Nike Corporate Strategy Case Study

Tags: supply chain management net income economic slowdown environmental pollution nike brand marketing business sports performance competition treatment taxation health observation

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Nike was founded in 1964 as Blue Ribbon Sports, and became Nike in 1971, by Bill Bowerman and Phil Knight, the latter going on to become the company’s long-serving CEO (O’Reilly, 2014). Today, Nike describes its business in the 2018 10-K as “the design, development and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories and services” (p.55). In addition to the eponymous brand, Nike markets Converse, Hurley, and entire Jordan brand, and others. Nike’s revenues in 2018 were $36.397 billion, up nearly 6% from the year previous. Net income was $1.933 but this was down significantly from the prior year, as the company recorded a much higher income tax expense.

Nike competes in the sports apparel industry, which is estimated to be worth around $184.6 billion worldwide, meaning that Nike holds about a 19.7% share. The industry is mature but still growing, with a CAGR of 4.3% over the past five years. Nike’s major competitors are all large companies as sophisticated as Nike is, including Adidas, Puma, Fila, but also Umbro, Ralph Lauren and lululemon (Bisht, 2015).

Companies that have not succeeded in this industry are mainly ones that were unable to scale, but also firms like Reebok that are relatively successful but found themselves to be acquisition targets. There are several critical success factors in the industry, including trend-setting design, excellent supply chain and distribution management and marketing expertise. Consumers are typically drawn by design and marketing, while the back end ensures that products are made, make it to market, and costs are contained.

The political/legal forces in the industry are minimal, but there is some impact of laws regarding environmental pollution and treatment of workers. These laws typically affect the third party suppliers to Nike, but that has a knock-on impact on the company itself. Taxation is the other major area that affects Nike, as last year’s net income indicates.

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This industry is in a state of monopolistic competition. There is some differentiation on product, but not as much as the marketing of each company projects. Each firm uses marketing – especially brand associations – as a cornerstone of differentiation, and Nike has been a leader in this regard. The overall health of the economy impacts…

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…as Nike has good global coverage. It may need to simply opt to grind away for growth, targeting multiple products, bringing in new sponsorship deals, and just hammering away at growth the old fashioned way. While the company’s rise was accompanied by some stratospheric home runs along the way, the reality is that day-to-day growth is the pathway to building the skill sets that sustain success. The others options carry with them some stronger growth potential, but at high risk.

It is recommended that Nike should pursue slower, incremental growth. It is the market leader in a saturated business. If it looks for massive wins, it probably will not find any. That does not mean it shouldn’t try, of course, but Nike should also focus its energies on the ground game – the day-to-day victories that build each product, each brand and each market gradually through hard work. This type of growth can be slow, but it builds the skills throughout the organization that are required to succeed over the long run. This is certainly not the most compelling recommendation, but it is one that works in the….....

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References

Bisht, P. (2015) Sports apparel industry overview. Allied Market Research. Retrieved April 22, 2019 from https://www.alliedmarketresearch.com/sports-apparel-market

Interbrand (2018) Best global brands 2018 rankings. Interbrand. Retrieved April 22, 2019 from https://www.interbrand.com/best-brands/best-global-brands/2018/ranking/

Nike, Inc. 2018 Form 10-K. Retrieved April 22, 2019 from https://s1.q4cdn.com/806093406/files/doc_financials/2018/ar/docs/nike-2018-form-10K.pdf

O’Reilly, L. (2014) 11 things hardly anyone knows about Nike. Business Insider. Retrieved April 22, 2019 from https://www.businessinsider.com/history-of-nike-facts-about-its-50th-anniversary-2014-11

Salzman, A. (2017) Nike and Under Armour slammed by sneaker recession. Barron’s. Retrieved April 22, 2019 from https://www.barrons.com/articles/nike-and-under-armour-slammed-by-sneaker-recession-1503070041

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