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Nike
Remy Ajluni
Adam Brook
Anthony Colletti
Elizabeth Crompton
Conrad Pilewicz
Michael Ramos
Current nature and structure of the athletic footwear industry
The athletic footwear industry is a highly competitive environment where the top four manufacturers hold over 70% of the market share. The barriers to entry into the industry are comparatively low, as anyone with new creative design ideas can produce and market their product, but the success of smaller companies is oftentimes shaky. Brand loyalty, ample capital, and broad based sourcing create an environment where the bigger companies such as Nike and Reebok have little trouble maintaining market share. Nike enjoys the largest share, with 4.% of the nearly $8 billion market in the year 000. Reebok was second with 11.%, Adidas had 10.8%, and New Balance had .6% of the market. The remaining 5% must be divided among the numerous smaller companies fighting for a shot at survival.
One of the important characteristics of the footwear industry is the fact that the product is necessary to consumers, yet very much a discretionary purchase as well. The actual structure of athletic shoes does not change very much from season to season. The design and fashion aspects are what significantly differentiate one product from another. Due to these factors, athletic shoe purchases are largely dependant on economic conditions. When the economy is good and consumers are enjoying plenty of disposable income, they are more likely to make new purchases to update their shoe collections. When there is a shorter supply of income, consumers will put off purchases until they are absolutely necessary and the price of the shoes is low enough.
Currently, the athletic shoe industry is performing well. Overall footwear spending in the United States has decreased in recent years, but athletic shoe sales are increasing. In 001 $15.1 billion was spent on footwear while in 00 the industry experienced a 5% decrease to $40.56 billion. In the athletic sector, consumer sales have increased. The number of shoes sold in 00 was 7% higher than 001 sales, reaching 48.6 million pairs. Although sales are up, manufacturers are still looking for additional opportunities because the average price paid has decreased from $8.0 in 001 to $6.61 in 00 or a 4.% loss. These conditions of added sales but declining prices have led to fairly slow growth in the industry.
Because the US market has reached its maturity, manufacturers are looking at the opportunities in foreign markets as the next step for growth. The US population growth rate is extremely low, 1% per year, but the populations of developing countries are exploding. The abundance of opportunity in foreign markets has allowed the footwear industry to thrive when domestic growth is nearly non-existent.
Within the footwear industry, manufacturers typically produce their product and use their distribution channels to circulate the goods to retailers and, ultimately, consumers. Some companies such as Nike have opened a limited number of retail stores themselves to diversify sales channels and lower dependence on retailers. Retail stores by manufacturers allow them to more effectively maintain contact with the consumer and collect feedback, but are not currently a feasible route of distribution for the industry on a large scale. Manufacturer’s relationships with retailers are pivotal. The retailers have significant power over the manufacturers. By lowering the amount of inventory that they hold, retailers have shifted the inventory risk to manufacturers. Also, because they are the main routes of transmission, retailers have significant leverage over manufacturers on many aspects of the industry such as pricing, product labeling, or cooperative advertising where both share costs.
Key factors that influence success
Brand awareness is one of the biggest assets that an athletic shoe company can have. Consumers are constantly exposed to endless advertising and marketing campaigns for never-ending product lines. If a company is able to establish brand awareness, they will have a significant advantage in grabbing consumer’s attention and, therefore, market share. In today’s society where consumers have significantly less time to shop and compare, brand awareness is critical. If an established brand name effectively conveys the messages of quality and dependability, consumers will automatically go to that brand relying on the image that has been created when they don’t have time to shop around.
Manufacturing efficiency is something that companies are constantly striving for as well. Athletic shoe manufacturers must balance the costs of labor, raw materials, shipping, import tariffs, and technological advancements. In an effort to keeps costs down, the industry has been looking to overseas sourcing. Favorable legislation regarding foreign manufacturing has led to a huge increase in foreign sourcing. In order to diversify supply and production lines, manufacturers have spread out their operations over many areas to avoid over concentration in one region. With this strategy, if one country or region experiences problems that interrupt production, the affected company is not completely out of options and can still accomplish production.
Distribution channels dictate who a company’s customer will be and how they will get the product. The footwear companies must choose their channels carefully because they want to make the product available, yet remain true to their image and goals. Retailers account for the largest percentage of sales, so manufacturers must be especially careful with their relationships with them. If a disagreement arises between manufacturer and retailer, the manufacturer could face potentially extensive problems getting the product to market. A recent example of this occurred between Foot Locker and manufacturer Nike. In an attempt to carry more of the lower cost shoes that consumers are demanding, Foot Locker cut back on their high-end purchases from Nike significantly. Nike, in turn, had to look for other outlets for their signature lines.
The ability of companies in the industry to shorten their design, development, production, and distribution cycles is vital to success. In the past, retail stores could carry a product months in advance of a projected need, but now consumers want to buy closer to when they actually experience the need for the good. With the shortened cycles, manufacturers can place more of an emphasis on styling and keep up with the changes in fashion.
Technological advancement is becoming more and more of a player in the footwear industry. With computer-aided design (CAD), companies have been able to successfully shorten their design to distribution cycle to only a few months. Previously, the new product development phase oftentimes took years. Also, new technology has facilitated new quick-response programs that link retailers with manufacturers to allow the retailer to have the correct inventory when it is needed called EDI. Immediately after a sale is made, electronic point of sale scanners read the information related to the sale such as price, product, size, etc. and notify the manufacturer of the sale. With this, the manufacturer is able to accurately modify production to fit consumer demand. Also, retailers are not required to hold as much inventory with this system, which lowers costs for them and, ultimately, consumers.
Demand cycles
While footwear is definitely a necessity for the general population, most footwear purchases are discretionary. Shoe design does not significantly alter in fundamental structure from season to season, so any additional purchase by the consumer is probably for fashion or style reasons. Due to the largely subjective nature of athletic footwear purchasing, the success of the industry is dependant on the current economic cycle. When consumers are concerned about future economic conditions, they will put off their purchases until their confidence rebounds. As can be seen by the graph below, consumer confidence hit its peak around 000 and has been fluctuating ever since. After the events of September 11, 001 and then when consumers were concerned about impending war in Iraq, confidence drastically dropped, but was able to rebound somewhat. Industry sales in 000 were around $. billion, dipped to $8. billion in 001 largely due to the drop in consumer confidence after September 11, and began to recover in 00 to a little over $ billion.
In addition to the amount of confidence that consumers have for the future, the amount of disposable income available to them directly affects how much is spent on athletic footwear. When consumers experience a drop in disposable income, discretionary purchases such as footwear are put off. One general exception to this trend within the industry is due to the fact that teenagers account for a large portion of industry sales in the athletic footwear sector. Teenagers are responsible for % of all athletic shoe purchases and are typically not as concerned with the costs of goods as older consumers are. When adults are saving as much as they can, teens will still spend any disposable income that they have. Also, teens are more willing to pay for the higher priced shoes while adults are reluctant to buy the specialty goods.
U.S. Department of Commerce Bureau of Economic Analysis
Competitive forces affecting the industry
-Potential new entrants
The footwear industry includes moderate barriers to entry. Any person with a design that interests consumers can outsource their production to an independent manufacturer and can potentially enter the market. The capital and distribution channels that are required for success make it difficult for the smaller entrants to flourish though. The top manufacturers absolutely dominate the industry, with Nike holding over 40% alone.
-Bargaining power of Buyers
Buyers in the athletic footwear industry enjoy a great deal of power. Consumers have shown again and again that they will simply wait until prices reach a level they feel is reasonable before making a purchase. Nearly 40% of all shoe purchases are made through discount stores. Also, consumers are able to make informed decisions about a purchase through utilization of Internet websites. The bargaining power of retailers is also a problem for footwear manufacturers. In recent years, retailers have begun to hold fewer inventories, forcing manufacturers to pay for increased inventory levels on their end. Manufacturers must also make sure that retailers are selling the product in accordance with the desired image of the shoe. Nike has recently experienced a disagreement with their largest retailer Foot Locker due to pricing disagreements. As a result, Foot Locker significantly reduced its high end purchases from Nike and Nike decided to shift their high end product sales elsewhere.
-Bargaining power of Suppliers
The materials for footwear production are relatively easy to obtain. To keep costs low, manufacturers have begun widening their supply channels to ensure that they are not depending too much on one source. The recent SARS outbreak is one example why suppliers are diversified. Many manufacturers relied on China to supply low cost goods for manufacturing. When the outbreak made traveling to the area impossible, manufacturers had to find alternative ways to get supplies such as utilizing the Internet.
-Threat of substitute products
Athletic footwear manufacturers must constantly be aware of the threat of substitute products available to the consumer. The major manufacturers such as Nike, Adidas, and Reebok hold a majority of market share but are far from the only choices that consumers have. There are numerous other options for athletic shoe purchases. Although brand loyalty allows some measure of constancy for the manufacturers, if the design does not match the current trend, consumers will simply buy one of the many alternatives.
-Rivalry among competitors
Rivalry among competitors is high. Overall, the product that all manufacturers offer is basically the same. Differentiation of the product is vital for success. Consumers have many options to choose from and manufactures have to tailor their marketing strategies to catch part of the market. The advertising dollars that are spent in the hopes of differentiation are staggering… In 000, Nike spent over $10 million on advertising alone. In a recent deal with LeBron James, a basketball player, Nike beat out Reebok with a $0 million offer. In turn, Reebok took on year old Mark Walker as part of their “the future of basketball” advertising campaign. Finally, in another odd twist of the competition between the athletic shoe companies, Kobe Bryant broke an $8 million deal with Adidas and was going to sign with Nike. Although the relationship between Bryant and Nike disintegrated due to recent events, this just illustrates the lengths that competitors go to in order to outdo each other.
Industry Location on the Product Life Cycle
The athletic footwear industry is in the maturity stage of the PLC. The product itself has become very similar across the board because the wishes of the consumer have been well established. Since the market is fixed, additional profits come only by taking those profits directly from a competitor. The intense competition between competitors in the market is obvious, as that is the only way to succeed at this stage of the product life cycle.
00 sales � 001 sales = 08-804 = 1.5%
001 sales 804
Company location on the BCG
-Nike
Nike is positioned at the cow position on the BCG matrix.
PLC 8-488.8 = .04 or 4.%
488.8
target co sales = 8 = 1.56
Relative Market Share nearest competitor(adidas) 67.7
-Adidas
Adidas is located at the star position on the BCG matrix.
PLC = 67.7-578.87 = .176 or 17.6%
578.87
Adidas = 67.7 = .0
Market Share Reebok 17.87
-Reebok
Reebok is at the cash cow position on the BCG matrix.
PLC 17.87-.88 = .045 or 4.5%
.88
Reebok = 67.7 = .8
Market share Adidas 7718.66
Industry trends
Trend Implications for the industry Implications for target company Citations
Product line diversification. Manufacturers are producing a much wider variety of products for more segments of customers. Retail stores, wider customer base, more revenue Standard and Poor’s Industry Profile for Apparel & Footwear
Overseas production and sourcing Lower material and labor costs as well as a diversified network of production and supplies to ensure stability if one source is rendered unavailable or unusable. Lower production costs and less risk of losing revenue if one region experiences problems.
Foreign sales With the US market at maturity, companies are looking overseas to utilize the vast opportunity in foreign markets. Nike sales in the foreign sector are growing at a much faster rate than those in the US leading to higher profits.
Diversified distribution channels Products are readily available at multiple places, thereby reaching a broader customer base. May dilute the product’s image if put into channels that do correspond with the desired image.
Lower retail inventories Retailers are not carrying as much inventory, leaving that responsibility with the manufacturers. Nike must assume more inventory risk and carry the extra costs associated with inventory. The Wall Street Transcript Interview with John Shanley on athletic footwear companies, 1/7/0.
Response to negative public opinion of labor practices
“Rapid globalization and the unfettered quest for lowest-- cost production-coupled with the value clash between affluent countries and those in the very early stages of industrialization” has lured many companies to manufacture their products in under developed countries. Much protest has arisen concerning companies’ labor practices in these countries. Consumers are becoming more conscious of a company’s reputation and are making purchases based on their opinion of the company. “In fact, a recent MORI poll commissioned by the Co-operative Bank suggests that a third of consumers are `seriously concerned with ethical issues. Within the past year, over half of us have bought a product or recommended a company on the basis of its reputation.”
NIKE
Nike has been a target for protest since the early 10s. Many activists, students and unions have alleged that Nike’s labor practices are unfair and their treatment of workers is inhumane. When compared to Adidas and Reebok, Nike receives the majority of the attention from protestors and activists. After many years of such protest, Nike’s reputation eventually became tarnished and in 18 the company reported a 50% decline in profits from the previous year. On its website, Nike responds to the issues of its labor practices “Nike is committed to being a responsible corporate citizen. We work to improve the lives and working conditions of all workers. We dont own these factories, but we take pride in our relationships with them. Nikes relationship with its contract factories is guided by our Code of Conduct and the Code Leadership Standards, a set of labor, health and environmental standards.”4 In response to all the protest, Nike has been developing a formal factory monitoring program.
REEBOK
Reebok has lived in Nike’s shadow since 10, when the industry giant surpassed Reebok in sales. As a result, Reebok has not been under the extreme scrutiny that Nike has faced. There are those opposed to Reebok’s labor practices nonetheless. Doug Cahn, director of human rights programs for Reebok, says “Theres a correlation between factories producing good-quality products and those with good working conditions.5 Reebok seems to have taken the human rights issue to heart. To ensure that production standards were compliant with human rights, Reebok formed a task force to establish international standards concerning labor practices. The task force drew on information from outside the company to form standards, which made sure the standards developed were very effective. Internationally accepted standards were looked at along with standards set forth by the United Nations. Reebok sends auditors, often unannounced, to check factory conditions. The company also uses a type of double check ADIDAS
In 1, Robert Louis-Dreyfus was appointed chairman of Adidas. He brought with him radical change concerning the manufacture of Adidas products. Dreyfus decided that the company should focus more on marketing and branding and less on production, so he closed the majority of the plants in Western Europe and moved most of the production, 0%, to Asia, Southern Europe and Northern Africa. As a result of this shift, Adidas has been criticized for having poor working conditions in their factories. Criticism has put pressure on Adidas to monitor their factory working conditions more closely. Whereas Nike has its Code of Conduct, and Reebok has its Human Rights Production Standards, Adidas has no code of conduct concerning the treatment of workers in their factories. In January of 1, Adidas appointed David Husselbee as the new director of social and environmental affairs. Up until Husselbee was hired, Adidas concerned themselves with human rights issues on a makeshift basis. They
The program was designed to monitor working conditions and treatment of workers in Nike factories. Regular audits are carried out in each of its factories to make sure no children are employed. In addition, Nike has signed the United Nations’ Global Compact which is “an initiative launched…to encourage businesses to implement certain human rights, labor and environmental principles.” In 1, Nike put into action a Code of Conduct that deals exclusively with labor rights. The company also joined President Bill Clinton’s Fair Labor Campaign and created a labor practices department in 16. To improve the well being of workers, Nike employed micro-credit programs, adult education, and better factory monitoring. Nike also hired an audit firm to make sure contractors in Vietnam, China, South America, and Indonesia adhered to the labor standards that had been set. “Nike now claims it is a market leader not only in shoe design but also in labor standards.”
process to ensure proper working conditions, “third-party auditors are used in countries where the company does not believe it has personnel with the necessary expertise to judge working conditions.”5 Reebok has recently developed software with SAP, a logistics software supplier, that allows them to track human rights issues in developing and undeveloped countries. The software will allow Reebok to monitor workers’ wages and even the number of hours each employee works.6 A computerized tracking system such as this will enable Reebok to respond faster and more effectively to any human rights issues that might arise. In 17, the Department of Labor released its first “Trendsetters Report”, which is “ a list of retailers and manufacturers who have taken action to combat sweatshops and ensure that their shelves are stocked with only ‘No Sweat’ garments.”7 Reebok was among the companies that made the list. Companies mentioned on the list were found to have a strong commitment to would only worry about issues when the issues arose. After the company saw the amount of pressure that Nike was under to address labor issues, Adidas decided to put a human rights policy into action. Adidas, though, did not use the program to effect public relations, but rather used it as a defensive tool. ’We see our human rights policy as a natural part of being good corporate citizens,’ says one executive. ‘Emphasising it would only detract from our brand.’10 Most of the action the company takes about concerns that arise is interactive, meaning they wait until a problem is reported to solve it. “The group plans to take a more proactive role in the future.”10 This way the company could fix any problem before it really becomes a problem. Husselbee is currently working with activists and campaigners to come up with plans of action to “provide independent confirmation of progress (or lack of it).”10 By imploring this type of strategy, Adidas gains a lot of credibility when it comes to dealing with
The media is starting to see that Nike has made a solid effort to improve labor issues and that the changes they have made are having a positive effect. Numerous newspapers have reported that labor conditions have improved in Nike’s factories. As a result of the actions Nike has taken to deal with the voices of dissent, their sales figures have been steadily increasing since the slump in 18. Nike has made a sincere effort to improve working conditions for its employees in undeveloped countries, and this translates directly to increased sales figures.
labor laws. These companies comply with law enforcement when violations are found and also monitor work conditions strictly to ensure no human rights violations. Reebok’s company website shows a strong commitment to human rights as well. “We believe that we all have a responsibility to understand human rights, to expose injustice, and to support efforts that ensure dignity and rights for all human beings. The business practices we have developed and implemented around the world and our history, are a reflection of our commitment.” It appears that Reebok is more effective at dealing with any negative opinion that may arise from any of its labor practices. Even though most protest against Reebok is eclipsed by protest against Nike, Reebok effectively deals with issues that surface concerning labor and human rights. protest. Adidas is making strides to respond to concerns regarding their labor practices. But ultimately they need to develop a set of standards that all their factories must abide by. They should also develop a reliable system to monitor the conditions in their factories.
Advertising campaigns
Advertising is a huge part of the athletic shoe industry. Companies spend a large portion of their revenue on advertising. A lot of pressure is put on the companies to come up with new and successful advertising campaigns. If a campaign fails, the companies sales suffer as a result. NIKE
Nike has always been an industry leader when it comes to advertising. Their ad campaigns are known all over the world as being widely successful. Nike is truly a trendsetter when it comes to advertising, not just for shoes, but for the advertising industry as well. In June, Phil Knight, CEO and co-founder of Nike, will be named advertiser of the year for the second time (the first being in 14) at the Cannes International Advertising Festival. After gaining some steam and noting steady increases in sales, Nike started to establish itself in the industry. “Into this Eastern establishment came this weird new cultish… sensibility a definite west by northwest, New Age-y, maniacal, running/fitness/discipline subculture. The company was all about the clarity of matching technology to athletic performance-and, in the ads, showing the passion that resulted.”11 By going against the norms in advertising, Nike was able to distance itself from other shoe makers and thus establish strong customer core. There are many aspects of advertising that have REEBOK
Unlike Nike, Reebok has not really been known for their revolutionary advertising. During the early 0s, the battle for market share in the athletic footwear industry was a heated one, but after Nike took the lead, the market shares have remained fairly constant, with Nike far in the lead. Nike dominates big name athletes to endorse its products, so Reebok has decided to focus on non-athletes, namely hip-hop artists, to create their own signature collections. This strategy seems to be working for the company so far. Reebok has realized that if they were to succeed in the market, they had to focus on selling to the urban teenage male. Reebok launched its Rbk campaign, which moved away from the Reebok image and attempted to establish one that would get the attention of the urban teenage male. To go along with its new hip-hop urban image Reebok signed Allen Iverson to release his own shoe collection, which has become a top seller for the company. Reebok has also recently moved beyond athletes to sign rappers Jay-Z and 50 Cent in hopes to tap into their popularity. ADIDAS
Adidas uses strategies used by both Nike and Reebok to market their products. The company plans on raising their global media spending by up to 0%. Like Nike, Adidas signs athletic superstars to endorse their products. Recently they signed All-Star Tracy McGrady to a lifetime deal and also signed Tim Duncan of the San Antonio Spurs. Most of Adidas’ advertising is geared toward the European market since about 65% of their sales are made there. They recently signed soccer sensation David Beckham to an endorsement contract to boost sales in England and across Europe.16 Beyond using big stars to endorse their products, Adidas has rode the retro wave to bring back its trademark logo, the Trefoil. Retro styling is making a big impact on the footwear industry. Consumers associate the Trefoil with retro styling, and because of its recent resurgence, the logo is becoming more popular. Adidas has shifted a bit from performance and is now focusing on retro style. 17 As long as Adidas realizes the retro fad is most likely a fleeting one, they should
brought Nike success. Its use of famous celebrity athletes in advertising their products is unrivaled by any other company. Through clever ad campaigns, Nike was able to “humanize athletes.”11 Nike placed famous athletes that seemed almost “untouchable” in often humorous situations. Many of the athletes would mock and poke fun at themselves, making them seem more human and less untouchable. Ads with Bo Jackson, Michael Jordan, and Charles Barkley are just a few that demonstrated this concept and were exceptionally successful at doing so. Company advertising in the shoe industry changes with different social and economic trends. Nike, on the other hand, often creates their own trends with their advertisements. The current throw back jersey craze sprouted from Nike’s basketball ads set in Rucker Park, in Harlem, that recreated pick-up games played there in 175. Nike’s use of technology in advertising is among the best in the world. The advertisements are The strategy seems to be working well for Reebok. Jay-Z’s Reebok line has become the fastest selling product ever for the company. Critics of this strategy say that Reebok is running a risk associating themselves with the unpredictable rap industry. The popularity of the stars they sign on may wane within the near future, but that’s a risk they’re willing to take.1 On October 7, 00, Reebok made a big move concerning their marketing and advertising by hiring Sonny Voccaro, former marketing guru for Nike. Voccaro is responsible for signing big names like Michael Jordan, Kobe Bryant, and Tracy McGrady to endorsement deals. Voccaro is a big addition to the Reebok staff and will most likely do great things for their advertisement campaigns. Reebok is currently launching a $50 million global campaign that focuses on its vector logo. Through the campaign “Reebok is hoping to create an iconic connection to its brand mark.”15 Reebok is hoping to make the vector seen as a symbol not have any problems with sales. If too much focus is taken away from the performance aspect of their products and put instead on retro styling, Adidas could lose a lot of customers due to inadequate athletic products. The company should ride the retro wave for a while but realize that the performance qualities of their products is a permanent consumer draw.
“so well-executed that the editing is about twice as good as it has to be.”11 Use of the best technology enables Nike to create ads that truly grab a consumers attention, which could make them think about buying Nike the next time they go shopping for a pair of shoes. Nike’s new “Speed” campaign puts the focus on individual athletes and their stories. The spots focus on runners and the determination they exhibit. 1 Nike’s current strategy still focuses on signing big name athletes to sell their products. This strategy appears to be extremely successful for Nike, as they are currently have the top market share in the industry. Compared to Reebok and Adidas, Nike has a definite advantage when it comes to contracts with big name athletes. Michael Jordan, Derrick Jeter, Warren Sapp, and now Lebron James, who currently signed a $0 contract with Nike, are just a few of the big names Nike has contracts with. of authenticity and performance. Reebok wants to do for the vector what Nike did for the Swoosh. Reebok hopes that their $450 million contract with the NFL and NBA to be their official apparel suppliers will put the vector out there for everyone to see. The company feels that if everyone sees the vector connected all over the NFL and NBA, they will associate it with a quality product.15 Reebok’s strategy of moving toward more of a hip-hop and urban feel seems to be working for them so far, but as the popularity of the people they have signed diminishes, which it most likely will if the hip hop industry stays true to current trends, then they will have spent millions of dollars on successfully short lived campaigns. Nike has the right idea signing athletes; although there will be a few busts, for the most part the stars remain popular. As for promoting the vector, Reebok is moving in the right direction. If they can manage to get consumers to associate their logo with quality and performance, they will ultimately sell more products.
Factory Distribution
Distribution is simply the way in which a company gets its product to the consumer. Successful companies have found an optimum way to distribute their products. NIKE
Nike has developed superior control of its distribution channels. “Nikes distribution is as about as tight as you can make a consumer goods-oriented business.”1 The company has developed a Futures program to remove a good portion of inventory risk associated with distribution. A retailer puts in a non-cancelable order months ahead of scheduled delivery. This system helps Nike predict the demand for a product and also assures the buyer will have an adequate supply. Almost 0% of US footwear is ordered under the Futures program. Nike improves distribution efficiency and output by improving its distribution facilities, most notably their recent improvements to their Memphis distribution center. State of the art conveyors and sorters were installed to achieve a higher throughput. “This is now the kind of system befitting an industry leader.”0 The measures taken toward improvement have more than doubled the amount of product that is distributed from the facility. Order accuracy has risen to .8% as a result of the new system. ADIDAS
In 16 Adidas had quite a scare concerning the distribution of its merchandise. The problem occurred with the company’s automated distribution system and almost brought distribution to a stand still. Adidas has since entered into a long term agreement with Caliber Logistics to distribute footwear in the United States. Adidas Canada has made many improvements in distribution. In 17 they made a transition from paper based distribution to a fully automated one. After the addition of Salomon and Taylor Made to the Adidas name, the company had to move two and a half times more inventory. The change to a fully automated distribution system made it easier for the company to handle the influx. Implementation of the fully automated system has cut distribution costs in half as well as made a significant improvement in order accuracy. Adidas has immensely improved its distribution since the mid 0’s. Now customers and retailers can get the product they want when they want it. A smoother operating distribution system will REEBOK
Reebok is taking big steps toward improving their distribution system. A state of the art distribution center has been set up in Massachusetts. The center is controlled by a new warehouse management system that allows for products to be distributed more effectively. This new system has improved employee productivity and kept the inventory accuracy rate high. Reebok realizes that to stay competitive in the industry, their distribution system needs to be nearly flawless. Any problems with distribution could have a negative effect on overall sales.
The system put in at the Memphis plant is truly trendsetting. With that kind of attention to their distribution centers, Nike will minimize any problems that may arise from distribution. A continued effort by Nike to make advancements and improvements in their distribution will ultimately lead to improved financial figures. enable Adidas to keep up with Nike in terms of product availability.
Ability to Innovate
A company’s ability to innovate can distinguish it from other companies in the industry. An innovative company will set itself apart from its competitors by constantly coming up with new products and new ways of doing things. In an industry as fickle as footwear, being innovative is key to a company’s success. NIKE
Nike has been a leader in innovation in the footwear industry. The creative directors have developed the Design Ethos, which sets parameters for Nike’s approach to design throughout the entire company. There are four design functions at Nike footwear, equipment, apparel and identity. Each group contains individual groups, such as men’s basketball, and each of these has its own design team. “Over the years Nike has learned from hard experience that what the athlete likes and what the consumer likes are often not the same thing.”4 Many of Nike’s designs are created for the consumer, not just for professional athletes. That doesn’t mean that the product is inferior in any way in terms of performance, it just means that Nike factors in the wants of normal consumers into their designs. “Our designs are required to perform for elite athletes as well as for everyday athletes,’”4 says one executive. Nike has a big research and development department available REEBOK
for the designers to use in developing new products. Nike set up the Advanced Innovation Team to continually and totally innovate for the company. The team has the responsibility “to enforce the idea that design is not just about simple evolution. The focus for AIT was real innovation -- solving a problem in a brand new way.”4 For the team, innovating starts even before a design is made for a new product. They must look at other factors, such as how different textiles perform, to set the groundwork for an innovative design. John Hoke, Nike global director for footwear says, “From my perspective the true beating heart of Nike is innovation, therefore insight is the fuel for our imagination and creativity. It is the genesis point of all our ideas at Nike.”4 Nike’s approach to innovation puts it well ahead of the pack in terms of both sales and product innovation/development. The company’s commitment to innovation will ensure it future success.
Main Customer Groups
While looking at the different trends and styles of present day athletic footwear, we can further our research within the product and look at the different customer groups that our three companies focus their attention towards. We are primarily looking at the three different companies and the rules of style that may apply to a specific customer group for this product. In some cases, the customer group that they are focusing on may greatly impact the demand for the product because of different influences whether it is there income level, influence of childhood, or even there changing preference of a specific product.
Footwear is classified within many different categories, which makes the research of specific athletic footwear more difficult. For example, we are focusing on the companies of Nike, Adidas, and Reebok, and all of these companies make numerous styles of shoe lines. They range from golf cleats to soccer cleats to cross-country shoes. So when trying to determine the main customer groups, each line of shoes is basically broken down within the group that the specific product is directed towards. So when looking at the different types of customer groups within the athletic footwear industry, some of the key customer demographic trend are broken up into different generations of tastes in style.
The industry of footwear can be broken up into three main customer groups, which are the Baby Boomers, Generation X, and Generation Y. These customer groups do not have much in common except for their love of shoes and the different tastes in the new fashion trends of footwear. These three generations are broken down as follows Baby Boomers are from ages 5-5, Generation Y are consumers from 4-1, and Generation X is consumers from -. As we develop ideas about the main customer groups within the footwear industry we can conclude that the Baby Boomers account for 1% of the population, which is equal to about 81 million consumers. Generation Y is the second largest group that accounts for 8% of the population which represents about 75 million consumers. The smallest customer group is Generation X, they comprise about 17% of the population, which equals about 46 million consumers.1 Collected information from many consumer surveys rates Nike high among the consumers of Generation Y and X. Nike has become more appealing among younger consumers and has shifted away from the Generation of the Baby Boomers.
Nike and many other large shoe industry retailers are shifting there marketing direction from the Baby Boomers to the younger consumers of Generation X and Generation Y. There are many reasons to why the industry is trying to change their target market to younger viewers. As people become older many of there attitudes, priorities, and time obligations have decreased their ambition for shopping. Now that many of the Baby Boomers are within there forties and fifties, many of there priorities have shifted towards the future, in a sense that they need to save for retirement, different tuition payments for there children, and also different healthcare necessities that are important to them and there family. Lets say a consumer from the Baby Boomers generation was going to purchase some shoes, they are more likely to have a longer life span with those shoes then someone who is within there teenage years. Younger consumers put more wear and tear on their shoes than someone who is about 40 or 50. Many companies within the footwear industry know that the spending power of the Baby Boomers has not come to a halt. In Fact, there is still a very prosperous market out there, but the key is finding it. One way that the industry is trying to increase the spending among the Baby Boomers generation is by offering clothing lines in a more conservative style and also in a wide variety of sizes.
As mentioned before, the more present day trends of the footwear companies are geared on marketing to Generation Y. Many companies within the industry have come to the conclusion that by establishing trends among Generation Y, there becomes a greater vision and influence in future product design. By the influences of Generation Y, its impact does not only affect that specific consumer group, but filters to other Generations like X and also the younger brothers and sisters of Generation Y. It has always been said throughout the industry that teenagers show a great amount of brand loyalty to there apparel manufacturers. That is why many manufacturers try to establish a marketing ploy that influences children who want to dress like their older siblings or elders. So if they get them while they are young, they are more likely going to see profits from the children within the future.
Generation Y
Ages 4-1 Generation X
Ages - Baby Boomers
Ages 5-5
Growth Rate
(10-000) 80,61,468-
71,87,755=
8,7,71/
71,87,755=
.114 ,81,74-
4,175,=
-,84,08/
4,175,=
-.07607 8,86,47-
6,801,8=
0,04,40/
6,801,8=
.1885
Size of the group relative to the total population and is that changing 75 million consumers representing 8% of the population. The group of Generation Y has been increasing at a rate of 11% 46 million consumers representing 17% of the population. The group of Generation X has been decreasing at a rate of 7% 81 million consumers representing 1% of the population. The Baby Boomers have been increasing at a rate of %
Income Levels4
(000-001) Median Income
Male
000 $,546
001 $,01
Female
000 $7,60
001 $7,467 Median Income
Male
000 $0,54
001 $0,510
Female
000 $1,04
001 $1,47 Median Income
Male
000 $78,61
001 $7,444
Female
000 $45,80
001 $46,606
Unemployment Rate Changes5
Generation Y in the year 00, there were ,61,000 people unemployed.
In 001, the unemployment rate average for 16 & over was 4.7%. In 00 the unemployment rate average was 5.78
Generation X in the year 00, there were ,0,000 people unemployed.
In Summary of the unemployment rate of 001was 4.7 percent and in 00 the average unemployment rate was 5.78 The unemployment rate for this generation was 4.1 percent in the first quarter, up from .4 percent three years earlier. The overall jump in that period 4.0 percent to 5.8 percent.
Psychographic 1 Generation Y grew up with strong fashion statements by the media. This can attribute to the fact that this consumer group sows more brand loyalty. Generation X consumers are the type of shoppers that bounce from different high-end stores to the mass marketing stores. Baby Boomers have reached a point in their life in which their priorities have shifted. They are concentrating more on tuition payments, mortgage, and other relative expenses. Modern Trends and styles do not affect this type of consumer group as much.
Psychographic Many of the consumers within Generation Y have developed a mind set of “Spend, Spend, Spend”, which in all paints a picture for many retailers in the future. Generation X is said to fit the description of being very conscious of their style. They are trying to present a look that is impressive to other peers, which makes them feel like dressing up for many occasions. Retailers are trying to get these consumers back into spending more on the modern styles and trends. By doing this, retailers are trying to shift these styles to more of a conservative look. By producing a more conservative look, it will captivate more of the characteristics found within the consumer look.
Factors Occurring in the Environment External to the Industry
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Shoe companies are withdrawing from Indonesia and Korea due to stronger labor unions, as well as the fact that labor is much cheaper in China than it is in the two aforementioned countries. In Tangerang, Indonesia, for example, the minimum wage rose from 40,000 rupiah/month up to 58,000. (1)() In 16 Indonesia was the hotbed for shoe production in Asia. Now, due to its reputation for “lawlessness and chaos” as well as expensive labor, Nike and Reebok have shut down factories in Korea and Indonesia and relocated to places such as China. Other companies such as Puma won’t even start up business here. These moves will surely raise more issues with those concerned about the treatment of smaller countries by large American corporations. This is the opposite effect of sweatshop issues, because it is eliminating many of them, but consequently is crushing a huge part of Indonesia’s economy. Korean companies are finding ways to counter this exodus and keep the industry alive. (1) Nike has been forced to relocate, moving out of Indonesia, which was once the primary place for their shoe production. Indonesia was once the site of 8% of Nike’s shoe production, which then dropped to 0% in 00, and possibly down to 6% with the closing of its Dosen plant. This will look bad for Nike as people will believe they are being careless about the treatment of its workers by leaving thousands jobless. (1) (1)
Dhume, Sadanand. “Just Quit It.” Far Eastern Economic Review, September 1, 00.
()
Min, Kim Jung. “A New Spring In Its Step.” Far Eastern Economic Review, February 1, 00.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
SARS, a deadly fast-spreading strain of pneumonia, has disrupted the travel to and from Asia, as it is at its most prominent in China, Hong Kong and Taiwan. This in turn has made it more difficult for the shoe industry to coordinate production and control quality. (4) If SARS turns into an even more major epidemic than it already is, it will play a huge role on the way business is done with Asia. Considering the fact that shoe inspections will increase once shipped, the outcome of SARS will “add friction to the cost of doing business in Asia.” This in turn will show up in the price of the product. (5) Nike realized a lot from the SARS outbreak. The impact of SARS had huge impacts for Nike, as it lost employees in Asia, encountered difficulty in coordinating production, and also had to deal with West Coast port closures. As Ray Knight states SARS gave “global business a wake-up call as to just how quickly markets can be squelched by unexpected circumstances.” (6) (4)
Standard and Poors Current Environment http//www.netadvantage.standardandpoors.com/
(5)
Maiello, Michael. “Aftershock.” Forbes, vol. 171 no. . Apr. 8, 00. p. 44-46.
(6)
Knight, Raymond. “00 Nike Chairman’s Letter to Shareholders.”
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Major shoe companies have faced heat in the form of boycotts and protests for the supposed running of “sweatshops” in smaller countries where labor is extremely cheap. Companies such as Nike have been said to rudely mistreat their employees and force them to work in terrible conditions. (7) For much of the industry, sweatshop scandals help them because most of the time they have to do with Nike. However, as Reebok pulls a large percentage of their production from Indonesia, many worry that the change in locations in the chase for lower wages will make abuse charges prevalent once again. (7) Nike has battled with accusations that it runs sweatshops for roughly 1 years now. Nike is currently in a U.S. Supreme Court battle in order to gain first amendment rights to defend itself. Nike is trying to earn the right to defend itself, after it had been sued for supposedly defending itself with lies. Any accusations questioning the responsibility of Nike as a corporate citizen is attention that they would like to avoid at all cost. (8) (7)
Ellis, Kristi. “Global Labor Pains Advocates Worry Abuse Will Rise as Factories Relocate.” FN, 58 (40), October 14, 00.
(8)
“Courtside with Nike.” http//arizonarepublic.com
May 6, 00.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
The sluggish economy has forced major forces in the shoe industry to take major action, way more than in the past when the economy was a little more stable. Results of this include buyouts of smaller companies, as well as pushing sales in other countries that currently have stronger economies. () The athletic shoe industry is one of the most recognizable global markets. Reebok, Adidas and Nike are all recognizable no matter what country you’re in due to the endorsements of major American and International athletes. The direction that the sluggish economy has forced the industry to take will only make it that much more dominant once the American economy recovers. () Nike has been forced to place a little more emphasis on ventures other than that of marketing the new Jordans, for instance. In Ray Knight’s letter to the shareholders he discusses the fact that Nike placed major focus on product, advertising, and getting management caught up to sales. All of these were achieved and because of this Nike will be stronger once the economy begins to recover. The good news is, as Standard and Poor’s predicts, is that GDP increased .% in the second quarter and that it will pick up in the second half to achieve .5% for the year. (6)() ()
Standard and Poor’s Industry Profile. http//www.netadvantage.standardandpoors.com/
(6)
Knight, Raymond. “00 Nike Chairman’s Letter to Shareholders.”
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
The current industry sees the internet playing an increasingly important role in the sales, marketing, and global reach of major athletic shoe companies. (10)(11)(1) If one visits any of the big three company’s websites, it can link to 18 countries on Reebok’s site, on Adidas’ and 16 on Nike’s. The websites also give the opportunity for customers to contact the company as well as buy products from the website without having to go to the store looking for a particular product that might not be in stock. (10)(11)(1) Nike by far has the most extensive website of any of the three major brands. While Adidas and Reebok do have impressive sites, the Nike site is incredible in its extensiveness. Nike also offers a new product called the NikeId in which you can create your own shoe, custom made for the customer. The internet is an excellent tool for reaching customers and broadening the scope of the company. (1) (10)
www.adidas.com
(11)
www.reebok.com
(1)
www.nike.com
Factors Relating to Industry Actions
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
The athletic shoe industry has begun to take notice of the need to give women attention in this market. Women need active footwear and apparel as much as men do, thus the advent of new stores and extended women’s product lines by many of the major shoe companies. (1) Various companies are opening stores strictly for women. These companies, such as Nike, Adidas, Puma, and Champion, are expanding their lines to incorporate enough products to open a store, or boutique within a larger store, that focuses strictly on women. Dick’s opened two women’s only stores in Buffalo and Albany under its brand name Ativa. In order to be successful, these women’s stores are believed to need a wide selection of merchandise and exceptional customer service. (1) Nike Goddess, a website that has been functioning since 10, has been opened as a store in a few locations and Nike plans to expand on this idea by opening more stores. These stores will either be separate stores, or boutiques within larger stores. Lady Foot Locker will incorporate Nike Goddess into its 600 stores, Nordstrom will incorporate it in its department store, and Macy’s will get a smaller version of the store this year. This is nothing but a good thing for Nike as it will only expand its market and try to double its sales to women by mid-decade. (14) (1)
Ryan, Thomas J. “Girl Talk.” Sporting Goods Business 6, no. 6 (Jun 00) p. 18.
(14)
Warner, Fara. “Nike’s women’s movement.” Fast Company no. 61(Aug. 00) p. 70-75.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Shoe companies are searching overseas for big name athletes to endorse their products, and thus expand their market in order to drive sales. () The recent U.S. economic downturn has caused people within the United States to buy less of the really expensive athletic shoes such as the new $00 Jordans. For this reason, and the basic idea of just driving sales to a wider market, the major companies have worked on gaining endorsements from major international athletes. Reebok has recently won its first ever endorsement battle with Nike by winning away Yao Ming in a newly signed endorsement deal. This should give them a huge leg-up in the Chinese footwear market where Basketball is the second most popular sport in the country. (15) Nike has realized that by signing major athletes from sports around the world, they can increase sales and market themselves on a much larger scale. Nike has signed the likes of Ronaldo, the Brazilian soccer player, and sponsors such National soccer teams as Brazil, Korea, and Manchester United of the English Premiere League. Because of this, Nike has seen International sales exceed domestic sales for the first time as they reached 51%. (6) ()
Standard and Poor’s Industry Profile. http//www.netadvantage.standardandpoors.com/
(15)
Aoki, Naomi. “Reebok Signs Top Basketball Player Away from Nike.” Knight-Ridder Tribune Business News. October 4, 00.
(6)
Knight, Raymond. “00 Nike Chairman’s Letter to Shareholders.”
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Shoe companies have begun to restructure their relationships with major retailers, as well as form relationships with new companies. One reason for this being so is that certain shoe companies give the retailers an opportunity to increase their profit margins by selling their shoes. (16) Seeing that Nike in many cases creates the trends for this industry, it is easy to understand how their battle with Foot Locker has created an opportunity for companies such as Reebok and Adidas. After the dispute between Nike and Foot Locker, where Foot Locker cleared many Nikes off of their shelves, Reebok and Adidas benefited greatly due to the fact that it cleared $50 million worth of shelf space for companies such as themselves. (17) Many thought that Nike would suffer from the problems that them and Foot Locker had seeing that Nike would have to find a new home for $50 million in marquee product. However, Nike has aligned with mall-based retailers such as Footaction and The Finish Line, directly competing with Foot Locker and doing just fine. Nike also combined with The Finish Line for three TV co-op spots this year to push the two companies. (18) (16)
Carr, Bob. “Has Nike won its battle with Foot Locker?” Sporting Goods Business 6, no. 6 (Jun 00). p 10.
(17)
Ryan, Thomas. “Hot off the shelf.” Sporting Goods Business 5, no. 11 (Nov 00). p 0.
(18)
“Finish Line, Nike team again retailer’s inventory of Shox Status shoes shines in humorous spot.” http//rdsweb.rdsinc.com
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Due to the slowdown of the U.S. economy as of late, major footwear companies are seeking to buy smaller ones in order to bolster their own sales and eliminate potential competition. (1) Demand for shoes will probably remain constant even when a larger line buys out a small one. However, many companies that have the means to buy a smaller one are simply doing so to try and keep up with the larger behemoths. By doing so, companies grab market share and can use another products label to help their cause. (0) Nike has recently bought out classic shoemaker Converse, for $05 million, in order to gain additional market share as well as reaching the retro market of the shoe industry, which is becoming increasingly popular. They plan on running it as a separate entity and not change the traditional Converse shoes. This will certainly mean a big boost in sales for Nike. (1) (1)
Standard and Poor’s Industry Trends. http//www.netadvantage. standardandpoors.com
(0)
Ryan, Thomas. “Hungry for Profits.” Sporting Goods Business, 6 no. , Feb 00. p 4.
(1)
Schlosser, Julie. “Nike Goes Old School.” Fortune, 148 no. , August 11, 00. p 150.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Major shoe companies keep trying to come up with the newest and most interesting advertising/marketing campaigns in order to push their product to customers in a way that sets them apart from the rest. () One example of this trend is the way that Reebok has created another way of battling Nike for superstar athletes, that being to market shoe lines from non-athletes such as hip-hop artists Jay-Z and 50 cent. These artists will gain Reebok some “street” credibility as the create signature collections for Reebok extension Rbk. () Nike will most likely have to counter this move assuming that the direction Reebok is taking has huge success. Nike has always gained endorsements solely from athletes, but it may stand to learn something from Reebok if they find success. Nike may face some problems competing with Reebok seeing that Reebok now has Allen Iverson and Yao Ming as well. ()
Devaney, Polly. “Reebok shoots from the hip-hop in sneaker wars.” Marketing Week. July 1, 00. p1.
Summary of the State of the Company and of the Industry
Footwear Industry
The athletic footwear industry is a market where three top manufacturers dominate Nike, Adidas, and Reebok. The three companies alone together control nearly 70% total market share (Section I part 1). As large as the markets are, there are many new entrants that have made successful forays into the market as new entrants (Puma), however, the overall cost and feasibility are greatly debatable which makes the footwear industry a rather difficult market to enter. One important note about the Footwear industry that is worthy to mention is the underlying nature of footwear as a consumer product. Athletic footwear is much as necessity as it is a discretionary purchase (Section I part 1). This notion is where the industry has risen to levels that provide tremendous value for its consumers. It is no surprise, thus, that much of athletic footwear sales have primarily been attributed to branding and image. Such proves to be the driving factor that has ultimately sustained sales. The current state of the industry has been in its maturity phase for some time. Nike holds the lions share of the market and continues to dominate.
Company Strengths
There are various strengths that Nike is endowed with. Most notably, Nike is the largest manufacturer of athletic footwear and apparel in the world. In terms of footwear, Nike enjoyed control of nearly 4.% of the entire footwear market in 000 at nearly 8 billion dollars (Section I part 1). That is more than both its number two and number three competitors combined! This dominance has helped Nike to become the athletic colossus that it is today. Nikes branding also directly contributes to its advantage due to Nikes ability to not only market shoes, but allows the consumer to take on the vicarious roles of the numerous celebrity endorsers that promote Nike in the first place. Nike has virtually invented the notion of the celebrity endorsement with the likes of Pete Sampras and Andre Agassi in Tennis; Michael Jordan in Basketball; and the recent acquisition of teen basketball sensation Lebron James who signed with Nike for a reported $0 million (Section Part ). The ability to throw enormous amounts of money to these athletes has given Nike a comparative advantage over the number and . In addition, Nikes financial soundness has proven stable through economic cycles. Nike has enjoyed higher margins of sales compared with that of its immediate competition (Section Part 1) and although sales have slumped in the recent economic downturn, Nike appears on its way to regaining profitable levels.
Company Weaknesses
Though Nike enjoys the title of being the largest athletic footwear and apparel manufacturer in the world, it goes without saying that Nike has had its share of company weaknesses. An analysis of the house of quality reveals an opportunity that seems to consistently be overlooked by not just Nike, but from Adidas and Reebok as well. This stems from the inability (or lack of effort) to market to the large baby boomer segment (Section 4 Part 4, c). What would appear to be a market that looks for comfort, price and quality (Section 4 Part 4, c) seems to be a sorely underdeveloped niche that Nike (As well as others) could take advantage of. On other notable weakness is not as readily apparent but a major concern nonetheless. This weakness has to do with Nikes shear size. Being the biggest on the block is not without its trade offs. Nike has had to work hard for its place in the market but adjusting to global pressures, social pressures, and being stuck in branding an expensive shoe leads to limited options in dealing with an environment constantly influx (Section Part ). Nike has made slow adjustments to react to all of these issues on many fronts and Nike is definitely without its critics (Especially from human rights activists groups).
Company Opportunities
One major opportunity that Nike has homed in on regards the foray into the womens market. Nike has made a push to market to women with new product lines, distribution centers, and web stores (Nike Goddess) that are exclusively marketed to women (Section 5). Another way that Nike has been able to take advantage is underpinned with the recent acquisition of Converse (Section a). Such a move is telling of Nikes value of the recent trend for the demand for trendy retro products. The acquisition was intended to position Nike by leveraging the throwback lifestyle. With the current stable demand for such products, Nike is able to reap the benefits by acquiring a company whose entire legend is embodied with a solid retro history (Converse Chuck Taylor All Stars). Not deviating far from that emphasis on trends is the decision to reproduce older shoe models that were conceived of decades ago. The hip hop community has been a driving factor in sales with the surge in popularity of the Air Force One model shoe. In fact, the shoe has been resurrected in multi-platinum record sales from the song Air Force Ones by rap singer Nelly. Nike has thus had the fortunate situation to be in a position to cash in on such opportunities.
Company Threats
Nikes most immediate threats stem from environmental factors. The SARS epidemic in Asia has been a prime example of how Nikes company can be affected by conditions in far flung places like Asia. The implications of the epidemic were large in scale in that Nike has had to close ports on the West Coast and take other actions to deal with the virus (Section V). Another trend that has left a sour taste in the mouth of Nike involves the human rights pressures to improve working conditions and to directly deal with the sweatshops that Nike has been accused of (Section V). Such controversies have placed CEO Phil Knight in the role as global villain which can detract from Nikes impression on the public and overall performance. Increasing expenses of relocation, improving factory working conditions and dealing with negative publicity has led Nike to a take on a defensive position on an ongoing basis.
Balanced Scorecard
Financial Measures Process Measures
• Profit margin
• Cost of sales as a percentage of total sales
• Return on equity
• Market share
• Return on investment • Percentage of deliveries made within a specified number of working days from the date of order
• Average number of defects per shoe at final inspection
• Labor cost and usage per 1000 defect free units
• Percentage of shipments received on promised date but after the promised time
• Average time to adjust to change orders.
Organizational learning and Organization Development Measures Customer Satisfaction Measures
• Average delivery time to distribution centers
• Periodic employment performance reviews
• Quality circles utilized to rate internal team based performances
• Time spent dealing with bottlenecks within supply chain
• Ongoing inventory of distribution channels Segments are Generation Y
Generation X
Baby Boomers
• Average dollar amount spent on athletic footwear per year in each segment
• Average distance traveled to purchase Nike products
• The percentage of customers within each segment that value the quality of the product
• Average number of repeat customers that purchased Nike products.
• The percentage of customers who purchase Nike products based on image
Nike’s Current Strategies and Goals
Nike has in placed several strategies that encompass improving growth and profits in a variety of areas. The struggling economy has not changed Nike’s attitude towards growth. One strategy that Nike focuses on, in continuing to help the company grow is Person Marketing. Nike has been using the best athletes, and sports teams (or clubs) all over the world to help market their products. The regenerative nature of sports has allowed Nike to sign new upcoming stars like LeBron James, Carmelo Anthony, Lleyton Hewitt, Michael Vick and others. These are the athletes that will push Nike beyond their expectations and will set the standards for the next generation to exceed. Nike’s second greatest source of potential lies with the products the company is working on. Nike’s design team is constantly developing new concepts in speed and agility to give athletes the latest innovative equipment to improve performance. The third strategy that Nike uses, perhaps the most important, is advertising and marketing. These two components capture the essence of the product and the attention of consumers around the world.
These strategies support the financials especially profit margin and market share. Under consumer measures Nike’s strategies also support the percentage of customers who purchase Nike products based on image.
Nike
Remy Ajluni
Adam Brook
Anthony Colletti
Elizabeth Crompton
Conrad Pilewicz
Michael Ramos
Current nature and structure of the athletic footwear industry
The athletic footwear industry is a highly competitive environment where the top four manufacturers hold over 70% of the market share. The barriers to entry into the industry are comparatively low, as anyone with new creative design ideas can produce and market their product, but the success of smaller companies is oftentimes shaky. Brand loyalty, ample capital, and broad based sourcing create an environment where the bigger companies such as Nike and Reebok have little trouble maintaining market share. Nike enjoys the largest share, with 4.% of the nearly $8 billion market in the year 000. Reebok was second with 11.%, Adidas had 10.8%, and New Balance had .6% of the market. The remaining 5% must be divided among the numerous smaller companies fighting for a shot at survival.
One of the important characteristics of the footwear industry is the fact that the product is necessary to consumers, yet very much a discretionary purchase as well. The actual structure of athletic shoes does not change very much from season to season. The design and fashion aspects are what significantly differentiate one product from another. Due to these factors, athletic shoe purchases are largely dependant on economic conditions. When the economy is good and consumers are enjoying plenty of disposable income, they are more likely to make new purchases to update their shoe collections. When there is a shorter supply of income, consumers will put off purchases until they are absolutely necessary and the price of the shoes is low enough.
Currently, the athletic shoe industry is performing well. Overall footwear spending in the United States has decreased in recent years, but athletic shoe sales are increasing. In 001 $15.1 billion was spent on footwear while in 00 the industry experienced a 5% decrease to $40.56 billion. In the athletic sector, consumer sales have increased. The number of shoes sold in 00 was 7% higher than 001 sales, reaching 48.6 million pairs. Although sales are up, manufacturers are still looking for additional opportunities because the average price paid has decreased from $8.0 in 001 to $6.61 in 00 or a 4.% loss. These conditions of added sales but declining prices have led to fairly slow growth in the industry.
Because the US market has reached its maturity, manufacturers are looking at the opportunities in foreign markets as the next step for growth. The US population growth rate is extremely low, 1% per year, but the populations of developing countries are exploding. The abundance of opportunity in foreign markets has allowed the footwear industry to thrive when domestic growth is nearly non-existent.
Within the footwear industry, manufacturers typically produce their product and use their distribution channels to circulate the goods to retailers and, ultimately, consumers. Some companies such as Nike have opened a limited number of retail stores themselves to diversify sales channels and lower dependence on retailers. Retail stores by manufacturers allow them to more effectively maintain contact with the consumer and collect feedback, but are not currently a feasible route of distribution for the industry on a large scale. Manufacturer’s relationships with retailers are pivotal. The retailers have significant power over the manufacturers. By lowering the amount of inventory that they hold, retailers have shifted the inventory risk to manufacturers. Also, because they are the main routes of transmission, retailers have significant leverage over manufacturers on many aspects of the industry such as pricing, product labeling, or cooperative advertising where both share costs.
Key factors that influence success
Brand awareness is one of the biggest assets that an athletic shoe company can have. Consumers are constantly exposed to endless advertising and marketing campaigns for never-ending product lines. If a company is able to establish brand awareness, they will have a significant advantage in grabbing consumer’s attention and, therefore, market share. In today’s society where consumers have significantly less time to shop and compare, brand awareness is critical. If an established brand name effectively conveys the messages of quality and dependability, consumers will automatically go to that brand relying on the image that has been created when they don’t have time to shop around.
Manufacturing efficiency is something that companies are constantly striving for as well. Athletic shoe manufacturers must balance the costs of labor, raw materials, shipping, import tariffs, and technological advancements. In an effort to keeps costs down, the industry has been looking to overseas sourcing. Favorable legislation regarding foreign manufacturing has led to a huge increase in foreign sourcing. In order to diversify supply and production lines, manufacturers have spread out their operations over many areas to avoid over concentration in one region. With this strategy, if one country or region experiences problems that interrupt production, the affected company is not completely out of options and can still accomplish production.
Distribution channels dictate who a company’s customer will be and how they will get the product. The footwear companies must choose their channels carefully because they want to make the product available, yet remain true to their image and goals. Retailers account for the largest percentage of sales, so manufacturers must be especially careful with their relationships with them. If a disagreement arises between manufacturer and retailer, the manufacturer could face potentially extensive problems getting the product to market. A recent example of this occurred between Foot Locker and manufacturer Nike. In an attempt to carry more of the lower cost shoes that consumers are demanding, Foot Locker cut back on their high-end purchases from Nike significantly. Nike, in turn, had to look for other outlets for their signature lines.
The ability of companies in the industry to shorten their design, development, production, and distribution cycles is vital to success. In the past, retail stores could carry a product months in advance of a projected need, but now consumers want to buy closer to when they actually experience the need for the good. With the shortened cycles, manufacturers can place more of an emphasis on styling and keep up with the changes in fashion.
Technological advancement is becoming more and more of a player in the footwear industry. With computer-aided design (CAD), companies have been able to successfully shorten their design to distribution cycle to only a few months. Previously, the new product development phase oftentimes took years. Also, new technology has facilitated new quick-response programs that link retailers with manufacturers to allow the retailer to have the correct inventory when it is needed called EDI. Immediately after a sale is made, electronic point of sale scanners read the information related to the sale such as price, product, size, etc. and notify the manufacturer of the sale. With this, the manufacturer is able to accurately modify production to fit consumer demand. Also, retailers are not required to hold as much inventory with this system, which lowers costs for them and, ultimately, consumers.
Demand cycles
While footwear is definitely a necessity for the general population, most footwear purchases are discretionary. Shoe design does not significantly alter in fundamental structure from season to season, so any additional purchase by the consumer is probably for fashion or style reasons. Due to the largely subjective nature of athletic footwear purchasing, the success of the industry is dependant on the current economic cycle. When consumers are concerned about future economic conditions, they will put off their purchases until their confidence rebounds. As can be seen by the graph below, consumer confidence hit its peak around 000 and has been fluctuating ever since. After the events of September 11, 001 and then when consumers were concerned about impending war in Iraq, confidence drastically dropped, but was able to rebound somewhat. Industry sales in 000 were around $. billion, dipped to $8. billion in 001 largely due to the drop in consumer confidence after September 11, and began to recover in 00 to a little over $ billion.
In addition to the amount of confidence that consumers have for the future, the amount of disposable income available to them directly affects how much is spent on athletic footwear. When consumers experience a drop in disposable income, discretionary purchases such as footwear are put off. One general exception to this trend within the industry is due to the fact that teenagers account for a large portion of industry sales in the athletic footwear sector. Teenagers are responsible for % of all athletic shoe purchases and are typically not as concerned with the costs of goods as older consumers are. When adults are saving as much as they can, teens will still spend any disposable income that they have. Also, teens are more willing to pay for the higher priced shoes while adults are reluctant to buy the specialty goods.
U.S. Department of Commerce Bureau of Economic Analysis
Competitive forces affecting the industry
-Potential new entrants
The footwear industry includes moderate barriers to entry. Any person with a design that interests consumers can outsource their production to an independent manufacturer and can potentially enter the market. The capital and distribution channels that are required for success make it difficult for the smaller entrants to flourish though. The top manufacturers absolutely dominate the industry, with Nike holding over 40% alone.
-Bargaining power of Buyers
Buyers in the athletic footwear industry enjoy a great deal of power. Consumers have shown again and again that they will simply wait until prices reach a level they feel is reasonable before making a purchase. Nearly 40% of all shoe purchases are made through discount stores. Also, consumers are able to make informed decisions about a purchase through utilization of Internet websites. The bargaining power of retailers is also a problem for footwear manufacturers. In recent years, retailers have begun to hold fewer inventories, forcing manufacturers to pay for increased inventory levels on their end. Manufacturers must also make sure that retailers are selling the product in accordance with the desired image of the shoe. Nike has recently experienced a disagreement with their largest retailer Foot Locker due to pricing disagreements. As a result, Foot Locker significantly reduced its high end purchases from Nike and Nike decided to shift their high end product sales elsewhere.
-Bargaining power of Suppliers
The materials for footwear production are relatively easy to obtain. To keep costs low, manufacturers have begun widening their supply channels to ensure that they are not depending too much on one source. The recent SARS outbreak is one example why suppliers are diversified. Many manufacturers relied on China to supply low cost goods for manufacturing. When the outbreak made traveling to the area impossible, manufacturers had to find alternative ways to get supplies such as utilizing the Internet.
-Threat of substitute products
Athletic footwear manufacturers must constantly be aware of the threat of substitute products available to the consumer. The major manufacturers such as Nike, Adidas, and Reebok hold a majority of market share but are far from the only choices that consumers have. There are numerous other options for athletic shoe purchases. Although brand loyalty allows some measure of constancy for the manufacturers, if the design does not match the current trend, consumers will simply buy one of the many alternatives.
-Rivalry among competitors
Rivalry among competitors is high. Overall, the product that all manufacturers offer is basically the same. Differentiation of the product is vital for success. Consumers have many options to choose from and manufactures have to tailor their marketing strategies to catch part of the market. The advertising dollars that are spent in the hopes of differentiation are staggering… In 000, Nike spent over $10 million on advertising alone. In a recent deal with LeBron James, a basketball player, Nike beat out Reebok with a $0 million offer. In turn, Reebok took on year old Mark Walker as part of their “the future of basketball” advertising campaign. Finally, in another odd twist of the competition between the athletic shoe companies, Kobe Bryant broke an $8 million deal with Adidas and was going to sign with Nike. Although the relationship between Bryant and Nike disintegrated due to recent events, this just illustrates the lengths that competitors go to in order to outdo each other.
Industry Location on the Product Life Cycle
The athletic footwear industry is in the maturity stage of the PLC. The product itself has become very similar across the board because the wishes of the consumer have been well established. Since the market is fixed, additional profits come only by taking those profits directly from a competitor. The intense competition between competitors in the market is obvious, as that is the only way to succeed at this stage of the product life cycle.
00 sales � 001 sales = 08-804 = 1.5%
001 sales 804
Company location on the BCG
-Nike
Nike is positioned at the cow position on the BCG matrix.
PLC 8-488.8 = .04 or 4.%
488.8
target co sales = 8 = 1.56
Relative Market Share nearest competitor(adidas) 67.7
-Adidas
Adidas is located at the star position on the BCG matrix.
PLC = 67.7-578.87 = .176 or 17.6%
578.87
Adidas = 67.7 = .0
Market Share Reebok 17.87
-Reebok
Reebok is at the cash cow position on the BCG matrix.
PLC 17.87-.88 = .045 or 4.5%
.88
Reebok = 67.7 = .8
Market share Adidas 7718.66
Industry trends
Trend Implications for the industry Implications for target company Citations
Product line diversification. Manufacturers are producing a much wider variety of products for more segments of customers. Retail stores, wider customer base, more revenue Standard and Poor’s Industry Profile for Apparel & Footwear
Overseas production and sourcing Lower material and labor costs as well as a diversified network of production and supplies to ensure stability if one source is rendered unavailable or unusable. Lower production costs and less risk of losing revenue if one region experiences problems.
Foreign sales With the US market at maturity, companies are looking overseas to utilize the vast opportunity in foreign markets. Nike sales in the foreign sector are growing at a much faster rate than those in the US leading to higher profits.
Diversified distribution channels Products are readily available at multiple places, thereby reaching a broader customer base. May dilute the product’s image if put into channels that do correspond with the desired image.
Lower retail inventories Retailers are not carrying as much inventory, leaving that responsibility with the manufacturers. Nike must assume more inventory risk and carry the extra costs associated with inventory. The Wall Street Transcript Interview with John Shanley on athletic footwear companies, 1/7/0.
Response to negative public opinion of labor practices
“Rapid globalization and the unfettered quest for lowest-- cost production-coupled with the value clash between affluent countries and those in the very early stages of industrialization” has lured many companies to manufacture their products in under developed countries. Much protest has arisen concerning companies’ labor practices in these countries. Consumers are becoming more conscious of a company’s reputation and are making purchases based on their opinion of the company. “In fact, a recent MORI poll commissioned by the Co-operative Bank suggests that a third of consumers are `seriously concerned with ethical issues. Within the past year, over half of us have bought a product or recommended a company on the basis of its reputation.”
NIKE
Nike has been a target for protest since the early 10s. Many activists, students and unions have alleged that Nike’s labor practices are unfair and their treatment of workers is inhumane. When compared to Adidas and Reebok, Nike receives the majority of the attention from protestors and activists. After many years of such protest, Nike’s reputation eventually became tarnished and in 18 the company reported a 50% decline in profits from the previous year. On its website, Nike responds to the issues of its labor practices “Nike is committed to being a responsible corporate citizen. We work to improve the lives and working conditions of all workers. We dont own these factories, but we take pride in our relationships with them. Nikes relationship with its contract factories is guided by our Code of Conduct and the Code Leadership Standards, a set of labor, health and environmental standards.”4 In response to all the protest, Nike has been developing a formal factory monitoring program.
REEBOK
Reebok has lived in Nike’s shadow since 10, when the industry giant surpassed Reebok in sales. As a result, Reebok has not been under the extreme scrutiny that Nike has faced. There are those opposed to Reebok’s labor practices nonetheless. Doug Cahn, director of human rights programs for Reebok, says “Theres a correlation between factories producing good-quality products and those with good working conditions.5 Reebok seems to have taken the human rights issue to heart. To ensure that production standards were compliant with human rights, Reebok formed a task force to establish international standards concerning labor practices. The task force drew on information from outside the company to form standards, which made sure the standards developed were very effective. Internationally accepted standards were looked at along with standards set forth by the United Nations. Reebok sends auditors, often unannounced, to check factory conditions. The company also uses a type of double check ADIDAS
In 1, Robert Louis-Dreyfus was appointed chairman of Adidas. He brought with him radical change concerning the manufacture of Adidas products. Dreyfus decided that the company should focus more on marketing and branding and less on production, so he closed the majority of the plants in Western Europe and moved most of the production, 0%, to Asia, Southern Europe and Northern Africa. As a result of this shift, Adidas has been criticized for having poor working conditions in their factories. Criticism has put pressure on Adidas to monitor their factory working conditions more closely. Whereas Nike has its Code of Conduct, and Reebok has its Human Rights Production Standards, Adidas has no code of conduct concerning the treatment of workers in their factories. In January of 1, Adidas appointed David Husselbee as the new director of social and environmental affairs. Up until Husselbee was hired, Adidas concerned themselves with human rights issues on a makeshift basis. They
The program was designed to monitor working conditions and treatment of workers in Nike factories. Regular audits are carried out in each of its factories to make sure no children are employed. In addition, Nike has signed the United Nations’ Global Compact which is “an initiative launched…to encourage businesses to implement certain human rights, labor and environmental principles.” In 1, Nike put into action a Code of Conduct that deals exclusively with labor rights. The company also joined President Bill Clinton’s Fair Labor Campaign and created a labor practices department in 16. To improve the well being of workers, Nike employed micro-credit programs, adult education, and better factory monitoring. Nike also hired an audit firm to make sure contractors in Vietnam, China, South America, and Indonesia adhered to the labor standards that had been set. “Nike now claims it is a market leader not only in shoe design but also in labor standards.”
process to ensure proper working conditions, “third-party auditors are used in countries where the company does not believe it has personnel with the necessary expertise to judge working conditions.”5 Reebok has recently developed software with SAP, a logistics software supplier, that allows them to track human rights issues in developing and undeveloped countries. The software will allow Reebok to monitor workers’ wages and even the number of hours each employee works.6 A computerized tracking system such as this will enable Reebok to respond faster and more effectively to any human rights issues that might arise. In 17, the Department of Labor released its first “Trendsetters Report”, which is “ a list of retailers and manufacturers who have taken action to combat sweatshops and ensure that their shelves are stocked with only ‘No Sweat’ garments.”7 Reebok was among the companies that made the list. Companies mentioned on the list were found to have a strong commitment to would only worry about issues when the issues arose. After the company saw the amount of pressure that Nike was under to address labor issues, Adidas decided to put a human rights policy into action. Adidas, though, did not use the program to effect public relations, but rather used it as a defensive tool. ’We see our human rights policy as a natural part of being good corporate citizens,’ says one executive. ‘Emphasising it would only detract from our brand.’10 Most of the action the company takes about concerns that arise is interactive, meaning they wait until a problem is reported to solve it. “The group plans to take a more proactive role in the future.”10 This way the company could fix any problem before it really becomes a problem. Husselbee is currently working with activists and campaigners to come up with plans of action to “provide independent confirmation of progress (or lack of it).”10 By imploring this type of strategy, Adidas gains a lot of credibility when it comes to dealing with
The media is starting to see that Nike has made a solid effort to improve labor issues and that the changes they have made are having a positive effect. Numerous newspapers have reported that labor conditions have improved in Nike’s factories. As a result of the actions Nike has taken to deal with the voices of dissent, their sales figures have been steadily increasing since the slump in 18. Nike has made a sincere effort to improve working conditions for its employees in undeveloped countries, and this translates directly to increased sales figures.
labor laws. These companies comply with law enforcement when violations are found and also monitor work conditions strictly to ensure no human rights violations. Reebok’s company website shows a strong commitment to human rights as well. “We believe that we all have a responsibility to understand human rights, to expose injustice, and to support efforts that ensure dignity and rights for all human beings. The business practices we have developed and implemented around the world and our history, are a reflection of our commitment.” It appears that Reebok is more effective at dealing with any negative opinion that may arise from any of its labor practices. Even though most protest against Reebok is eclipsed by protest against Nike, Reebok effectively deals with issues that surface concerning labor and human rights. protest. Adidas is making strides to respond to concerns regarding their labor practices. But ultimately they need to develop a set of standards that all their factories must abide by. They should also develop a reliable system to monitor the conditions in their factories.
Advertising campaigns
Advertising is a huge part of the athletic shoe industry. Companies spend a large portion of their revenue on advertising. A lot of pressure is put on the companies to come up with new and successful advertising campaigns. If a campaign fails, the companies sales suffer as a result. NIKE
Nike has always been an industry leader when it comes to advertising. Their ad campaigns are known all over the world as being widely successful. Nike is truly a trendsetter when it comes to advertising, not just for shoes, but for the advertising industry as well. In June, Phil Knight, CEO and co-founder of Nike, will be named advertiser of the year for the second time (the first being in 14) at the Cannes International Advertising Festival. After gaining some steam and noting steady increases in sales, Nike started to establish itself in the industry. “Into this Eastern establishment came this weird new cultish… sensibility a definite west by northwest, New Age-y, maniacal, running/fitness/discipline subculture. The company was all about the clarity of matching technology to athletic performance-and, in the ads, showing the passion that resulted.”11 By going against the norms in advertising, Nike was able to distance itself from other shoe makers and thus establish strong customer core. There are many aspects of advertising that have REEBOK
Unlike Nike, Reebok has not really been known for their revolutionary advertising. During the early 0s, the battle for market share in the athletic footwear industry was a heated one, but after Nike took the lead, the market shares have remained fairly constant, with Nike far in the lead. Nike dominates big name athletes to endorse its products, so Reebok has decided to focus on non-athletes, namely hip-hop artists, to create their own signature collections. This strategy seems to be working for the company so far. Reebok has realized that if they were to succeed in the market, they had to focus on selling to the urban teenage male. Reebok launched its Rbk campaign, which moved away from the Reebok image and attempted to establish one that would get the attention of the urban teenage male. To go along with its new hip-hop urban image Reebok signed Allen Iverson to release his own shoe collection, which has become a top seller for the company. Reebok has also recently moved beyond athletes to sign rappers Jay-Z and 50 Cent in hopes to tap into their popularity. ADIDAS
Adidas uses strategies used by both Nike and Reebok to market their products. The company plans on raising their global media spending by up to 0%. Like Nike, Adidas signs athletic superstars to endorse their products. Recently they signed All-Star Tracy McGrady to a lifetime deal and also signed Tim Duncan of the San Antonio Spurs. Most of Adidas’ advertising is geared toward the European market since about 65% of their sales are made there. They recently signed soccer sensation David Beckham to an endorsement contract to boost sales in England and across Europe.16 Beyond using big stars to endorse their products, Adidas has rode the retro wave to bring back its trademark logo, the Trefoil. Retro styling is making a big impact on the footwear industry. Consumers associate the Trefoil with retro styling, and because of its recent resurgence, the logo is becoming more popular. Adidas has shifted a bit from performance and is now focusing on retro style. 17 As long as Adidas realizes the retro fad is most likely a fleeting one, they should
brought Nike success. Its use of famous celebrity athletes in advertising their products is unrivaled by any other company. Through clever ad campaigns, Nike was able to “humanize athletes.”11 Nike placed famous athletes that seemed almost “untouchable” in often humorous situations. Many of the athletes would mock and poke fun at themselves, making them seem more human and less untouchable. Ads with Bo Jackson, Michael Jordan, and Charles Barkley are just a few that demonstrated this concept and were exceptionally successful at doing so. Company advertising in the shoe industry changes with different social and economic trends. Nike, on the other hand, often creates their own trends with their advertisements. The current throw back jersey craze sprouted from Nike’s basketball ads set in Rucker Park, in Harlem, that recreated pick-up games played there in 175. Nike’s use of technology in advertising is among the best in the world. The advertisements are The strategy seems to be working well for Reebok. Jay-Z’s Reebok line has become the fastest selling product ever for the company. Critics of this strategy say that Reebok is running a risk associating themselves with the unpredictable rap industry. The popularity of the stars they sign on may wane within the near future, but that’s a risk they’re willing to take.1 On October 7, 00, Reebok made a big move concerning their marketing and advertising by hiring Sonny Voccaro, former marketing guru for Nike. Voccaro is responsible for signing big names like Michael Jordan, Kobe Bryant, and Tracy McGrady to endorsement deals. Voccaro is a big addition to the Reebok staff and will most likely do great things for their advertisement campaigns. Reebok is currently launching a $50 million global campaign that focuses on its vector logo. Through the campaign “Reebok is hoping to create an iconic connection to its brand mark.”15 Reebok is hoping to make the vector seen as a symbol not have any problems with sales. If too much focus is taken away from the performance aspect of their products and put instead on retro styling, Adidas could lose a lot of customers due to inadequate athletic products. The company should ride the retro wave for a while but realize that the performance qualities of their products is a permanent consumer draw.
“so well-executed that the editing is about twice as good as it has to be.”11 Use of the best technology enables Nike to create ads that truly grab a consumers attention, which could make them think about buying Nike the next time they go shopping for a pair of shoes. Nike’s new “Speed” campaign puts the focus on individual athletes and their stories. The spots focus on runners and the determination they exhibit. 1 Nike’s current strategy still focuses on signing big name athletes to sell their products. This strategy appears to be extremely successful for Nike, as they are currently have the top market share in the industry. Compared to Reebok and Adidas, Nike has a definite advantage when it comes to contracts with big name athletes. Michael Jordan, Derrick Jeter, Warren Sapp, and now Lebron James, who currently signed a $0 contract with Nike, are just a few of the big names Nike has contracts with. of authenticity and performance. Reebok wants to do for the vector what Nike did for the Swoosh. Reebok hopes that their $450 million contract with the NFL and NBA to be their official apparel suppliers will put the vector out there for everyone to see. The company feels that if everyone sees the vector connected all over the NFL and NBA, they will associate it with a quality product.15 Reebok’s strategy of moving toward more of a hip-hop and urban feel seems to be working for them so far, but as the popularity of the people they have signed diminishes, which it most likely will if the hip hop industry stays true to current trends, then they will have spent millions of dollars on successfully short lived campaigns. Nike has the right idea signing athletes; although there will be a few busts, for the most part the stars remain popular. As for promoting the vector, Reebok is moving in the right direction. If they can manage to get consumers to associate their logo with quality and performance, they will ultimately sell more products.
Factory Distribution
Distribution is simply the way in which a company gets its product to the consumer. Successful companies have found an optimum way to distribute their products. NIKE
Nike has developed superior control of its distribution channels. “Nikes distribution is as about as tight as you can make a consumer goods-oriented business.”1 The company has developed a Futures program to remove a good portion of inventory risk associated with distribution. A retailer puts in a non-cancelable order months ahead of scheduled delivery. This system helps Nike predict the demand for a product and also assures the buyer will have an adequate supply. Almost 0% of US footwear is ordered under the Futures program. Nike improves distribution efficiency and output by improving its distribution facilities, most notably their recent improvements to their Memphis distribution center. State of the art conveyors and sorters were installed to achieve a higher throughput. “This is now the kind of system befitting an industry leader.”0 The measures taken toward improvement have more than doubled the amount of product that is distributed from the facility. Order accuracy has risen to .8% as a result of the new system. ADIDAS
In 16 Adidas had quite a scare concerning the distribution of its merchandise. The problem occurred with the company’s automated distribution system and almost brought distribution to a stand still. Adidas has since entered into a long term agreement with Caliber Logistics to distribute footwear in the United States. Adidas Canada has made many improvements in distribution. In 17 they made a transition from paper based distribution to a fully automated one. After the addition of Salomon and Taylor Made to the Adidas name, the company had to move two and a half times more inventory. The change to a fully automated distribution system made it easier for the company to handle the influx. Implementation of the fully automated system has cut distribution costs in half as well as made a significant improvement in order accuracy. Adidas has immensely improved its distribution since the mid 0’s. Now customers and retailers can get the product they want when they want it. A smoother operating distribution system will REEBOK
Reebok is taking big steps toward improving their distribution system. A state of the art distribution center has been set up in Massachusetts. The center is controlled by a new warehouse management system that allows for products to be distributed more effectively. This new system has improved employee productivity and kept the inventory accuracy rate high. Reebok realizes that to stay competitive in the industry, their distribution system needs to be nearly flawless. Any problems with distribution could have a negative effect on overall sales.
The system put in at the Memphis plant is truly trendsetting. With that kind of attention to their distribution centers, Nike will minimize any problems that may arise from distribution. A continued effort by Nike to make advancements and improvements in their distribution will ultimately lead to improved financial figures. enable Adidas to keep up with Nike in terms of product availability.
Ability to Innovate
A company’s ability to innovate can distinguish it from other companies in the industry. An innovative company will set itself apart from its competitors by constantly coming up with new products and new ways of doing things. In an industry as fickle as footwear, being innovative is key to a company’s success. NIKE
Nike has been a leader in innovation in the footwear industry. The creative directors have developed the Design Ethos, which sets parameters for Nike’s approach to design throughout the entire company. There are four design functions at Nike footwear, equipment, apparel and identity. Each group contains individual groups, such as men’s basketball, and each of these has its own design team. “Over the years Nike has learned from hard experience that what the athlete likes and what the consumer likes are often not the same thing.”4 Many of Nike’s designs are created for the consumer, not just for professional athletes. That doesn’t mean that the product is inferior in any way in terms of performance, it just means that Nike factors in the wants of normal consumers into their designs. “Our designs are required to perform for elite athletes as well as for everyday athletes,’”4 says one executive. Nike has a big research and development department available REEBOK
for the designers to use in developing new products. Nike set up the Advanced Innovation Team to continually and totally innovate for the company. The team has the responsibility “to enforce the idea that design is not just about simple evolution. The focus for AIT was real innovation -- solving a problem in a brand new way.”4 For the team, innovating starts even before a design is made for a new product. They must look at other factors, such as how different textiles perform, to set the groundwork for an innovative design. John Hoke, Nike global director for footwear says, “From my perspective the true beating heart of Nike is innovation, therefore insight is the fuel for our imagination and creativity. It is the genesis point of all our ideas at Nike.”4 Nike’s approach to innovation puts it well ahead of the pack in terms of both sales and product innovation/development. The company’s commitment to innovation will ensure it future success.
Main Customer Groups
While looking at the different trends and styles of present day athletic footwear, we can further our research within the product and look at the different customer groups that our three companies focus their attention towards. We are primarily looking at the three different companies and the rules of style that may apply to a specific customer group for this product. In some cases, the customer group that they are focusing on may greatly impact the demand for the product because of different influences whether it is there income level, influence of childhood, or even there changing preference of a specific product.
Footwear is classified within many different categories, which makes the research of specific athletic footwear more difficult. For example, we are focusing on the companies of Nike, Adidas, and Reebok, and all of these companies make numerous styles of shoe lines. They range from golf cleats to soccer cleats to cross-country shoes. So when trying to determine the main customer groups, each line of shoes is basically broken down within the group that the specific product is directed towards. So when looking at the different types of customer groups within the athletic footwear industry, some of the key customer demographic trend are broken up into different generations of tastes in style.
The industry of footwear can be broken up into three main customer groups, which are the Baby Boomers, Generation X, and Generation Y. These customer groups do not have much in common except for their love of shoes and the different tastes in the new fashion trends of footwear. These three generations are broken down as follows Baby Boomers are from ages 5-5, Generation Y are consumers from 4-1, and Generation X is consumers from -. As we develop ideas about the main customer groups within the footwear industry we can conclude that the Baby Boomers account for 1% of the population, which is equal to about 81 million consumers. Generation Y is the second largest group that accounts for 8% of the population which represents about 75 million consumers. The smallest customer group is Generation X, they comprise about 17% of the population, which equals about 46 million consumers.1 Collected information from many consumer surveys rates Nike high among the consumers of Generation Y and X. Nike has become more appealing among younger consumers and has shifted away from the Generation of the Baby Boomers.
Nike and many other large shoe industry retailers are shifting there marketing direction from the Baby Boomers to the younger consumers of Generation X and Generation Y. There are many reasons to why the industry is trying to change their target market to younger viewers. As people become older many of there attitudes, priorities, and time obligations have decreased their ambition for shopping. Now that many of the Baby Boomers are within there forties and fifties, many of there priorities have shifted towards the future, in a sense that they need to save for retirement, different tuition payments for there children, and also different healthcare necessities that are important to them and there family. Lets say a consumer from the Baby Boomers generation was going to purchase some shoes, they are more likely to have a longer life span with those shoes then someone who is within there teenage years. Younger consumers put more wear and tear on their shoes than someone who is about 40 or 50. Many companies within the footwear industry know that the spending power of the Baby Boomers has not come to a halt. In Fact, there is still a very prosperous market out there, but the key is finding it. One way that the industry is trying to increase the spending among the Baby Boomers generation is by offering clothing lines in a more conservative style and also in a wide variety of sizes.
As mentioned before, the more present day trends of the footwear companies are geared on marketing to Generation Y. Many companies within the industry have come to the conclusion that by establishing trends among Generation Y, there becomes a greater vision and influence in future product design. By the influences of Generation Y, its impact does not only affect that specific consumer group, but filters to other Generations like X and also the younger brothers and sisters of Generation Y. It has always been said throughout the industry that teenagers show a great amount of brand loyalty to there apparel manufacturers. That is why many manufacturers try to establish a marketing ploy that influences children who want to dress like their older siblings or elders. So if they get them while they are young, they are more likely going to see profits from the children within the future.
Generation Y
Ages 4-1 Generation X
Ages - Baby Boomers
Ages 5-5
Growth Rate
(10-000) 80,61,468-
71,87,755=
8,7,71/
71,87,755=
.114 ,81,74-
4,175,=
-,84,08/
4,175,=
-.07607 8,86,47-
6,801,8=
0,04,40/
6,801,8=
.1885
Size of the group relative to the total population and is that changing 75 million consumers representing 8% of the population. The group of Generation Y has been increasing at a rate of 11% 46 million consumers representing 17% of the population. The group of Generation X has been decreasing at a rate of 7% 81 million consumers representing 1% of the population. The Baby Boomers have been increasing at a rate of %
Income Levels4
(000-001) Median Income
Male
000 $,546
001 $,01
Female
000 $7,60
001 $7,467 Median Income
Male
000 $0,54
001 $0,510
Female
000 $1,04
001 $1,47 Median Income
Male
000 $78,61
001 $7,444
Female
000 $45,80
001 $46,606
Unemployment Rate Changes5
Generation Y in the year 00, there were ,61,000 people unemployed.
In 001, the unemployment rate average for 16 & over was 4.7%. In 00 the unemployment rate average was 5.78
Generation X in the year 00, there were ,0,000 people unemployed.
In Summary of the unemployment rate of 001was 4.7 percent and in 00 the average unemployment rate was 5.78 The unemployment rate for this generation was 4.1 percent in the first quarter, up from .4 percent three years earlier. The overall jump in that period 4.0 percent to 5.8 percent.
Psychographic 1 Generation Y grew up with strong fashion statements by the media. This can attribute to the fact that this consumer group sows more brand loyalty. Generation X consumers are the type of shoppers that bounce from different high-end stores to the mass marketing stores. Baby Boomers have reached a point in their life in which their priorities have shifted. They are concentrating more on tuition payments, mortgage, and other relative expenses. Modern Trends and styles do not affect this type of consumer group as much.
Psychographic Many of the consumers within Generation Y have developed a mind set of “Spend, Spend, Spend”, which in all paints a picture for many retailers in the future. Generation X is said to fit the description of being very conscious of their style. They are trying to present a look that is impressive to other peers, which makes them feel like dressing up for many occasions. Retailers are trying to get these consumers back into spending more on the modern styles and trends. By doing this, retailers are trying to shift these styles to more of a conservative look. By producing a more conservative look, it will captivate more of the characteristics found within the consumer look.
Factors Occurring in the Environment External to the Industry
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Shoe companies are withdrawing from Indonesia and Korea due to stronger labor unions, as well as the fact that labor is much cheaper in China than it is in the two aforementioned countries. In Tangerang, Indonesia, for example, the minimum wage rose from 40,000 rupiah/month up to 58,000. (1)() In 16 Indonesia was the hotbed for shoe production in Asia. Now, due to its reputation for “lawlessness and chaos” as well as expensive labor, Nike and Reebok have shut down factories in Korea and Indonesia and relocated to places such as China. Other companies such as Puma won’t even start up business here. These moves will surely raise more issues with those concerned about the treatment of smaller countries by large American corporations. This is the opposite effect of sweatshop issues, because it is eliminating many of them, but consequently is crushing a huge part of Indonesia’s economy. Korean companies are finding ways to counter this exodus and keep the industry alive. (1) Nike has been forced to relocate, moving out of Indonesia, which was once the primary place for their shoe production. Indonesia was once the site of 8% of Nike’s shoe production, which then dropped to 0% in 00, and possibly down to 6% with the closing of its Dosen plant. This will look bad for Nike as people will believe they are being careless about the treatment of its workers by leaving thousands jobless. (1) (1)
Dhume, Sadanand. “Just Quit It.” Far Eastern Economic Review, September 1, 00.
()
Min, Kim Jung. “A New Spring In Its Step.” Far Eastern Economic Review, February 1, 00.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
SARS, a deadly fast-spreading strain of pneumonia, has disrupted the travel to and from Asia, as it is at its most prominent in China, Hong Kong and Taiwan. This in turn has made it more difficult for the shoe industry to coordinate production and control quality. (4) If SARS turns into an even more major epidemic than it already is, it will play a huge role on the way business is done with Asia. Considering the fact that shoe inspections will increase once shipped, the outcome of SARS will “add friction to the cost of doing business in Asia.” This in turn will show up in the price of the product. (5) Nike realized a lot from the SARS outbreak. The impact of SARS had huge impacts for Nike, as it lost employees in Asia, encountered difficulty in coordinating production, and also had to deal with West Coast port closures. As Ray Knight states SARS gave “global business a wake-up call as to just how quickly markets can be squelched by unexpected circumstances.” (6) (4)
Standard and Poors Current Environment http//www.netadvantage.standardandpoors.com/
(5)
Maiello, Michael. “Aftershock.” Forbes, vol. 171 no. . Apr. 8, 00. p. 44-46.
(6)
Knight, Raymond. “00 Nike Chairman’s Letter to Shareholders.”
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Major shoe companies have faced heat in the form of boycotts and protests for the supposed running of “sweatshops” in smaller countries where labor is extremely cheap. Companies such as Nike have been said to rudely mistreat their employees and force them to work in terrible conditions. (7) For much of the industry, sweatshop scandals help them because most of the time they have to do with Nike. However, as Reebok pulls a large percentage of their production from Indonesia, many worry that the change in locations in the chase for lower wages will make abuse charges prevalent once again. (7) Nike has battled with accusations that it runs sweatshops for roughly 1 years now. Nike is currently in a U.S. Supreme Court battle in order to gain first amendment rights to defend itself. Nike is trying to earn the right to defend itself, after it had been sued for supposedly defending itself with lies. Any accusations questioning the responsibility of Nike as a corporate citizen is attention that they would like to avoid at all cost. (8) (7)
Ellis, Kristi. “Global Labor Pains Advocates Worry Abuse Will Rise as Factories Relocate.” FN, 58 (40), October 14, 00.
(8)
“Courtside with Nike.” http//arizonarepublic.com
May 6, 00.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
The sluggish economy has forced major forces in the shoe industry to take major action, way more than in the past when the economy was a little more stable. Results of this include buyouts of smaller companies, as well as pushing sales in other countries that currently have stronger economies. () The athletic shoe industry is one of the most recognizable global markets. Reebok, Adidas and Nike are all recognizable no matter what country you’re in due to the endorsements of major American and International athletes. The direction that the sluggish economy has forced the industry to take will only make it that much more dominant once the American economy recovers. () Nike has been forced to place a little more emphasis on ventures other than that of marketing the new Jordans, for instance. In Ray Knight’s letter to the shareholders he discusses the fact that Nike placed major focus on product, advertising, and getting management caught up to sales. All of these were achieved and because of this Nike will be stronger once the economy begins to recover. The good news is, as Standard and Poor’s predicts, is that GDP increased .% in the second quarter and that it will pick up in the second half to achieve .5% for the year. (6)() ()
Standard and Poor’s Industry Profile. http//www.netadvantage.standardandpoors.com/
(6)
Knight, Raymond. “00 Nike Chairman’s Letter to Shareholders.”
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
The current industry sees the internet playing an increasingly important role in the sales, marketing, and global reach of major athletic shoe companies. (10)(11)(1) If one visits any of the big three company’s websites, it can link to 18 countries on Reebok’s site, on Adidas’ and 16 on Nike’s. The websites also give the opportunity for customers to contact the company as well as buy products from the website without having to go to the store looking for a particular product that might not be in stock. (10)(11)(1) Nike by far has the most extensive website of any of the three major brands. While Adidas and Reebok do have impressive sites, the Nike site is incredible in its extensiveness. Nike also offers a new product called the NikeId in which you can create your own shoe, custom made for the customer. The internet is an excellent tool for reaching customers and broadening the scope of the company. (1) (10)
www.adidas.com
(11)
www.reebok.com
(1)
www.nike.com
Factors Relating to Industry Actions
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
The athletic shoe industry has begun to take notice of the need to give women attention in this market. Women need active footwear and apparel as much as men do, thus the advent of new stores and extended women’s product lines by many of the major shoe companies. (1) Various companies are opening stores strictly for women. These companies, such as Nike, Adidas, Puma, and Champion, are expanding their lines to incorporate enough products to open a store, or boutique within a larger store, that focuses strictly on women. Dick’s opened two women’s only stores in Buffalo and Albany under its brand name Ativa. In order to be successful, these women’s stores are believed to need a wide selection of merchandise and exceptional customer service. (1) Nike Goddess, a website that has been functioning since 10, has been opened as a store in a few locations and Nike plans to expand on this idea by opening more stores. These stores will either be separate stores, or boutiques within larger stores. Lady Foot Locker will incorporate Nike Goddess into its 600 stores, Nordstrom will incorporate it in its department store, and Macy’s will get a smaller version of the store this year. This is nothing but a good thing for Nike as it will only expand its market and try to double its sales to women by mid-decade. (14) (1)
Ryan, Thomas J. “Girl Talk.” Sporting Goods Business 6, no. 6 (Jun 00) p. 18.
(14)
Warner, Fara. “Nike’s women’s movement.” Fast Company no. 61(Aug. 00) p. 70-75.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Shoe companies are searching overseas for big name athletes to endorse their products, and thus expand their market in order to drive sales. () The recent U.S. economic downturn has caused people within the United States to buy less of the really expensive athletic shoes such as the new $00 Jordans. For this reason, and the basic idea of just driving sales to a wider market, the major companies have worked on gaining endorsements from major international athletes. Reebok has recently won its first ever endorsement battle with Nike by winning away Yao Ming in a newly signed endorsement deal. This should give them a huge leg-up in the Chinese footwear market where Basketball is the second most popular sport in the country. (15) Nike has realized that by signing major athletes from sports around the world, they can increase sales and market themselves on a much larger scale. Nike has signed the likes of Ronaldo, the Brazilian soccer player, and sponsors such National soccer teams as Brazil, Korea, and Manchester United of the English Premiere League. Because of this, Nike has seen International sales exceed domestic sales for the first time as they reached 51%. (6) ()
Standard and Poor’s Industry Profile. http//www.netadvantage.standardandpoors.com/
(15)
Aoki, Naomi. “Reebok Signs Top Basketball Player Away from Nike.” Knight-Ridder Tribune Business News. October 4, 00.
(6)
Knight, Raymond. “00 Nike Chairman’s Letter to Shareholders.”
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Shoe companies have begun to restructure their relationships with major retailers, as well as form relationships with new companies. One reason for this being so is that certain shoe companies give the retailers an opportunity to increase their profit margins by selling their shoes. (16) Seeing that Nike in many cases creates the trends for this industry, it is easy to understand how their battle with Foot Locker has created an opportunity for companies such as Reebok and Adidas. After the dispute between Nike and Foot Locker, where Foot Locker cleared many Nikes off of their shelves, Reebok and Adidas benefited greatly due to the fact that it cleared $50 million worth of shelf space for companies such as themselves. (17) Many thought that Nike would suffer from the problems that them and Foot Locker had seeing that Nike would have to find a new home for $50 million in marquee product. However, Nike has aligned with mall-based retailers such as Footaction and The Finish Line, directly competing with Foot Locker and doing just fine. Nike also combined with The Finish Line for three TV co-op spots this year to push the two companies. (18) (16)
Carr, Bob. “Has Nike won its battle with Foot Locker?” Sporting Goods Business 6, no. 6 (Jun 00). p 10.
(17)
Ryan, Thomas. “Hot off the shelf.” Sporting Goods Business 5, no. 11 (Nov 00). p 0.
(18)
“Finish Line, Nike team again retailer’s inventory of Shox Status shoes shines in humorous spot.” http//rdsweb.rdsinc.com
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Due to the slowdown of the U.S. economy as of late, major footwear companies are seeking to buy smaller ones in order to bolster their own sales and eliminate potential competition. (1) Demand for shoes will probably remain constant even when a larger line buys out a small one. However, many companies that have the means to buy a smaller one are simply doing so to try and keep up with the larger behemoths. By doing so, companies grab market share and can use another products label to help their cause. (0) Nike has recently bought out classic shoemaker Converse, for $05 million, in order to gain additional market share as well as reaching the retro market of the shoe industry, which is becoming increasingly popular. They plan on running it as a separate entity and not change the traditional Converse shoes. This will certainly mean a big boost in sales for Nike. (1) (1)
Standard and Poor’s Industry Trends. http//www.netadvantage. standardandpoors.com
(0)
Ryan, Thomas. “Hungry for Profits.” Sporting Goods Business, 6 no. , Feb 00. p 4.
(1)
Schlosser, Julie. “Nike Goes Old School.” Fortune, 148 no. , August 11, 00. p 150.
Trend Implications for the athletic shoe industry Implications for Nike Source of Information
Major shoe companies keep trying to come up with the newest and most interesting advertising/marketing campaigns in order to push their product to customers in a way that sets them apart from the rest. () One example of this trend is the way that Reebok has created another way of battling Nike for superstar athletes, that being to market shoe lines from non-athletes such as hip-hop artists Jay-Z and 50 cent. These artists will gain Reebok some “street” credibility as the create signature collections for Reebok extension Rbk. () Nike will most likely have to counter this move assuming that the direction Reebok is taking has huge success. Nike has always gained endorsements solely from athletes, but it may stand to learn something from Reebok if they find success. Nike may face some problems competing with Reebok seeing that Reebok now has Allen Iverson and Yao Ming as well. ()
Devaney, Polly. “Reebok shoots from the hip-hop in sneaker wars.” Marketing Week. July 1, 00. p1.
Summary of the State of the Company and of the Industry
Footwear Industry
The athletic footwear industry is a market where three top manufacturers dominate Nike, Adidas, and Reebok. The three companies alone together control nearly 70% total market share (Section I part 1). As large as the markets are, there are many new entrants that have made successful forays into the market as new entrants (Puma), however, the overall cost and feasibility are greatly debatable which makes the footwear industry a rather difficult market to enter. One important note about the Footwear industry that is worthy to mention is the underlying nature of footwear as a consumer product. Athletic footwear is much as necessity as it is a discretionary purchase (Section I part 1). This notion is where the industry has risen to levels that provide tremendous value for its consumers. It is no surprise, thus, that much of athletic footwear sales have primarily been attributed to branding and image. Such proves to be the driving factor that has ultimately sustained sales. The current state of the industry has been in its maturity phase for some time. Nike holds the lions share of the market and continues to dominate.
Company Strengths
There are various strengths that Nike is endowed with. Most notably, Nike is the largest manufacturer of athletic footwear and apparel in the world. In terms of footwear, Nike enjoyed control of nearly 4.% of the entire footwear market in 000 at nearly 8 billion dollars (Section I part 1). That is more than both its number two and number three competitors combined! This dominance has helped Nike to become the athletic colossus that it is today. Nikes branding also directly contributes to its advantage due to Nikes ability to not only market shoes, but allows the consumer to take on the vicarious roles of the numerous celebrity endorsers that promote Nike in the first place. Nike has virtually invented the notion of the celebrity endorsement with the likes of Pete Sampras and Andre Agassi in Tennis; Michael Jordan in Basketball; and the recent acquisition of teen basketball sensation Lebron James who signed with Nike for a reported $0 million (Section Part ). The ability to throw enormous amounts of money to these athletes has given Nike a comparative advantage over the number and . In addition, Nikes financial soundness has proven stable through economic cycles. Nike has enjoyed higher margins of sales compared with that of its immediate competition (Section Part 1) and although sales have slumped in the recent economic downturn, Nike appears on its way to regaining profitable levels.
Company Weaknesses
Though Nike enjoys the title of being the largest athletic footwear and apparel manufacturer in the world, it goes without saying that Nike has had its share of company weaknesses. An analysis of the house of quality reveals an opportunity that seems to consistently be overlooked by not just Nike, but from Adidas and Reebok as well. This stems from the inability (or lack of effort) to market to the large baby boomer segment (Section 4 Part 4, c). What would appear to be a market that looks for comfort, price and quality (Section 4 Part 4, c) seems to be a sorely underdeveloped niche that Nike (As well as others) could take advantage of. On other notable weakness is not as readily apparent but a major concern nonetheless. This weakness has to do with Nikes shear size. Being the biggest on the block is not without its trade offs. Nike has had to work hard for its place in the market but adjusting to global pressures, social pressures, and being stuck in branding an expensive shoe leads to limited options in dealing with an environment constantly influx (Section Part ). Nike has made slow adjustments to react to all of these issues on many fronts and Nike is definitely without its critics (Especially from human rights activists groups).
Company Opportunities
One major opportunity that Nike has homed in on regards the foray into the womens market. Nike has made a push to market to women with new product lines, distribution centers, and web stores (Nike Goddess) that are exclusively marketed to women (Section 5). Another way that Nike has been able to take advantage is underpinned with the recent acquisition of Converse (Section a). Such a move is telling of Nikes value of the recent trend for the demand for trendy retro products. The acquisition was intended to position Nike by leveraging the throwback lifestyle. With the current stable demand for such products, Nike is able to reap the benefits by acquiring a company whose entire legend is embodied with a solid retro history (Converse Chuck Taylor All Stars). Not deviating far from that emphasis on trends is the decision to reproduce older shoe models that were conceived of decades ago. The hip hop community has been a driving factor in sales with the surge in popularity of the Air Force One model shoe. In fact, the shoe has been resurrected in multi-platinum record sales from the song Air Force Ones by rap singer Nelly. Nike has thus had the fortunate situation to be in a position to cash in on such opportunities.
Company Threats
Nikes most immediate threats stem from environmental factors. The SARS epidemic in Asia has been a prime example of how Nikes company can be affected by conditions in far flung places like Asia. The implications of the epidemic were large in scale in that Nike has had to close ports on the West Coast and take other actions to deal with the virus (Section V). Another trend that has left a sour taste in the mouth of Nike involves the human rights pressures to improve working conditions and to directly deal with the sweatshops that Nike has been accused of (Section V). Such controversies have placed CEO Phil Knight in the role as global villain which can detract from Nikes impression on the public and overall performance. Increasing expenses of relocation, improving factory working conditions and dealing with negative publicity has led Nike to a take on a defensive position on an ongoing basis.
Balanced Scorecard
Financial Measures Process Measures
• Profit margin
• Cost of sales as a percentage of total sales
• Return on equity
• Market share
• Return on investment • Percentage of deliveries made within a specified number of working days from the date of order
• Average number of defects per shoe at final inspection
• Labor cost and usage per 1000 defect free units
• Percentage of shipments received on promised date but after the promised time
• Average time to adjust to change orders.
Organizational learning and Organization Development Measures Customer Satisfaction Measures
• Average delivery time to distribution centers
• Periodic employment performance reviews
• Quality circles utilized to rate internal team based performances
• Time spent dealing with bottlenecks within supply chain
• Ongoing inventory of distribution channels Segments are Generation Y
Generation X
Baby Boomers
• Average dollar amount spent on athletic footwear per year in each segment
• Average distance traveled to purchase Nike products
• The percentage of customers within each segment that value the quality of the product
• Average number of repeat customers that purchased Nike products.
• The percentage of customers who purchase Nike products based on image
Nike’s Current Strategies and Goals
Nike has in placed several strategies that encompass improving growth and profits in a variety of areas. The struggling economy has not changed Nike’s attitude towards growth. One strategy that Nike focuses on, in continuing to help the company grow is Person Marketing. Nike has been using the best athletes, and sports teams (or clubs) all over the world to help market their products. The regenerative nature of sports has allowed Nike to sign new upcoming stars like LeBron James, Carmelo Anthony, Lleyton Hewitt, Michael Vick and others. These are the athletes that will push Nike beyond their expectations and will set the standards for the next generation to exceed. Nike’s second greatest source of potential lies with the products the company is working on. Nike’s design team is constantly developing new concepts in speed and agility to give athletes the latest innovative equipment to improve performance. The third strategy that Nike uses, perhaps the most important, is advertising and marketing. These two components capture the essence of the product and the attention of consumers around the world.
These strategies support the financials especially profit margin and market share. Under consumer measures Nike’s strategies also support the percentage of customers who purchase Nike products based on image.
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