SPORTS FOOTWEAR AND APPAREL INDUSTRY ANALYSIS

Nike Corporation

DEFINING THE INDUSTRY

INDUSTRY DEFINED

20,000 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 CODES

North American Industry Classification System

The 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 Name Classification Level

31-33 Manufacturing Sector

316Leather and Allied

Product Manufacturing

Subsector

3162Footwear

ManufacturingIndustry Group

31621Footwear

ManufacturingIndustry

316211

Rubber and Plastics

Footwear

Manufacturing 

U.S. Detail Industry

NIKE PRODUCTS They 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 PRODUCTS Their 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 PRODUCTS

T

hey not only see competition from Adidas and

Reebok, but also with Old Navy and Abercrombie

and Fitch

C

ontinuous marketing research is the key in assessing

the market

NIKE EXPANSION

Nike 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 COMPETITOR

C

onsist 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

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 STRUCTURE

GROWTH IN RECENT DECADES

N

ike and Reebok set the standard

N

ike gained popularity

L

urking competitors• Adidas Group• Under Armour

INDUSTRY WEAKENING

I

nternet skyrocketed sales in late 90’s

U

pcoming companies took advantage of new technologies

S

ales have slumped tremendously in past year

N

ike making 4% cut

U

nder Armour stated that analyst’s estimates are far below earlier predictions

THREAT OF NEW ENTRANTS

H

ighly saturated and challenging industry

D

epend in large part on first mover advantage and scale

economies

A

reas to focus: Technologies, pricing, and costs of

production

INNOVATOR

S

ports Apparel and Footwear industry relies mainly on innovations and creativity

I

nnovative Ideas=Key success factor

C

ompany could have an advantage

W

ithout proper funding and resources a firm could be at a severe disadvantage

T

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

ECONOMIES OF SCALE

D

ifficult to compete with large economies of scale

H

ard to handle all levels, more experienced firms are able to

disperse

N

ew entrants suffer a severe cost disadvantage

S

ignificant amount of assets needed

BARGAINING POWER OF BUYERS AND SUPPLIERS

Power of buyers can be determined by supply vs. demand

and number of buyers

Price sensitivity effects demand

Customers more affected by price

Suppliers are more powerful when the ratio to buyers is

more

The vast range of products in the Athletic Apparel industry

leads to a dissimilar amount of bargaining power for the

supplier

SUBSTITUTE PRODUCTS AND SERVICES

T

he threat of substitute products

The existence of close substitute products increases

the propensity of customers to switch to alternatives

in response to price increases

SUBSTITUTE PRODUCTS AND SERVICES

S

ubstitutes 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 comparisons

3) Competitively priced substitutes impose a maximum value on

prices relevant industry can charge for its products or services

SUBSTITUTE PRODUCTS AND 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 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 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

C

ompetitive rivalry

T

his 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

G

enerally competitive rivalry will be high if:T

here is little differentiation between the products sold between customers.

C

ompetitors are approximately the same size of each other

I

f the competitors all have similar strategies.

I

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

H

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

RIVALRY AMONG PARTICIPANTS

M

arket of Competitive Rivalry

INDUSTRY ENVIRONMENT

NIKE 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. ETHICS

I

n 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. ETHICS

W

ithout proper management leading and planning in the

Nike Corporation, the company would have suffered from

the child labor issue.

N

ike 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. SOCIETY

P

eople 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. SOCIETY

T

he 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.

TECHNOLOGY

P

roduct technology must evolve as fitness evolves, in order to give

competitors an advantage

N

ike introduced Nike Shox, which revolutionized the cushioning

foam used in shoes

N

ike also collaborated with Apple and is launching new apparel

and footwear that will easily carry the consumer’s iPod

TECHNOLOGY

P

roduct innovation is an ongoing process and is vital to stay ahead of

competition

C

ompanies in this industry invest money in R&D to keep up with the new

demands of today’s athletes

N

ike employs many specialists including engineers, athletes,

biomechanics, and industrial designers to work together in the design

process

COMPETITION The top 3 firms in this industry are Nike, Adidas, and Puma

The industry is relatively old, so firms must fight for market

share rather than relying on market growth

AREAS FIRMS COMPETE ON

P

roduct offerings

T

echnologies

M

arketing Expenditures (endorsements and advertising)

P

ricing

C

osts of Production

C

ustomer Service

COMPETITION

Firms 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

COMPETITION

During 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

GEOGRAPHY

Production 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 sold

Firms 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

GEOGRAPHY

Plants 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

CONCLUSION

OVERVIEW 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 NOW

F

inancially, the company must be aware that economies are not

up to par and that costs must be kept low to bring in the

revenue.

W

ith 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.

W

ays for Nike to do this is to keep the site simple, fresh,

and easy to use.

B

y 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 FORECAST

T

echnology 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.