THREATS:
Las Americas: Nike is funding part of the first-ever privately funded U.S.-Mexico port of entry into the United States. Nike’s involvement in this project could open them to public criticism concerning immigrant labor. Additionally, in the wake of the events of September 11, Americans are wearier of foreigners and more concerned with homeland security. The bridge might threaten Nike’s reputation.
University Campus Groups: Student groups are gaining strength and becoming a larger presence on university campuses across America. For example, an article stated that the University of Connecticut decided to allow students with protest signs to attend athletic events only after the school was approached by a student organization requesting this measure. If Nike cannot reconcile its differences with student groups, it will face more and more threats to its reputation as these groups gain more and more of a following on campuses.
Competition: According to various Web sites, Nike competes with Converse, Fila, Adidas, New Balance, and Reebok. Nike currently dominates the market, but these companies pose a potential threat to its reputation. If Nike cannot stay one step ahead of these companies in terms of product design and customer satisfaction the corporation could flounder. Reebok, for instance, has already taken over Nike’s contracts with the WNBA and the NFL.
Industry Trends: In the past, Nike has been unable to keep up with changes in the industry. According to a report concerning Nike’s weaknesses, the corporation was one of the last athletic footwear companies to move into e-commerce and was late recognizing other trends in the market. Nike can ill afford to be viewed as a complacent company and cannot let this threaten its reputation.
Manufacturing Network and Global Economy: Nike Inc. is the parent company of numerous subsidiaries and is imbedded in an intricate global manufacturing network. Additionally, Nike relies heavily on the global economy to succeed. What is more, the corporation grew so fast that it developed organizational dilemmas, causing Phil Knight to admit in a news release “four years ago, we (Nike) had outgrown our ability to manage the business.” If Nike and its publics cannot understand the intricacies in Nike’s corporate system, they might lose faith in the organization.
Management: Since its conception in 1964, Phil Knight has held close control of the company and “ruled with a mix of closely allied senior managers,” according to a business report entitled “Channel Conflict.” Nike management has also gone to tremendous lengths to identify with competition and victory. Management wants to be in complete control; however, this is not always a positive in the eyes of stakeholders and could threaten its reputation.
Internet Boom: An Internet search with the phrase “anti-Nike” showed thousands of links to anti-Nike Web sites appear. With the click of a mouse, anyone without any accreditation or legitimacy can post anti-Nike sentiment or have access to anti-Nike material. This has made it easier for activists to express their negative opinions of Nike and is making it harder for Nike to overcome some of its less flattering reputations.
Lawsuits: Nike has been involved in many lawsuits that also threaten its reputation. Most recently, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a case against Nike and St. Johns University by a Mr. Keady. According to a report by Vada Manager, Director, Global Issues Management, “Mr. Keady had made numerous attempts to discredit Nike’s considerable efforts at improving conditions in the factories and communities around the world where our products are made.” Although Nike won the lawsuit, Keady’s efforts, and others like them, to discredit Nike pose a threat to the strides it has made in the way it does business.
The external threats to Levi Strauss & Co. are the hundreds of new apparel companies in the market place today. Levi’s is in an environment of hypercompetition, this competition is direct and intense, were many companies directly compete with each other. Each one of these companies has their own style and appeal to consumers. These companies include Gap, Calvin Klein, Lucky, Mudd, Abercrombie & Fitch, Tommy Hilfiger, Polo Ralph Lauren, and many, many more.
Competitors Are Attracting Many of the Female Shoe Buyers:
A Morgan Stanley report recommended that Nike “make its merchandise appeal to women since many (women) favor its rivals’ products” in order to increase sales (Appendix C). Nike’s competitors have been actively attempting to attract female customers, while Nike has not focused as much on this segment of the population. In its ad campaign “It’s A Woman’s World,” Reebok focuses all of its attention on women. Many of Nike’s advertisements center on expensive men’s shoes and neglect to advertise female shoes. Women, therefore, are turning to other shoe companies for their athletic shoe needs.
Increased Awareness of Human Rights and Worker Fairness Deficiencies:
There have been an increasing number of organizations who work to ensure human rights for all people and to promote fair labor practices over the past ten years. Due to this increased awareness, many companies have been accused of having sweatshops and other questionable labor practices in the poorer nations where they manufacture their products. Although Nike pays above the minimum wage of every country where it has factories, it has been accused of not paying its workers enough. These accusations, and the resulting negative public perception of Nike's labor practices, have and could continue to blemish the company’s reputation.
Environmental Analysis
Nike’s failure to foresee problems in relation to labor and factory conditions at production locations has resulted in bad publicity and declining sales as society and consumers call for more "socially responsible" companies.
Growth Through Increased Presence in the Mid-to Low-Priced Shoe Market:
In the 2001 annual report, Phil Knight discussed the company's stagnant growth, and attributed it in part to the fact that "we forgot to be competitive in mid- to low- priced shoes in the US" (Appendix D-Chairman's Letter). Many of Nike's new lines of shoes are so expensive that they exclude many potential customers. The Nike Shox Griffey sells for $120, while the Air Jordan XVII costs customers $200. Many of Nike's competitors’ new shoe lines range from $60 to $85. By becoming competitive in this price range, Nike can lure away some of its competitors' customers and jumpstart growth by increasing sales.
Primary Competitors
“Nike’s share of the worldwide athletic footwear market grew 54% from 22.5% in 1991 to 34.6% in 2000, or more than double its nearest rival” (Appendix C-2). For many years Nike was the main player in the shoe industry; however, with the rise of demand for shoes in the low to middle price range, the company has faced increased competition from companies such as Reebok, Adidas, New Balance, and others. Reebok challenged Nike in professional licensing by signing an apparel deal in August 2001 with all NBA, WNBA and NBDL teams. Aside from other athletic shoe companies, Nike also faces competition from companies that manufacture boot style shoes such as Doc Martin (Appendix C).
Consumer
Retailers are likely to exert ever increasing pressure on sports clothing brands as they face competition not only from rival sports retailers, but from supermarkets, department stores and Internet retailers. Following the Office of Fair Trading's ruling on price fixing, the high street retailers have been more price-competitive and consumers have therefore been given more choice, both on the high street and via the Internet. Increased interest rates and high personal credit will further increase competition for consumers' leisure pound.
The lifecycle of fashionable products, such as classic or retro footwear, appears to be becoming increasingly shorter in duration. Moreover, consumers' tastes are becoming more fragmented, as highlighted by Reebok's limited edition apparel and the personalised products offered by Nike and adidas.
Conclusion
Nike has numerous strong traits, but there are areas that have potential for improvement. Nike has faced criticism about its overseas labor practices, and although they have developed programs to fight these labor criticisms, Nike should follow its own advice and “just do it.” In other words, Nike needs to implement the labor programs they have already devised. Beyond the labor issue, Nike has neglected two important publics: women and shoe buyers seeking a mid-priced shoe. In order to realize their potential sales, they must actively pursue these two publics. The following objectives aim to improve both labor concerns and domestic shoes sales.
Opportunities
Good market conditions...
Market conditions for sports clothing brands will be favourable, with the size of the core 20-24 age group continuing to grow. There will also be opportunities to target older consumers and, in particular, those in the rapidly expanding 55-64 age group who continue to participate in sports and leisure activities.
Football will inevitably maintain its place as the national sport, but the recent domestic success of teams and athletes in athletics, cricket and rugby, and London's bid to host the 2012 Olympic Games, will aid the development of these sports and the market for clothing for the respective sports and events.
Public funding for sport, which has been aided by income from the National Lottery, is likely to focus on the encouragement of healthier lifestyles, particularly with regard to diet and exercise. Those brands that focus on sports participation may decide to market their products as active sportswear.
Figure 14: Consumer spending on sports clothing, 1999-2004
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Source: SIRC model based on ONS statistics, Consumer Trends, DTI/Mintel
The increase in sales of sports clothing can be attributed to favourable market conditions and the huge marketing budgets of sports clothing brands that have funded advertising campaigns, team and event sponsorship, and player endorsements. The market has also expanded as a consequence of the trend towards a convergence of the fashion and function of sports clothing brands.
However, stagnated levels of sports participation would indicate that the increasing quantity of sports clothing being purchased by UK consumers is not necessarily for active use. Furthermore, the popularity of sports media and spectator sports also indicates that the popularity of sports clothing may be attributable to consumers buying in to the brand image of sports events, teams and athletes by purchasing clothing for leisurewear.
The trend for wearing footwear such as trainers for non-sports use has matured along with the popularity for wearing tracksuits, replica team shirts and other items of sports clothing as leisurewear. More recently, outdoor clothing and fleeces have begun to replace traditional raincoats and jackets for everyday use. Such a strategy could ultimately be damaging to the brand values of a sports clothing supplier if consumers develop perceptions of a label that question its credibility as a sports product. It is therefore likely that the focus on sponsorship and endorsements will be maintained.
There is also evidence that some brands are intending to evolve into other non-sports markets. For example, Umbro is focusing on music as well as football and Puma has stated its intention to integrate sport, lifestyle and fashion.
aiding continuing market growth
The UK sports goods market represented 2.6% of all consumer spending in 2003 while, within this market, clothing accounted for 11.8% of sports goods sold. Consumer spending on sports apparel increased from £1.8 billion in 1999 to an estimated £2.1 billion in 2003.
Sports clothing brands have benefited from an increase in awareness and interest in professional sports events, teams and athletes. There has also been a continuing trend for wearing sports apparel as fashion, where it has replaced more formal types of clothing, and as leisurewear.
The US athletic footwear market is likely to see little expansion over the next few years according to research from Mintel. It forecasts annual growth of just 2 per cent to 2007, with the industry’s progress stalled by overly complex manufacturer/retailer relationships, a slow growth economy, and competition from brown shoe manufacturers.
INDUSTRY ANALYSIS
Opportunities
- The athletic footwear and apparel industries will benefit from the currently strong economic backdrop in the United States. Spending is high and is expected to result in sales growth industry-wide.
- Athletic shoes and apparel have become a staple in wardrobes worldwide. This is due to both the increasing numbers of people exercising and the trend towards casual apparel.
- Competition is fierce at all levels in within the industry, especially among the leaders. This creates a sense of security for the companies that have been able to create a niche.
- Cost cutting due to restructuring of operations will give many companies the chance to price products more competitively.
- One area in the industry that is ever changing is research and development. The strong departments will surely capitalize on the trends of tomorrow if their efforts are successful.
- Increasing financial recovery in overseas markets proves to be an area of expansion for the athletic footwear and apparel industry.
- E-tailing, or customer-designed internet merchandise, is threatening the traditional distribution channels, thus eliminating the "middle-man" distributors and allowing for increasing profitability.
Threats
- The industry has reached a level of maturity. While style and technology in athletic apparel and footwear has reached a leveling-off point, the important aspect now is for companies to differentiate their lines.
- Inflation is looming over the U.S. economy, which may spark a cutback in consumer spending.
- Consumers are becoming savvier and may lean towards discounted items.
- In terms of market saturation, many of the key manufacturers in this industry have been around for many years. Consumers may be scanning the market for new and different footwear and apparel products.
Demographics
Opportunity
Nike's once loyal market is currently aging. This means that our customers are not as athletic as they may have been in the past. However, this poses as an opportunity for Nike because they have the ability to influence the next generation of Nike customers. The older generation of Nike brand purchasers have the power to influence their children - part of the next generation of Nike loyalists. In addition, by marketing different types of shoes to this market, these existing customers will continue to be loyal to Nike.
Threat
The phenomenon of the aging of our most loyal market segment questions whether there is a threat that the new generation will not be exclusively loyal to Nike. In the current market there are a number of other competitors that are not mainly athletically oriented. Examples include such manufacturer-retailers as The Gap and Old Navy. Their clothing and shoes are competing with Nike's. In addition, Nike is not keeping up with the latest trends and styles like some of its competitors have been. For that reason, the newer generation is attracted by Adidas and Tommy Hilfiger.
Pressure groups
Opportunity
An opportunity produced by pressure groups is the ability to react in a positive manner to concerns of the public as well as customers. Consumer watch groups are paying especially close attention to Nike's use of sweatshops and child labor to produce our products. Nike's opportunity lies in being able to show the consumer force that we are indeed taking steps to reduce and eventually eliminate sweatshops and child labor through new policies and strict implementation procedures. Also, by responding to such consumer activism, we are portraying a positive image in that we are promoting ethics even while we are trying to be efficient and economical.
Threat
In the same manner, not responding to these consumer activist groups poses a threat to Nike. The negative publicity that Nike has received thus far has lowered its image to that of being an ethical company. Such publicity has the potential to ruin a company permanently. By disregarding the voice of concerned citizens, we are disregarding our customers, one of our most important stakeholders.
KEY OPPORTUNITY
The key opportunity for Nike, Inc. currently is the booming economy of the United States. Currently the company has the ability and the resources to exploit this opportunity. Nike has capitalized on the recent economic boom with higher sales and income. However, we are not using our resources to the fullest degree. There are currently many areas in which Nike is not paying attention. We have not catered to a large portion of the new generation that demand the latest trends and styles. Also, Nike must take into account the changing demographics in this country. There is a much higher proportion of Hispanics, Asians, and African Americans than there was before. These groups have somewhat different tastes that Nike should be able to satisfy.
To exploit this opportunity, Nike needs to focus on who the next generation of loyal customers will be and cater to their needs. In addition, the world economy is recovering currently, which allows Nike to make an impression in foreign markets as well. Nike is strong in many foreign countries, but we need to focus on the younger market of consumers. Nike has been doing a great deal of research and development, but if we want to keep the lead in market share, we must look at trends while maintaining our high standards of quality.
KEY THREAT
The key threat for Nike, Inc. is market saturation. The problem is that the athletic shoe market is already full of different brands and companies. Now, there is very little room for new companies. There is also very little room for new product innovation and growth of market share for companies like Nike, Inc. Since Nike is currently holding the lead in the market as far as market share, there is little room for them to expand. In fact, we must hold onto our market share because if anything it is ours to lose. Nike, Inc. is now competing with other athletic companies as well as companies that just sell clothing or other types of shoes. If all of these other companies merely gain a small percentage of the market, Nike will be one of the main companies to start losing market share.
In response to this threat, we would focus on keeping our market share and making sure that competitors like Old Nay do not steal away our market share. We will do this by focusing our efforts on a broader market. This would include the younger generation that is interested in sports as well as extreme sports. We need to make sure that we not only stay abreast of the athletic shoes market but also are competitive in the athletic apparel market.
Reebok, in terms of their products, is not entirely different from Nike. Reebok is involved in the design and marketing of both athletic and non-athletic footwear and apparel, as well as other various fitness projects. Reebok’s market share is a distant third in the footwear industry at 11.2% (compared to 30.4% and 15.5% for Nike and Adidas respectively). Reebok’s
Manufacturer 2000 Manufacturer 1999
1. Nike 39.2% Nike 48.9%
2. Adidas 15.1% Adidas 16.9%
3. Reebok 10.9% Reebok 10.9%
