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NikeNYSE: NKE

Porter’s Five Forces

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Porter’s Five Forces is a model named after Michael E. Porter that takes into consideration five market forces that play out on any given company or industry. The five forces are: power of buyers; power of suppliers; threat of substitutes; threat of new entrants; and industry jockeying.

This model examines these forces thereby helping to determine a given company’s strengths and weaknesses.

Porter’s Five Forces is also a way to view the potential risks to which any given company may be exposed.

Porter’s is a valuable yet somewhat subjective tool. It is a starting point meant to encourage further discussion.

What is Porter’s Five Forces?

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Please note there is no official method to score the model. This method is simply a way to further categorize companies.

Each market force is scored on a scale of 1 – 5 with 1 representing the lowest threat and 5 representing the highest threat.

All five forces are totaled for a final score. The lowest possible score is 5 and the highest possible score is 25.

5 – 11 implies a lower threat rating.12 – 19 implies a medium threat rating.20 – 25 implies a higher threat rating.

Scoring

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Power of Buyers The buyers in the case of Nike are consumers

like you and me. Professional athletes are advertising. They get

the gear out there for us to see. Athletic gear/apparel/footwear is a $200

billion-plus market opportunity. All around the world Nike is synonymous with

sports. Consumers will often pay for what they really

want. Nike has been able to maintain a decent level

of pricing power on product; direct-to-consumer is helping the cause as well.

Score - 3

5

Power of Suppliers Suppliers are those that supply the materials

and produce the goods NKE sells. It’s difficult to forget the sweatshop issues

and abusive labor practices of the past. From the 10-K: “We have thus far

experienced little difficulty in satisfying our raw material requirements.”

Nike has led the way in supply chain transparency since these issues arose.

With a manufacturing presence of 719 factories in 44 countries spanning almost 1 million workers (contracts), suppliers do hold some of the cards.

Score - 2

6

Threat of Substitutes One of the greatest threats in virtually every

walk of retail is the threat of substitutes. Generally speaking there are plenty of

substitutes in athletic apparel/equipment. Materials and products exclusive to the brand

help to mitigate this threat. NKE’s reputation for excellence, leading

market position and powerful brand that earns the stamp of approval from many athletes do mitigate this threat somewhat.

Top-line growth over the last decade has been quite impressive.

Competition will continue to keep pace for the most part so innovation will be key.

Score - 3

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Threat of New Entrants While the threat of new entrants is very

relevant in the retail space, NKE has built a fiercely loyal customer base with both the quality of the offering and the power of the brand.

Can new entrants come in and start taking away NKE sales? Of course.

Do new entrants force NKE to cut prices to maintain market share? Doubtful.

NKE’s leading position in the space and reputation in the field protect it somewhat from new entrants.

Gross margin over time indicates a degree of pricing power.

Score - 2

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Industry Jockeying Sporting goods is a very large market

opportunity on a global scale. Signs of an active and competitive industry

can be seen in innovation, SG&A costs, social media presence, etc.

Constantly signing new athletes and endorsements. Nike maintains its gold standard, however competitors like Adidas, Under Armour and others are capitalizing on opportunities as well.

NKE also capitalizing on direct-to-consumer. NKE has had to maintain spending, signs of a

robust and competitive market. Score - 4

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Power of Buyers – 3 Power of Suppliers – 2 Threat of Substitutes – 3 Threat of New Entrants – 2 Industry Jockeying – 4

TOTAL – 14

Score