Research Paper: Business Strategy Report for Nike

Pages: 25 (6524 words)  ·  Style: APA  ·  Bibliography Sources: 5  ·  Level: College Senior  ·  Topic: Business  ·  Buy for $19.77

Nike manufactures and markets sports apparel and equipment on a global scale. They operate in 160 different countries, and have revenues of $18.6 billion. Yet, they are a growth company. Without any significant acquisition, they have consistently grown revenues and profits over the past several years by shifting emphasis on brands they own in growth sectors.

Nike's marketing strategy revolved around two concepts - premium positioning and everyone with a body is an athlete. These concepts drive their strategies, including endorsements from the world's most popular athletes, and the development of products for both the serious athlete and the mass market.

Financially, Nike is strong. They are liquid and are on a steady growth trajectory. They are, however, underleveraged. The company derives significant strength from its global production and logistics network. Despite this, the company faces many threats, both competitive and economic.

Nike is well-positioned to defend against these threats. Their move into growth sectors of the market shows savvy. It is recommended that their convoluted organizational structure to reduce operational duplication. They should also adjust their capital structure to make it more efficient. It may also be time for Nike to make a major acquisition, capitalizing on slumping equity markets to strengthen their defenses against economic downturn and competitive threats. If Nike is able to make these adjustments and strategic recommendations, they are in a good position to maintain their steady growth trajectory for years to come.

Overview

Nike is in a strong position to address these threats. It is recommended, however, that they take steps to shore up their operational efficiency. This may require a less convoluted organizational structure. The time may have come for Nike to make a major acquisition as well, to take advantage of depressed stock markets and strengthen their defenses against a maturing core market. By making a few operational adjustments and possibly an acquisition, Nike can continue on its growth trajectory for several more years

Nike was founded in 1968 and has grown into a global powerhouse. The companies designs, manufactures, markets and retails athletic footwear, apparel and equipment. Based out of Beaverton, Oregon, Nike today operates in 160 countries and has 32,500 employees. The company is involved in most sports, and also makes some casual footwear. Major competitors include Adidas, Puma, New Balance and Reebok. Nike sells products mainly under its own name, but also owns Umbro, a major soccer brand; Cole Haan, a casual wear subsidiary; Converse, another athletic brand; and Hurley, a player in the board sports industry.

In recent years, Nike has enjoyed substantial success. They have increase revenues, margins and profits consistently, expanding their market share in the process. Their Nike Golf, Cole Haan and Hurley lines have enjoyed tremendous success, the last two with record revenues last year. The firm has strong growth in several key emerging markets, such as China, Brazil and Russia. The company acquired premier soccer brand Umbro and is in the process of integrating that business into the Nike family. Nike has had a couple of failure, however. They have recently divested two of their businesses, Starter and Bauer. The latter, a major hockey equipment manufacturer, represented a major failure for Nike as they failed to make any headway into that sport, and the balance of power shifted towards Reebok, forcing Nike out of the business.

Nike's revenues in 2008 were $18.6 billion. Of these revenues, 43% were derived from the United States market, and 57% derived from international markets. The U.S. market was worth an estimated $19.33 billion in 2006, giving Nike an approximate market share in the U.S. Of 41%. Nike characterizes itself as a growth company, a claim borne out in their net profit figures, which have increased steadily in the past few years. The company's diluted EPS has increased 113% in the past five years.

Nike is the U.S. And global market leader in the broad category of athletic apparel. Nike has expanded its market share in recent years, and is the market leader in its six core businesses - basketball, running, football, men's training, women's training and sportswear.

Vision/Mission

According to the Nikebiz.com website, Nike's corporate portal, the mission statement for Nike is "To bring inspiration and innovation to every athlete in the world." Central to this mission is Nike's definition of the term athlete. In the formative days of the company, co-founder Bill Bowerman defined athlete the following way: "If you have a body, you are an athlete." That definition is at the heart of Nike's business model, and has been central to their vision and consequently to their spectacular growth. Envisioning every person as an athlete changed the company's perspective of their target market. This in turn laid out their growth potential, and guided product and marketing strategy development. Ultimately, this concept helped change the perspective of the American consumer with regards to the definition of the term. Nike's ability to market its definition of "athlete" and its ability to consistently develop products that help bridge the gap between the traditional view and the Nike view has been critical to their ascendency as a major global apparel company.

Nike does not have a vision statement as such, but CEO Mark Parker illustrates the company's vision in its 2008 Annual Report. Nike sees itself as a growth company, driven by innovation and industry leadership. Nike sees itself as deriving success from its immersion into each sport's culture, building deep relationships with consumers that help to drive Nike's innovation. The company has a strong vision of growth in the future, including further penetration of international markets, and the addition of more product lines. The firm views itself as defined by "epic moments" such as championships and individual triumphs, and their vision is to bring this power - the power of sport - to the mass market

Strategies

Nike approaches its business with several key strategies. With regards to businesses, they focus their efforts on six main segments of the market. Their core groups amount to over 70% of the sports apparel industry in the United States. Each group operates autonomously, with its members immersing themselves in the sport and the culture. This is done to help them stay on the cutting edge of trends, and achieve first-mover advantages. Nike prefers to be an innovator of new product and design ideas, and views this is a central part of its business plan.

Nike has several key operational strategies. Procurement is focused on low-cost production centers. This helps Nike to develop high margins for their products. China is the largest producer of Nike goods, at 36%. This is followed by Vietnam (33%), Indonesia (21%) and Thailand (9%). In several countries, Nike produces footwear domestically. Production is widely dispersed, with the largest plant producing just 6% of footwear. All told, Nike uses nearly 700 factories in 52 countries.

Nike attains a degree of market saturation by retailing through multiple channels. They operate 260 of their own stores, but also retail through other athletic stores, department stores and other channels as appropriate. Nike has begun in recent years to increase licensing of its brand, extending its portfolio beyond athletic ware and expanding brand exposure.

Functional Points of Emphasis

Nike sees itself as an innovator in research and development, and views the field as an area where they can gain competitive advantage. Their strategy of cultural immersion allows them to get a sense of the direction in which a particular market is going. This information is then combined with product development teams. Nike uses a wide range of synthetic materials, along with natural rubber and leather. Technological development focuses on aspects of performance, durability, and weather resistance. The industry in the U.S. is trending towards casual wear, which should reduce Nike's research and development costs as a percentage of sales, since this will decrease focus on the high-tech performance aspect of product development.

Nike has a multifaceted marketing strategy. A key aspect of their success is the use of celebrity endorsements. Elite athletes such as Michael Jordan and Tiger Woods have propelled Nike in their respective segments. The company prefers to build long-term relationships with these athletes. Jordan, for example, still works with Nike years after his retirement. The firm uses multiple channels to sell its products, including its own branded stores, resulting in a significant degree of market saturation. A recent move towards increased branding of non-athletic products has helped Nike increase its brand proliferation.

To facilitate sales, Nike operates several regional sales offices. They have 18 such offices in the United States. They also employ 6 independent sales representatives for specialty products like golf and skating. The company uses a mix of their own sales channels, plus independent distributors. For much of the world, Nike runs its sales operations in a manner similar to the way they run sales in the U.S. Over four dozen countries have their own sales offices.

Nike finances its growth through a balanced capital structure, with emphasis on retained earnings. They have a debt-equity ratio of… [END OF PREVIEW]

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