICS Codes ExampleNAICS Codes Name Classification

Level31-33 Manufacturing Sector

316Leather and Allied

Product Manufacturing

Subsector

3162 Footwear Manufacturing Industry Group

31621 Footwear Manufacturing Industry

316211Rubber and Plastics

Footwear Manufacturing 

U.S. Detail Industry

Nike ProductsNike ProductsThey design, develop,

and market high quality active sports apparel, equipment, and accessory products

Nike distributes one new shoe style every single day

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

Nike ProductsNike ProductsTheir products are

made for men, women, and children of all ages.

The company presently sells roughly 300 models of athletic shoes in 900 styles for 25 different sports.

Nike's target market for their shoes is males and females between 18 and 35 years old.

Nike ProductsNike ProductsThey not only see competition

from Adidas and Reebok, but also with Old Navy and Abercrombie and Fitch

Continuous marketing research is the key in assessing the market

Nike ExpansionNike ExpansionNike has success as a result of

collaborating with other companies within the sports and fitness industry

But at other times, Nike expanded into markets for which it is not strategically suited

Nike has realized to initiate more aggressive programs to review product partnerships that are outside of its core basis of products

Nike’s Biggest Nike’s Biggest CompetitorCompetitor

Consist of 3 companies:◦Adidas◦Reebok◦TaylorMade

Adidas Purpose:◦ The production and distribution of apparel, footwear and

equipment for sports and leisure as well as of products of adjoining fields, furthermore the commercialization of the registered trademark Adidas.

Adidas Mission:◦ To be the leading sports brand in the world.

The Adidas brand attitude “Impossible is nothing”

drives all of their brand communication initiatives and it helps them strengthen the Adidas brand’s bond with the consumer.

Reebok’s Mission:◦ Always challenge and lead through creativity.

At the core of the Reebok brand is the affirmation of the uniqueness of all people.

Reebok Strategic Focus:◦ to become a consumer-driven brand that reflects the emphasis on

individuality.

Athletes Endorsed by Reebok:◦ Sidney Crosby◦ Alexander Ovechkin◦ Allen Iverson◦ Yao Ming◦ Thierry Henry

Reebok Partnerships:◦ NFL◦ NHL◦ MLB

TaylorMade’s Mission:◦ To have the leading performance golf brands in the

world.

TaylorMade changed the game of golf by bringing the metalwood to the public 27 years ago, and today is the market leader in the metalwood category.

Strive to continually extend their brands’ positions as leaders in the development and implementation of advanced performance technologies in all of their products including clubs, balls, footwear and apparel.

Just to give you an idea of how well TaylorMade is doing, they currently endorse 55 professional golfers, one of which is Sergio Garcia, and as of February 17, 2009 he is ranked number two in world.

Adidas Group Financials Adidas Group Financials

Net Sales in

millions

Nine Months

2008

Nine Months

2007Change

Adidas 6,004 5,465 9.9%

Reebok 1,587 1,765 (10.1)%

TaylorMade 614 609 0.8%

Industry StructureIndustry Structure

Growth in Recent DecadesGrowth in Recent DecadesNike and Reebok set the

standardNike gained popularity Lurking competitors

◦Adidas Group◦Under Armour

Industry WeakeningIndustry WeakeningInternet skyrocketed sales in late

90’sUpcoming companies took

advantage of new technologiesSales have slumped

tremendously in past yearNike making 4% cutUnder Armour stated that

analyst’s estimates are far below earlier predictions

Threat of New EntrantsThreat of New EntrantsHighly saturated and challenging

industryDepend in large part on first

mover advantage and scale economies

Areas to focus: Technologies, pricing, and costs of production

InnovatorInnovatorSports Apparel and Footwear

industry relies mainly on innovations and creativity

Innovative Ideas=Key success factor

Company could have an advantage

Without proper funding and resources a firm could be at a severe disadvantage

Threat of new entrants based on first-mover advantage is minimal

Economies of ScaleEconomies of ScaleDifficult to compete with large

economies of scaleHard to handle all levels, more

experienced firms are able to disperse

New entrants suffer a severe cost disadvantage

Significant amount of assets needed

Bargaining Power of Buyers Bargaining Power of Buyers and Suppliersand SuppliersPower of buyers can be

determined by supply vs. demand and number of buyers

Price sensitivity effects demandCustomers more affected by

priceSuppliers are more powerful

when the ratio to buyers is moreThe vast range of products in the

Athletic Apparel industry leads to a dissimilar amount of bargaining power for the supplier

Substitute products and Substitute products and services services The threat of substitute productsThe existence of close substitute products increases the propensity of customers to switch to alternatives in response to price increases

Substitute products and Substitute products and services services Substitutes are a threat because:

1) They are an attractive alternative product or service, which customers can easily shift to if there are low switching costs.2) The availability of substitutes invites customers to make price, quality and performance comparisons3) Competitively priced substitutes impose a maximum value on prices relevant industry can charge for its products or services

Substitute products and Substitute products and services services

1) They are an attractive alternative product or service, which customers can easily shift to if there are low switching costs

OR

Substitute products and Substitute products and services services

2) The availability of substitutes invites customers to make price, quality and performance comparisons

IS IT CHEAPER?

CAN I JUMP HIGHER? CAN I RUN

FASTER?

Substitute products and Substitute products and services services 3) Competitively priced

substitutes impose a maximum value on prices relevant industry can charge for its products or services

What is worth ?

Rivalry Among Participants Rivalry Among Participants

Competitive rivalryThis is the major determinant of the competitiveness of the industry. Sometimes rivals compete aggressively and sometimes rivals compete in non-price dimensions such as innovation, marketing, etc.

Rivalry Among Participants Rivalry Among Participants Generally competitive rivalry will

be high if: There is little differentiation between the

products sold between customers.

Competitors are approximately the same size of each other

If the competitors all have similar strategies.

It is costly to leave the industry hence they fight to just stay in

High fixed or storage costs, which encourages fast turnover of inventory.

Rivalry Among Participants Rivalry Among Participants

Market of Competitive Rivalry

Industry EnvironmentIndustry Environment

Nike vs. The EconomyNike vs. The Economy As the economy slows, consumer

purchases are down. The biggest threat for Nike would be economic recession.

Asian economic crisis also affects Nike since its goods are manufactured in Asia. ◦The labor costs and material prices are

going up. Nike's growth is not just affected by the local economy but also in the international economy.

◦A weak Euro and an Asian recession could mean weak sales for Nike.

Nike vs. EthicsNike vs. EthicsIn 1996, the ethical issue of child

labor came to the surface regarding the hiring of young employees by Nike’s Asian and Latin subcontractors whose ages ranged from very young to teenagers. The teen workers would have not been so controversial; however, there were no regulations or work permits issued.

Nike vs. EthicsNike vs. EthicsWithout proper management

leading and planning in the Nike Corporation, the company would have suffered from the child labor issue.

Nike has made a true bounce-back from the negative media attention, and continues to be successful due to their strong business ethic philosophy.

Nike vs. SocietyNike vs. SocietyPeople are more health conscious

nowadays. Consequently, more and more people are joining fitness clubs. There is an accompanying growth for demands of fitness products particularly exercise apparels, shoes and equipment. Nike naturally is at the forefront of this surge in demand as people are looking for sports shoes, apparels and equipment.

Nike vs. SocietyNike vs. SocietyThe largest among Nike’s

objectives, the women’s athletic market will be a top priority in the next ten years. The number of women collegiate athletes have increased from a few thousand in the 1960’s to almost one million today.

TechnologyTechnologyProduct technology must evolve

as fitness evolves, in order to give competitors an advantage

Nike introduced Nike Shox, which revolutionized the cushioning foam used in shoes

Nike also collaborated with Apple and is launching new apparel and footwear that will easily carry the consumer’s iPod

TechnologyTechnologyProduct innovation is an ongoing

process and is vital to stay ahead of competition

Companies in this industry invest money in R&D to keep up with the new demands of today’s athletes

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

CompetitionCompetitionThe top 3 firms in this industry are

Nike, Adidas, and PumaThe industry is relatively old, so

firms must fight for market share rather than relying on market growth

Areas Firms Compete OnAreas Firms Compete OnProduct offeringsTechnologiesMarketing Expenditures

(endorsements and advertising)PricingCosts of ProductionCustomer Service

CompetitionCompetitionFirms in athletic footwear and

apparel also compete with firms that provide other substitutes (such as leisure and casual wear)

Skechers, K Swiss, New Balance, and Aasics

Nike has created their own lines of casual shoes to compete in these markets as well◦Example: Converse

CompetitionCompetitionDuring hard economic times,

people consume less retail goods such as clothes and footwear

Bureau of the Census estimates that retail and food service sales for January 2009 are 9.7% below a year ago

Consequently, the industry has turned to emerging markets to continue sales growth◦China◦Russia◦Latin America

GeographyGeographyProduction is outsourced to plants

in Asia, Latin America, and Africa◦This reduces costs because labor is

cheaper◦Puts sources of production closer to

where they will be soldFirms who outsource lose the ability

to closely monitor product quality and working conditions

Although some people find this unethical, firms cannot afford to keep production close to home and still compete on profit margins

GeographyGeographyPlants are also located in many

different countries, rather than being concentrated in one area

Diversification of production plants reduces the risk that a firm will greatly be affected by a problem in any particular country◦Example: Nike’s largest footwear

factory accounts for only 6% of the total footwear production

◦Nike claims it can recover from any loss in production within one year’s time

ConclusionConclusion

Overview of the IndustryOverview of the Industry• In this industry there is intense

competition, fashion trends, and price conscious consumers that have slowed growth in this industry.

• This creates difficult situations for companies to produce a brand image that appeals to consumers that want to shop for cheaper apparel, but also apparel that has quality.

Where the Industry is NowWhere the Industry is NowFinancially, the company must be

aware that economies are not up to par and that costs must be kept low to bring in the revenue.

With the internet being a huge entry to Nike’s products, the company must find a way to keep their consumers to see them as being more user friendly as compared to their competitors.

Cont.Cont.Ways for Nike to do this is to

keep the site simple, fresh, and easy to use.

By using new designs and better deals for orders made online for the customers, it has the potential to bring in more revenue, as well as improve the relationship between the company and its clients.

Industry ForecastIndustry ForecastTechnology is always changing,

and if Nike can create apparel and athletic equipment that the competitors cannot match, then Nike will grow even higher than its rivals.

Technology can be based around anything from softer and more durable running shoes, to a baseball bat with a new metal to make the ball go further.