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NIKE, Inc. TABLE OF CONTENTS
TABLE OF CONTENTS Company Overview..............................................................................................3 Key Facts...............................................................................................................3 SWOT Analysis.....................................................................................................4
COMPANY OVERVIEW NIKE, Inc. (Nike or the company ) is a leading designer, marketer and distributor of athletic footwear, apparel, equipment and accessories for a range of sports and fitness activities. The company primarily operates in the Americas, Europe, the Middle East, Africa and Asia Pacific. It is headquartered in Beaverton, Oregon, and employed about 44,000 people as of May 31, 2012. ‘
The company recorded revenues of $24,128 million during the financial year ended May 2012 (FY2012), an increase of 15.7% over FY2011. The operating profit of the company was $3,040 million in FY2012, an increase of 8% over FY2011. The net profit was $2,223 million in FY2012, an increase of 4.2% over FY2011.
KEY FACTS Head Office
NIKE, Inc. One Bowerman Drive Beaverton Oregon 97005 6453 USA
SWOT ANALYSIS NIKE, Inc. (Nike or the company ) is a leading designer, marketer and distributor of athletic footwear, apparel, equipment and accessories for a range of sports and fitness activities. The company enjoys a strong market position in most of its product segments.Widening product lines coupled with strong marketing and innovation has contributed to Nike's rising market share in the global footwear market. However, intense competition could affect Nike s market share. ‘
Robust market position bolstered by strong brand equity Competent technical innovation in products enhancing Nike's competitive advantage and brand equity Broad distribution network
Dependence on third-party manufacturers Limited control over contract manufacturers
Association with NFL would consolidate Nike s leadership position in the US Growth opportunities in India Brand reorganization initiative Growth in global footwear market
Robust market position bolstered by strong brand equity Nike is one of the leading players in the global athletic footwear and apparels market. The company enjoys a strong market position in most of its product segments. Widening product lines coupled with strong marketing and innovation have contributed to Nike's rising market share from almost 14% in 2006 to around 16% in 2009. In addition to the robust market position, the company has built strong brand equity over the years. According to a leading global branding consultancy fi rm, in 2011, Nike was ranked 25th overall with its brand value increasing 6% year-on-year to $14,528 million. The robust market position coupled with strong brand equity imparts significant competitive edge to Nike in terms of scale and recognition, which in turn augers well for the company's expansion plans. Competent technical innovation in products enhancing Nike's competitive advantage and brand equity
Continued emphasis on technical innovations in the design of footwear, apparel, and athletic equipment has been the key for Nike's leadership position in the athletics footwear and apparel market. The company employs own staff specialists in the areas of biomechanics, chemistry, exercise physiology, engineering, industrial design, and related fields, for the development of products best suited to athletic needs. Nike also utilizes research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists, and other experts for consultations on designs, materials, and concepts for product improvement. Furthermore, the company employs the services of athletes, either employed with the company or engaged under sports marketing contracts, to evaluate products during the design and development process. Additionally, the company collaborates with other companies in order to design new products. For instance, the company launched Nike+ GPS App on the App Store in 2010. The new Nike+ GPS App includes several features which allow runners to use their iPhone to map every run while tracking pace, distance, time and calories-burned. It also provides instant feedback during and after each run from athletes including Paula Radcliffe. Earlier, Nike partnered with Apple to develop a shoe with embedded chip that communicates data on speed and distance covered to the runner's iPod. The popularity and customer penetration of iPods and other mobile devices that runners often use during exercise showcases Nike's competency in innovative product design. Increased emphasis on R&D and innovation enables Nike to cater to changing preferences and requirements with ease, which in turn enhances the company s competitive advantage and brand equity. ’
Broad distribution network Nike offers its products through a wide distribution channel across the globe. In the US, the company distributes footwear through its distribution centers located in Tennessee and Memphis. Nike distributes apparel and equipment from centers located in Memphis, Tennessee and Foothill ranch, and California. Cole Haan products are distributed primarily from Greenland, New Hampshire, and Converse and Hurley products are shipped primarily from Ontario, California. The distribution channel of the company comprises 384 retail outlets across the US. Of these 156 are Nike factory stores which carry primarily overstock and closeout merchandise, 28 Nike in-line stores including Nike Towns which are designed to shelf Nike branded products and employee-only stores. Also, the company operates 109 Cole Haan stores, 62 Converse factory stores, and 29 Hurely stores in the US. Internationally, Nike offers its products through Nike-owned retail stores and through a mix of independent distributors and licensees. International branch offices and subsidiaries of Nike are located in Argentina, Australia, Austria, Belgium, Bermuda, Brazil, Canada, Chile, China, Croatia, Cyprus, the Czech Republic, Denmark, Finland, France.The company operates 16 distribution centers outside of the US. In international markets, the company offers its products through 308 Nike factory stores, 65 Nike in-line stores including Nike Towns and Nike employee-only stores. Additionally, the company operates 69 Cole Haan stores. Thus, the wide distribution channel helps in on-time delivery of the products across the countries, which in turn, helps Nike in managing its inventories in a better way.
Dependence on third-party manufacturers To minimize production costs, Nike outsources almost all of its footwear production to independent third-party suppliers, primarily located in Asia. In FY2012, contract factories in Vietnam, China and Indonesia manufactured approximately 41%, 32%, and 25% of total Nike Brand footwear, respectively. The company also has manufacturing agreements with independent factories in Argentina, Brazil, India, and Mexico to manufacture footwear for sale primarily within those countries. Almost all of Nike Brand apparel is manufactured outside of the US by independent contract manufacturers located in 28 countries. Most of this apparel production occurs in China, Thailand, Vietnam, Malaysia, Sri Lanka, Indonesia, Turkey, Cambodia, El Salvador, and Mexico. As Nike procures its merchandise from foreign manufacturers, it has little control over the product quality. For instance, there have always been concerns over unsafe Chinese consumer products. The Consumer Product Safety Commission has issued alerts and announced voluntary recalls by US companies on numerous products made in China and other Asian countries. For example, in 2010, the US consumer product safety commission and Health Canada recalled youth and junior hockey sticks, shafts, and blades of about 67,000 units in the US and 60,000 units in Canada respectively, which have been manufactured in China. Few of them are Nike branded products. In addition, in 2007, Nike recalled football helmet chin straps of about 235,000 units manufactured in China under Nike's brand. Further in 2004, CPSC, Nike recalled about 9,000 units of Nike Get-Go and Little Get-Go children's athletic shoes manufactured in Indonesia. Any failure on the part of vendor and manufacturer to achieve and maintain high manufacturing standards could result in manufacturing errors resulting in product recalls or withdrawals, delays or interruptions of production, cost overruns or other problems that could affect Nike's brand image and business. Thus, over-reliance on third-party vendors and manufacturers makes Nike prone to dependency risks. Limited control over contract manufacturers The contract manufacturers of Nike have been criticized for the violation of labor laws in countries such as China, Vietnam, Indonesia and Mexico, in recent past. For instance, in 2008, the Australian Channel 7 News found a large number of cases involving forced labor in one of the biggest Nike apparel factories in Malaysia. Furthermore, Vietnam Labor Watch, an activist group, has documented that factories contracted by Nike violated minimum wage and overtime laws in Vietnam as late as 1996. Additionally, during the 1990s, Nike was criticized for the use of child labor in Cambodia and Pakistan in factories it contracted to manufacture soccer balls. Many colleges and universities, especially anti-globalization groups as well as several anti-sweatshop groups such as the United Students Against Sweatshops, took campaigns against Nike. These kinds of instances show that Nike has limited control over its contract manufacturers. Thus, any future instances like these could damage the company's reputation.
Association with NFL would consolidate Nike’s leadership position in the US During 2010, Nike was named the US National Football League's (NFL) licensed partner for on-field apparels including uniforms, clothing worn on the sidelines and fan gears. The company replaced Reebok as the NFL's licensed partner during 2012 – 16. In FY2012, the company expanded NIKE+ into basketball and training and launched a new digital technology called the NIKE FuelBand. In addition, Nike launched 32 new uniforms for the NFL. The license is expected to increase Nike's earnings per share in the near future. The association with popular events like NFL would give the company exposure and recognition, as the events are broadcast to millions of fans across the world. Also, the sponsorship increases the brand recall among the consumer groups who watch these events. Thus, Nike could further leverage on this identity to target consumers of such events and further consolidate its market share in the US. Growth opportunities in India In September 2012, the Indian government removed restrictions on foreign direct investment in its single-brand retail sector, paving the way for global store chains like Nike to have full ownership of its Indian operations. Previously, the FDI limit in single brand retail was capped to 51% in 2006. However, the government allowed foreign investment of up to 100% with riders that FDI beyond 51% there should be mandatory sourcing of at least 30% of the total value of the products sold from small industries. Also, the products sold by the foreign retailers should be under 'single brand' and these products should be sold under the same brand internationally. With the opening up of single brand retailing in India, foreign retailers can own the stores entirely and they don't need to collaborate with an Indian partner, which facilitates greater control over the operations and flexibility in projection of their brands. Nike operates in India through NIKE India Private Limited and NIKE Sourcing India Private Limited. In FY2011, contract factories in India manufactured approximately 2% of total Nike Branded footwear. In addition, the company has manufacturing agreements with independent factories in India to manufacture footwear for sale primarily within the country. As Nike has contract factories in India, the company can source the output from those factories and meet the 30% sourcing clause to a certain extent. According to MarketLine estimates, the Indian footwear market is expected to generate total revenue of $2.5 billion in 2011, representing a compound annual growth rate (CAGR) of 10.3% between 2007 and 2011. In comparison, the Chinese market is expected to increase with a CAGR of 5.5%, and the Japanese market will decline with a CARC of -1.1%, over the same period, to reach respective values of $13.7 billion and $13.9 billion in 2011. The Indian footwear market is forecast to accelerate, with an anticipated CAGR of 15.1% for the five-year period 2011 – 16, which is expected to drive the market to a value of $5.1 billion by the end of 2016. Comparatively, the Chinese and Japanese markets will grow with CAGRs of 7.8% and 0.3% respectively, to reach respective values of $20 billion and $14.1 billion in 2016. Sales generated through clothing, footwear, sportswear and accessories retailers were the most lucrative for the Indian footwear market in 2011, with total revenues of $2,314.9 million, equivalent to 91.5% of the market's overall value.
Nike can cash in on India's growing urban middle class and strong demand for international brands and lifestyle products. As the company already has operations in India, it has a competitive advantage to take quicker business decisions and make more investments to expand its market presence in the rapidly growing Indian footwear market. Brand reorganization initiative Nike undertook a new reorganization strategy in 2009. As per the strategy, the company reorganized its Nike brand into a new model consisting of six geographies with reduced management layer. The new model had six geographies: North America, Western Europe, Eastern/Central Europe, Greater China, Japan and emerging Markets. The Nike Brand had been organized by four regions: the US, Asia Pacific, Americas and EMEA (Europe, Middle East and Africa). This organizational change was part of a wider company restructuring that would result in an overall reduction of up to 4% of the company's workforce. Initiatives like this would help Nike increase its focus on core category busines s areas and drive greater efficiencies and stronger consumer connections. Growth in global footwear market The global footwear market has shown positive growth in recent years. According to the MarketLine estimates, the global footwear market grew by 5% in 2011 to reach a value of $241,294.3 million. In 2016, the global footwear market is forecast to have a value of $311,132.2 million, an increase of 28.9% since 2011. Clothing, footwear, sportswear and accessories constitute the largest segment of the global footwear market, accounting for 67.2% of the market's total value. Nike is a specialty retailer offering athletic footwear to various customer segments. The company offers its products through Nike-owned stores, franchises and licenses. It supplies footwear to retailers, who in tur n sell to consumers. The company also offers its products through its websites, nikestore.com and Nike.com. As Nike derived 55.6% of its revenues from the footwear segment in FY2012 and has a significance presence in the global footwear market, it could capitalize on the growing market to further consolidate its leadership position.
Intense competition The market for sporting goods is intensely competitive in the US and across geographies. Nike competes internationally with a large number of athletic and leis ure shoe companies, athletic and leisure apparel companies, sports equipment companies and companies with diversified lines of athletic and leisure footwear and apparel and equipment. The company faces competition from Adidas and Puma in international markets. In the US market, the company also faces competition from regional players such as Dick's Sporting Goods and Finish Line. The company also faces competition from cheaper imported footwear from Asian countries such as China. Thus, intense competition and availability of cheaper products could put pressure on the price of products and therefore affect the company's margins.
Growing counterfeit goods market The counterfeit products market has been growing in the recent years driven by the internet counterfeit market. The abundance of counterfeit goods and accessories is adversely affecting the sales of branded products. According to estimates by the Counterfeiting Intelligence Bureau (CIB) of the International Chamber of Commerce (ICC), counterfeit goods make up 5% to 7% of world trade. With the advent of digital channels, there has been a surge in the sale of counterfeit products through online sales. According to an estimate, the sales of counterfeit goods online from il legitimate retailers reached $135 billion in 2010. In addition, the US economy is suffering an estimated loss of $200 billion in revenue due to sale of counterfeit goods. In Europe, the market for counterfeit products is estimated to be worth $8.2 billion. In 2009, the US Immigration and Customs Enforcement (ICE) agents seized more than 17,000 counterfeit items worth an estimated $643,000 from 21 businesses in the Minneapolis-Saint Paul twin cities region in the US and the consignment included 3,524 bottles of perfume. Geographically, over half of the fake goods confiscated at EU borders came from China. The personal care category is among those that recorded the highest increases in r egistered intellectual property rights (IPR) infringement cases. Low quality counterfeits reduce consumer confidence in branded products. Also, what differentiates the offerings of companies such as Nike from its competitors is exclusivity; widespread counterfeits reduce this exclusivity. Counterfeits not only deprive revenues for Nike but also dilute its brand image.
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