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NIKE: CASE ANALYSIS Can ŞAHAN Muzaffer ÇAĞLAR Gökhan TAŞLIÇUKUR Halime GERÇEK Business Policy Yeditepe University

Nayk Business Policy

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Page 1: Nayk Business Policy

NIKE: CASE ANALYSIS

Can ŞAHAN

Muzaffer ÇAĞLAR

Gökhan TAŞLIÇUKUR

Halime GERÇEK

Business Policy

Yeditepe University

Page 2: Nayk Business Policy

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

External: Industry overview and comparison of

financial ratios Manufacturing Opportunities and threats Competitors

Market Share Analysis: CPM

Analysis SWOT Matrix SPACE BCG IE matrix Grand Strategy Matrix

Possible strategies: Matrix Analysis

Decisions Why our decision? Strategic implementation Actions

Evaluation Procedure Conclusion

Page 3: Nayk Business Policy

History

1962: 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.

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1976: 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.

History

Page 5: Nayk Business Policy

Evolution of the Swoosh Logo

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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.

Page 7: Nayk Business Policy

Brands

Page 8: Nayk Business Policy

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.

Brands

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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.

Brands

Page 10: Nayk Business Policy

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.

Brands

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

Brands

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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 Nov 24st, 2008: $56,45

Shares Outstanding (July 2003): 263.7 mill

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Stock Price Performance

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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)

Page 15: Nayk Business Policy

Proposed Vision Statement

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

Page 16: Nayk Business Policy

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."

Page 17: Nayk Business Policy

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.

Page 18: Nayk Business Policy

Internal Assessment

MARKETING:

Target Market :Male and Female; 18 – 34 y.o.

Positioning : High performance shoes designed with hi-tech features

Have many brands and products model for each type of consumers.

Have high allocation of advertising budget for endorser contract, TVC, print ads, and sponsorship activities.

Have top endorsers that are the champion in their sports areas.

Page 19: Nayk Business Policy

Internal Assessment

DISTRIBUTION:

Nike has worldwide distribution line

Nike has good distribution line to retailer

Nike has new ordering system, named Futures Ordering Program

Page 20: Nayk Business Policy

Internal Assessment

RESEARCH & DEVELOPMENT :

Nike has NSRL (Nike Sport Research Laboratory) and APE (Advanced Product Engineering) which cooperated in developing and executing idea.

Nike did direct research to the athlete by accompanying their daily activities to find the best suitable product.

Nike always developing superior technology to compete with others.

Page 21: Nayk Business Policy

Internal Assessment

Management Style & Culture

Knight as CEO Nike, is an former athlete of long distance run

Nike working culture is established as camaraderie and cooperative culture.

Factory design in Oregon is especially designed to create natural circumstances and equipped with complete sport facilities.

Page 22: Nayk Business Policy

Internal Assessment

Nike placed VP for social responsibility in 1998

Nike joined Fair Labour Association (FLA) and Global Alliance for Workforce and Communities (GAWC)

Nike funded many NGO such as WWF, etc.

Nike do public relation activities to keep the company’s image

Page 23: Nayk Business Policy

External Assessment

Economic Forces

EU is changing into one currency.

USA economic growth is in slow growth because of WTC.

Contract manufacturing is chosen by many athletic shoes company.

Page 24: Nayk Business Policy

External Assessment

Social Forces

Since 70-s, customer is more brand-minded.

Sport Consumer preferences is changing into more fashion-oriented.

Young consumer is believed much in advertising promotion and use internet as

the primary sources of information.

Buying motives of young consumer is dominated for leisure activity

Since 90-s, woman’s consumer dominated the athletic shoe market because of

the changing lifestyle.

Page 25: Nayk Business Policy

External Assessment

Political Forces

World is entering global trade climate with NAFTA and GATT

There is anti-dumping regulation existed in EU

Page 26: Nayk Business Policy

External Assessment

Technology Forces

Nike has integrated technology system to develop their product

Nike always adopted latest technology for their product and matched with

their vision

Page 27: Nayk Business Policy

External Assessment

Competitive Forces

Competition is more tight with the coming of Reebok and Adidas

Competition is happened around the world, globally, not locally

Athletic shoe trend is going to be fashion-oriented

Page 28: Nayk Business Policy

Branding: powerful marketing mechanism used by Nike

Leads to higher and more consistent product quality.

Increases innovation by giving producers an incentive to look for more new features that can be safeguarded by the patent.

Branding results in more product variety and choice for consumers.

Branding provides consumer information about products and where to find them.

Page 29: Nayk Business Policy

Nike’s Market Expansion Strategies

Economies of Scale. Shared distribution channels among varied product

lines lower costs. Large size provides opportunity for more leverage

against competition. Efficient use of production facilities lowers costs.

Page 30: Nayk Business Policy

Brand Image

Ability to charge premium price by establishing an “image”

• Access to new/different markets • Premium product placement in retail leading to higher

sales • Image and celebrity endorsements create

hopes/dreams/emotional attachment to product

Page 31: Nayk Business Policy

Innovation

Innovation may be difficult for competitors to imitate. Difficult for competitors to compete with rate of

innovation/production. Ability to capture market for different attitudes/values

across cultures with product variety. Strong emphasis on R&D leads to continuous

improvement in products.

Page 32: Nayk Business Policy

Geographical Outreach

Ability to reinforce brand and create loyalty across cultures leading to a broad customer base.

• Increased company growth potential. • Cross-subsidization of weaker markets.

Page 33: Nayk Business Policy

Product Diversification

New products introduced by Nike will be more readily accepted by customers due to strong brand image

Page 34: Nayk Business Policy

PRODUCT MIX

Product Mix

A product mix is the set of all products and items that a particular seller offers for sale to buyers also known as product assortment.

Product Width It refers to how many product lines the company

carries.

Page 35: Nayk Business Policy

PRODUCT MIX Cont’d

Product line A product line is a group of products that are closely

related because they perform similar functions

Product lengthIt refers to the total number of items in its product mix

Product depth

It refers to how many products are offered of each product line.

Page 36: Nayk Business Policy

PRODUCT MIX for Nike

• Footwear • Studs for Striker• Mid fielders • Defenders• Apparel• Headwear• Tops/Polo• Jersey• Jackets• Shorts • Shocks• Equipment• Ball • Bags• Watches• National Team Gear• Jersey for Brazil, England, etc.• Club Gear • Club Jerseys like Man U, Real Madrid, etc

Page 37: Nayk Business Policy

Evolution of Financial Ratios (2004-2008)

Page 38: Nayk Business Policy

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

Page 39: Nayk Business Policy

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.

Page 40: Nayk Business Policy

Key Ratios: Overall Comparison (2007)

Page 41: Nayk Business Policy

Key Ratios: Overall Comparison (2007)

Page 42: Nayk Business Policy

Key Ratios: Overall Comparison (2007)

Page 43: Nayk Business Policy

Manufacturing: Nationality of Contract Suppliers

Page 44: Nayk Business Policy

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.

Page 45: Nayk Business Policy

Athletic Shoe Market Share (2007)

Page 46: Nayk Business Policy

SWOT Analysis

Page 47: Nayk Business Policy

Business Structure

Operating Segments: Footwear Apparel Equipment

Operating Regions: US Europe, Middle East

and Africa (EMEA) Asia Pacific Americas

Page 48: Nayk Business Policy

BCG Matrix

Cash-Cow

Stars

Dogs

Question marks

Page 49: Nayk Business Policy

Cash-Cow

Stars

Dogs

Question marks

The Grand Strategy Matrix

Potential Strategies: - Market

Development - Market Penetration - Product

Development - Backward

Integration - Forward Integration - Concentric

Diversification

Page 50: Nayk Business Policy

Cash-Cow

Stars

Dogs

Question marks

Comparative Balance Sheet

Acoount Heads 2007 2006 Increase/Decrease % Change

Current Assets 8077 7359 718 9.76%

Total Non current Assets 2612 2511 101 4.02%

Total Assets 10689 9870 819 8.30%

Current Liabilities 2584 2623 -39 -1.49%

Total Non-current Liabilities 1079 961 118 12.28%

Total Liabilities 3663 3584 79 2.20%

Total Equity 7025 6285 740 11.77%

Page 51: Nayk Business Policy

Cash-Cow

Stars

Dogs

Question marks

Current Assets Non Cur. Asset Total Assets C. Liabilities Total Non cur. Liab. Total Liabilities Total Equity0

2000

4000

6000

8000

10000

12000

8077

2612

10689

2584

1079

3663

70257359

2511

9870

2623

961

3584

6285

20072006

Page 52: Nayk Business Policy

Cash-Cow

Stars

Dogs

Question marks

Accounts 2007 2006Increase/Decrease % Change

Revenue 16326 14954 1372 9.17%

COGS 9165 8368 797 9.52%

Gross Profit 7161 6586 575 8.73%

SG&A Expense 4759 4187 572 13.66%

Depreciationa & Amortization 270 291 -21 -7.22%

Operating Income 2132 2108 24 1.14%

Nonoperating Income 68 32 36 112.50%

Income Before Taxes 2200 2140 60 2.80%

Income Taxes 708 750 -42 -5.60%

Net Income After Taxes 1492 1390 102 7.34%

Comparative Income Statement

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Reven

ue

COGS

Gro

ss P

rofit

SG&A E

xpen

se

Dep

r. & A

mor

t. Exp

ense

Ope

r. In

com

e

Non

oper

ating

Inco

me

Inco

me

Befor

e Tax

es

Inco

me

Taxes

Net

Inco

me

afte

r Tax

es0

2000

4000

6000

8000

10000

12000

14000

16000

18000

16326

9165

7161

4759

270

2132

68

2200

708

1492

14954

8368

6586

4187

291

2108

32

2140

750

1390

2007

2006

COMPARATIVE INCOME STATEMENT

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Quick Ratio Current Ratio Debt To Equity Ratio0

0.5

1

1.5

2

2.5

3

3.5

2.32

3.11

0.08

2.16

3.36

0.06

Financial Strength

CompanyIndustry

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Receivable Trunover Inventory Turnover Asset Turnover0

1

2

3

4

5

6

7

8

6.93

4.39

1.63

7.3

4.26

1.64

Efficiency

CompanyIndustry

Page 56: Nayk Business Policy

P/E Ratio Price to Sales Price to Cash Flow Price to Free Cash Flow0

2

4

6

8

10

12

14

16

18

20

Valuation Ratios

CompanyIndustry

Page 57: Nayk Business Policy

Return on Assets Return on Investment Return on Equity0

5

10

15

20

25

16.15

21.2

24.49

16.68

21.79

21.79

Management Effectiveness

CompanyIndustry

Page 58: Nayk Business Policy

Dividend Yield Dividend 5 Year Growth Payout Ratio0

5

10

15

20

25

1.48

24.23

22.88

1.52

24.59

19.23

Dividends

CompanyIndustry

Page 59: Nayk Business Policy

Porter’s Five Forces Model

Bargaining Power of Suppliers:-Subcontracts to more than 500 small scale factories -Low bargaining power due to Nike’s big volume

Bargaining Power of Buyers:-Competitive products all compete on differentiation-Low switching costs

INDUSTRIAL ANALYSIS

Page 60: Nayk Business Policy

Porter’s Five Forces Model

Threat of Substitute Products:-Non-existent

Threat of Potential New Entrants:-Economies of Scale-Strong and Well Established Brand Name-High Capital requirements-Low threat

INDUSTRIAL ANALYSIS

Page 61: Nayk Business Policy

Porter’s Five Forces Model

Intensity of Rivalry between Firms in the Industry:

-High competitive in an Oligopoly (other leading firms include Adidas, Puma, Fila, New Balance) -Strong brand identity and product differentiation -Intensity of Rivalry is moderate

INDUSTRIAL ANALYSIS

Page 62: Nayk Business Policy

Porter’s Five Forces Model

INDUSTRIAL ANALYSIS

High Moderate Low

Bargaining Power of Suppliers

Bargaining Power of Buyers

Threat of Substitutes

Threat of New Entry

Intensity of Rivalry Between Firms

Page 63: Nayk Business Policy

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

Page 64: Nayk Business Policy

Implementation

Actions:• 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)

Page 65: Nayk Business Policy

References

• http://finance.yahoo.com• Nike Annual Reports (2003 & 2007 )• Annual ranking of America's largest corporations, Magazine: Fortune 500 (2007):

cnn.money.com• www.nikebiz.com (Investor Relations)• www.bigcharts.com• www.businessweek.com• Strategic Management Concepts and Cases; Fred R. David, 10th Ed.

Page 66: Nayk Business Policy

Thank You…