27 Nike, Inc.
— 2010 1
Randy Harris
California State University, Stanislaus
NKE
[Link]
In September 2009, Michael Jordan was inducted into the NBA Hall of Fame. Ironically, that
was the same time that Jordan became the first athlete to be worth over $1 billion; and it was
the same time that his Nike brand, Jordan, topped $1 billion in annual revenue. That event
came 23 years after the company Nike reached $1 billion in revenue for the first time.
Nike is all about marketing. Nike’s other men, Tiger Woods and LeBron James, are
expected to be the next athletes to be worth $1 billion. Tiger should reach this milestone in
2010. The rise of Jordan as a marketing icon is an amazing story. The kid from the
University of North Carolina, who had never worn Nikes before he signed his contract,
made buying Air Jordans an annual ritual. And now, years after he played his last game,
the business continues to grow. At more than $1 billion in sales, the Jordan brand now
makes up roughly 5 percent of Nike’s overall revenues.
Regarding Jordan’s importance to Nike, consider the following two facts provided
by SportsOneSource, a sports market retail tracking firm:
1. The Jordan brand has a 10.8 percent share of the overall U.S. shoe market, which
makes it the second biggest brand in the country and more than twice the size of
Adidas’ share.
2. Three out of every four pairs of basketball shoes sold in this country are Jordan,
while 86.5 percent of all basketball shoes sold over $100 are Jordan.
The Nike’s fiscal 2009 year ended May 31, 2009. As indicated in the company’s
income statement provided in Exhibit 1, Nike’s 2009 revenues increased 2.9 percent to
$19.1 billion; their net income decreased 21 percent to $1.48 billion.
History
Based in Beaverton, Oregon, Nike is the world’s largest designer, marketer, and distributor
of athletic footwear and athletic apparel. The company also designs, markets, and distrib-
utes sports-related apparel, equipment, and accessories. Led by the company’s flagship
Nike brand footwear, as well as Nike Golf, the company also owns a number of
subsidiaries, such as Cole Haan, Converse, Hurley International, and Umbro Ltd.
Nike was founded in 1964 as Blue Ribbon Sports by Bill Bowerman, a University of
Oregon track and field coach, and Phil Knight, a talented middle-distance runner. Knight,
who had recently completed an MBA at Stanford University, had written a paper where he
proposed that quality running shoes could be manufactured in Japan that would compete
with the more established German brands. Knight originally sold their shoes out of the
trunk of his green Plymouth Valiant at track meets, and the company opened its first store
in Santa Monica, California, in 1966.
The company introduced its Nike brand of shoes in 1972, just in time for the U.S.
Track & Field trials, which were held in Eugene, Oregon, that year. The Nike name, which
took its name from the Greek goddess of victory, had its famous “swoosh” logo designed
by Carolyn Davidson, a graphic design student at Portland State University. The company
262 RANDY HARRIS
EXHIBIT 1 Nike’s Recent Income Statements
(all numbers in thousands)
PERIOD ENDING 31-May-09 31-May-08 31-May-07
Total Revenue $19,176,100 $18,627,000 $16,325,900
Cost of Revenue 10,571,700 10,239,600 9,165,400
Gross Profit 8,604,400 8,387,400 7,160,500
Operating Expenses
Research Development — — —
Selling General and Administrative 6,149,600 5,953,700 5,028,700
Non Recurring 596,300 — —
Others — — —
Total Operating Expenses — — —
Operating Income or Loss 1,858,500 2,433,700 2,131,800
Income from Continuing Operations
Total Other Income/Expenses Net 98,000 69,200 68,100
Earnings Before Interest and Taxes 1,956,500 2,502,900 2,199,900
Interest Expense — — —
Income Before Tax 1,956,500 2,502,900 2,199,900
Income Tax Expense 469,800 619,500 708,400
Minority Interest — — —
Net Income from Continuing Ops 1,486,700 1,883,400 1,491,500
Non-recurring Events
Discontinued Operations — — —
Extraordinary Items — — —
Effect of Accounting Changes — — —
Other Items — — —
Net Income $1,486,700 $1,883,400 $1,491,500
Source: Nike’s 2009 Form 10 K.
officially renamed itself Nike in 1978. By 1980, the company had reached a 50 percent
market share in the U.S. athletic shoe market and had become a publicly traded company.
Missteps in the 1980s, particularly miscalculating the aerobics boom of that time
period, found Nike trailing the rest of the athletic footwear industry. Changes at the
company by Phil Knight, particularly the introduction of a Michael Jordan–endorsed
basketball shoe in 1985, propelled Nike back to the top of the industry by 1988. The
company also began to diversify at that time with the purchase of Cole Haan shoes, a
casual and dress shoe company. From this point, Nike would go on to acquire other brands,
such as Bauer (acquired 1995), Hurley (acquired 2002), Converse (acquired 2003), Starter
(acquired 2004, divested 2007), and eventually Umbro Ltd. in 2008.
Internal Issues
Vision, Mission, and Strategic Goals
The vision of Nike is to “bring inspiration and innovation to every athlete in the world.” Bill
Bowerman, the co-founder, defined an athlete by saying, “If you have a body, you are an
athlete.” Bowerman saw endless possibilities for human potential in sports. Nike’s mission
is to carry on Bowerman’s legacy of innovative thinking, develop products that help athletes
of every level of ability reach their full potential, and to create business opportunities that
set Nike apart from the competition and provide value for their shareholders.
CASE 27 • NIKE, INC. — 2010 263
The company has set a strategic goal of $23 billion in revenues by the end of fiscal
2011. Commenting on this ambitious target, Parker states, “When I stepped into the CEO
role . . . the leadership team reaffirmed a simple concept that I knew was true from my nearly
30 years of experience here—Nike is a growth company.” Parker saw the company’s strategy
as based on three principles: pursuing the greatest growth opportunities, leveraging Nike
resources and capabilities, and serving customers with premium products and experiences.
Company Operations
Nike’s Beaverton, Oregon, world headquarters is a 176-acre facility that encompasses 17
buildings, and houses almost 6,000 employees. Nike has a smaller facility in Hilversum,
the Netherlands, that serves as the headquarters for the company’s Europe, Middle East,
and Africa (EMEA) region.
Inside the United States, Nike has three significant distribution and customer service
facilities. Two are located in Memphis, Tennessee, one of which is leased, and one facility
located in Wilsonville, Oregon, which is also leased. Nike subsidiary Cole Haan also
operates a distribution facility in Greenland, New Hampshire. Outside the United States,
Nike owns and operates two main distribution facilities, one located in Tomisatomachi,
Japan, and the other in Laakdal, Belgium.
Almost all of Nike’s footwear is manufactured outside the United States by indepen-
dent contractors. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and
Thailand manufactured 99 percent of Nike’s footwear worldwide. No individual manufac-
turer accounted for more than 6 percent of total Nike footwear production. Nike brand
apparel is produced in a similar manner, through independent contractors located outside
the United States, in countries such as China, Thailand, Indonesia, and Malaysia, among
others. The largest apparel factory accounted for approximately 8 percent of total Nike
apparel production. Raw materials for Nike products are typically sourced in the countries
where production takes place, purchased in bulk, and are typically not difficult to obtain.
Nike estimates that they sell products to more than 25,000 retail accounts in the
United States. Nike products are found in a wide variety of retail locations, including
footwear stores, sporting goods stores, athletic specialty stores, department stores, and
skate, tennis, and golf shops. The company also uses independent sales representatives
to sell specialty products for golf, skating, and outdoors. The company’s Internet Web
site, [Link], allows customers to design and purchase Nike products directly
from the company. As indicated in Exhibit 2, the company also operates 338 retail
EXHIBIT 2 Nike’s U.S. Retail Stores
U.S. Retail Stores Number
Nike factory stores (which carry primarily
overstock and close-out merchandise) 140
Nike stores (including one Nike Women store) 16
Niketowns (designed to showcase Nike products) 11
Nike employee-only stores 3
Cole Haan stores (including factory stores) 111
Converse factory stores 43
Hurley stores (including factory and employee stores) 14
Total 338
Note: Nike’s apparel and equipment products are shipped from our Memphis, Tennessee, and Foothill Ranch,
California, distribution centers. Cole Haan products are distributed primarily from Greenland, New Hampshire.
Converse products are shipped primarily from Ontario, California, and Hurley products are distributed from
Irvine, California.
Source: Nike’s 2009 Form 10K.
264 RANDY HARRIS
outlets in the United States, including 140 Nike factory stores that sell overstock and
closeout merchandise. Nike’s U.S. sales accounted for 43 percent of total company
revenues in fiscal 2008.
Outside the United States, Nike sells to more than 27,000 retail accounts, including
Nike-owned stores and a mix of independent distributors and licensees around the world. The
company has international branch offices and subsidiaries in 52 countries around the world
and operates 336 retail outlets outside the United States. These Nike-owned retail facilities
outside the United States include 184 Nike factory stores, 61 Nike stores, 4 Niketowns,
12 Nike employee-only stores, 74 Cole Haan stores, and 1 Hurley store, as indicated in
Exhibit 3. Nike’s non-U.S. sales accounted for 66 percent of total company revenues in fiscal
2008, up from 62 percent in 2007, as indicated in Exhibit 4. Exhibit 5 reveals Nike’s income
before taxes by region.
Nike has five wholly owned subsidiaries: Cole Haan, Converse, Hurley
International, Nike Golf, and Umbro Ltd. Cole Haan, headquartered in Yarmouth,
Maine, designs and distributes dress and casual footwear under the Cole Haan and
Bragano brand names. Converse, headquartered in Yarmouth, Massachusetts, designs
and distributes athletic and casual footwear under the Converse, Chuck Taylor, and All
Star brand names, among others. Hurley International, based in Costa Mesa, California,
designs and distributes a line of sports apparel for surfing, skating, and snowboarding
under the Hurley trademark. Finally, Umbro Ltd., based in Manchester, England, designs
and distributes athletic and casual footwear, apparel, and equipment for soccer under the
Umbro trademark. Sales from these five subsidiaries was $2.4 billion in fiscal 2008, as
indicated in Exhibit 6.
EXHIBIT 3 Nike’s Retail Outlets Outside the U.S.
International Markets
Non-U.S. Retail Stores Number
Nike factory stores 184
Nike stores 61
Niketowns 4
Nike employee-only stores 12
Cole Haan stores 74
Hurley stores 1
Total 336
Source: Nike’s 2009 Form 10K.
EXHIBIT 4 Nike’s Revenues by Region
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
U.S. Region $ 6,542.9 $ 6,414.5 2% $ 6,131.7 5%
EMEA Region 5,512.2 5,629.2 -2% 4,764.1 18%
Asia Pacific Region 3,322.0 2,887.6 15% 2,295.7 26%
Americas Region 1,284.7 1,164.7 10% 966.7 20%
Total Nike Brand Revenues 16,661.8 16,096.0 4% 14,158.2 14%
Other 2,514.3 2,531.0 -1% 2,167.7 17%
Total Nike, Inc. Revenues $ 19,176.1 $ 18,627.0 3% $ 16,325.9 14%
Source: Nike’s 2009 Form 10K.
CASE 27 • NIKE, INC. — 2010 265
EXHIBIT 5 Nike’s Income Before Taxes by Region
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
U.S. Region $ 1,337.0 $ 1,402.0 -5% $ 1,386.0 1%
EMEA Region 1,316.0 1,281.0 3% 1,050.0 22%
Asia Pacific Region 853.4 694.2 23% 515.4 35%
Americas Region 274.1 242.3 13% 199.3 22%
Other (196.7) 364.9 -154% 299.7 22%
Corporate Expense (1,629.) (1,482.) -10% (1,250.) -19%
Total Pre-tax Income $ 1,956. $ 2,502. -22% $ 2,199. 14%
Source: Nike’s 2009 Form 10K.
EXHIBIT 6 Nike’s Revenues from Subsidiaries
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
Revenues
Converse $ 915.3 $ 729.0 26% $ 563.8 29%
Nike Golf 648.3 725.2 -11% 646.3 12%
Cole Haan 471.6 496.2 -5% 468.6 6%
Hurley 202.9 171.1 19% 150.6 14%
Umbro 174.0 53.9 223% — —
Bauer — 201.9 -100% 166.1 22%
Exeter — 35.1 -100% 67.7 -48%
Other
Total $2,412.10 $2,412.4 $2,063.10
Nike Products
Nike designs, markets, and sells products in three main categories: footwear, apparel,
and equipment. In footwear, Nike sells products that are designed primarily for athletic
usage, although a significant percentage of Nike customers wear them for leisure or as
a fashion accessory. Nike places a great deal of emphasis on the design of the footwear
as well as high-quality construction. Footwear designed for running, training, basket-
ball, soccer, and urban wear are among the top-selling categories for the company. In
fiscal 2009, footwear accounted for 69.5 percent of Nike’s total U.S. sales, as indicated
in Exhibit 7.
Nike’s sports-related apparel is designed to complement the company’s athletic
footwear products, and it is often sold through the same location and/or distribution chan-
nel. Typical apparel products include shirts with licensed college or professional team
logos, athletic bags and accessories, running shorts, and baseball caps, all emblazoned
with the ubiquitous Nike “swoosh.” Apparel accounted for 25.4 percent of Nike U.S. sales
in fiscal 2009, as indicated in Exhibit 7.
Sports equipment rounds out the Nike portfolio at 24.5 percent of U.S. sales. Sports
equipment, typically sold under the Nike brand name, includes items such as bags, socks,
sports balls, eyewear, golf clubs, and bats and gloves.
266 RANDY HARRIS
EXHIBIT 7 Nike’s Revenues and Pre-Tax Income by Product within Regions
U.S. Region
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
Revenues
Footwear $ 4,550.1 $ 4,326.2 5% $ 4,067.0 6%
Apparel 1,664.2 1,745.2 -5% 1,716.0 2%
Equipment 327.7 342.6 -4% 348.4 -2%
Total Revenues $ 6,542.0 $ 6,414.0 2% $ 6,131.4 5%
Pre-tax Income $ 1,337.0 $ 1,402.0 -5% $ 1,386.4 1%
EMEA Region
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
Revenues
Footwear $ 3,136.4 $ 3,112.0 1% $ 2,608.0 19%
Apparel 1,970.3 2,083.9 -5% 1,757.1 19%
Equipment 405.3 433.1 -6% 398.9 9%
Total Revenues $ 5,512.0 $ 5,629.0 -2% $ 4,764.0 18%
Pre-tax Income $ 1,316.0 $ 1,281.0 3% $ 1,050.0 22%
Asia Pacific Region
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
Revenues
Footwear $ 1,727.4 $ 1,499.0 15% $ 1,159.0 29%
Apparel 1,322.0 1,140.0 16% 909.3 25%
Equipment 272.6 248.1 10% 227.2 9%
Total Revenues $ 3,322.0 $ 2,887.1 15% $ 2,295.5 26%
Pre-tax Income $ 853.4 $ 694.2 23% $ 515.4 35%
Americas Region
FY09 vs. FY08 vs.
Fiscal 2009 Fiscal 2008 FY08 Fiscal 2007 FY07
(in millions)
Revenues
Footwear $ 892.1 $ 792.7 13% $ 679.0 17%
Apparel 287.8 265.4 8% 193.8 37%
Equipment 104.8 106.6 -2% 93.2 14%
Total Revenues $ 1,284.7 $ 1,164.7 10% $ 966.0 20%
Pre-tax Income $ 274.1 $ 242.3 13% $ 199.0 22%
Source: Nike’s 2009 Form 10K.
CASE 27 • NIKE, INC. — 2010 267
Nike Customers and Price Points
Because Nike competes primarily in athletic footwear, apparel, and related sporting
equipment, its sales are heavily concentrated in the youth and young adult market. In par-
ticular, Nike sales are heavily skewed toward the 12- to 24-year-old age bracket.
Younger consumers are also less price sensitive in this age bracket and generally
spend more on casual and athletic footwear than older consumers. After the age of 40,
the typical consumer is not willing to pay more than $35 to $40 per pair for athletic
footwear. Nike is the dominant competitor for athletic footwear priced above $60 per
pair, holding better than a 50 percent market share for athletic footwear priced $85 per
pair or higher.
Key Executives
The chairman of the board for Nike is Phil H. Knight, age 70, one of the cofounders of
the company. Knight has been with the company since its beginning in the 1960s. He
holds an MBA from Stanford University and has been a certified public accountant as
well an assistant professor of business administration at Portland State University.
As indicated in Exhibit 8, the chief executive officer (CEO) of Nike is Mark G.
Parker, age 52. Parker has been with the company since 1979 and was appointed CEO in
January 2006. Prior to being named CEO, Parker had been president of the Nike brand
from 2001 to 2006.
The president of the Nike brand is Charles D. Denson, age 52. Denson has also been
employed by the company since 1979 and had been an assistant manager of Nike’s first
retail store in Portland, Oregon. Denson was credited with pioneering Nike’s expansion
into China, India, and Brazil.
The chief financial officer (CFO) for Nike is Donald W. Blair, age 50. Blair arrived
at Nike in November 1999. Prior to joining Nike, he held several positions at Pepsico, Inc.,
and had been a certified public accountant with Deloitte, Haskins and Sells.
Nike characterizes its organization as a collaborative matrix organization.
Executives often report in several areas, such as by region of the world, by product or by
global function. Exhibit 8 presents an organizational chart for the company and the key
executive officers.
Exhibit 9 presents Nike’s balance sheets from fiscal 2006 to 2009. Note the company
has very little long-term debt.
EXHIBIT 8 Nike Organizational Chart, 2009
Phillip H. Knight
Chairman of
the Board
Mark G. Parker
CEO and President
Gary M. De Stefano Donald W. Blair David J. Ayre Ronald D. McCray Bernard F. Pliska Trevor Edwards Vice John Slusher Eric D. Sprunk
President of Global Vice President and Vice President Vice President Vice President President Global Vice President Vice President
Operations CFO Global Human Chief Administrative Corporate Controller Brand & Category Global Global Footwear
Resoursces officer Management Sports Marketing
Hansvan Alebeek Charles D. Denson Lewis L. Bird III
Vice President, President Nike Brand President Affiliates
Global operations &
Technology
Source: [Link].
268 RANDY HARRIS
EXHIBIT 9 Nike’s Recent Balance Sheets
(all numbers in thousands)
Period Ending 31-May-09 31-May-08 31-May-07
Assets
Current Assets
Cash and Cash Equivalents $ 2,291,100 2,133,900 1,856,700
Short Term Investments 1,164,000 642,200 990,300
Net Receivables 3,156,300 3,022,500 2,714,400
Inventory 2,357,000 2,438,400 2,121,900
Other Current Assets 765,600 602,300 393,200
Total Current Assets 9,734,000 8,839,300 8,076,500
Long Term Investments — — —
Property Plant and Equipment 1,957,700 1,891,100 1,678,300
Goodwill 193,500 448,800 130,800
Intangible Assets 467,400 743,100 409,900
Accumulated Amortization — — —
Other Assets — — —
Deferred Long Term Asset Charges 897,000 520,400 392,800
Total Assets $ 13,249,600 12,442,700 10,688,300
Liabilities
Current Liabilities
Accounts Payable 3,245,000 2,200,200 2,553,500
Short/Current Long Term Debt 32,000 179,600 30,500
Other Current Liabilities — 941,700 —
Total Current Liabilities 3,277,000 3,321,500 2,584,000
Long Term Debt 437,200 441,100 409,900
Other Liabilities — — —
Deferred Long Term Liability Charges 842,000 854,500 668,700
Minority Interest — — —
Negative Goodwill — — —
Total Liabilities 4,556,200 4,617,100 3,662,600
Stockholders’ Equity
Misc Stocks Options Warrants — — —
Redeemable Preferred Stock 300 300 300
Preferred Stock — — —
Common Stock 2,800 2,800 2,800
Retained Earnings 5,451,400 5,073,300 4,885,200
Treasury Stock — — —
Capital Surplus 2,871,400 2,497,800 1,960,000
Other Stockholders’ Equity 367,500 251,400 177,400
Total Stockholders’ Equity 8,693,100 7,825,300 7,025,400
Total Liabilities and SE $ 13,249,600 12,442,700 10,688,300
Source: Nike’s 2009 Form 10K.
CASE 27 • NIKE, INC. — 2010 269
Competition
Competition in the athletic footwear and apparel industry is extremely fierce. Exhibit 10
provides comparative information of Nike versus all athletic footwear firms. Numerous brands
compete worldwide for athlete endorsements, customer loyalty, and sales. Worldwide, Nike is
the leader in athletic footwear, with an estimated 37 percent of worldwide sales.
Adidas
The number-two competitor in athletic footwear is Adidas, with an estimated 22 percent of
worldwide sales. Adidas, based in Herzogenaurach, Germany, was founded in 1924 by the
brothers Adolf and Rudolf Dassler. The company took its name from “Adi,” a nickname
for Adolf, and “Das” from Dassler. The foundation of what would become the Adidas
group began with the equipping of several athletes for the 1928 Olympics, and it was
cemented with Jesse Owen’s quadruple gold medal performance at the 1936 Summer
Olympics wearing Adidas footwear.
Today, the Adidas group is a world-class provider of athletic footwear, apparel, and
sporting equipment. Their mission is “to be the leading sports brand in the world.” Led by their
flagship Adidas brand, the company posted 2008 revenues of 10.8 billion euros, a 4.9 percent
improvement over its 2007 results. Worldwide, the company employs over 23,000 employees
and tallied a record operating profit of 3.8 billion euros with a gross margin of 48.7 percent.
Adidas was the Official Sportswear Partner for the Beijing 2008 Olympic Games, supplying
more than 3 million products to participants and organizers of the Games. The company also
contracts with Chinese basketball superstar Yao Ming to endorse a line of Reebok basketball
shoes, contributing to Adidas’s position as a market leader in both Europe and China.
The company is organized into three main divisions: Adidas, Reebok, and
TaylorMade Golf. Its core Adidas division sells athletic footwear, apparel, and equipment
under the brand name Adidas. Net sales in this division were 7.8 billion euros, a 10 percent
improvement over 2007 performance. Reebok was acquired by Adidas in 2006. With roots
in women’s fitness, this division sells athletic footwear, apparel, and equipment under the
Reebok, Rockport, and Reebok-CCM Hockey brand names. Net sales for the Reebok
division were 2.1 billion euros, a net decline of 8 percent over 2007 results. Commenting on
the Reebok division’s results, Herbert Hainer, CEO of Adidas, said, “2008 was a challeng-
ing year and I am disappointed not to be able to show the financial improvements we antic-
ipated at the beginning of the year.” The TaylorMade Golf division was acquired by Adidas
in 1997. This division sells golf clubs, balls, footwear, and apparel under the TaylorMade,
Adidas Golf, and Ashworth brand names. Net sales for this division were 812 million euros
in 2008, a 1 percent improvement over its 2007 results.
EXHIBIT 10 Nike versus All Firms in the Athletic Footwear Industry
Athletic Footwear
Nike Industry
Market Capitalization 26.74B 308.96M
# Employees 34,300 740
Qtrly Rev Growth -7.40% 4.50%
Revenue 19.18B 303.83M
Gross Margin 44.87% 38.93%
EBIT 2.80B 11.21M
Oper Margins 12.80% 0.93%
Net Income 1.49B N/A
EPS 3.030 0.52
Note: M = millions
B = billions
Source: Based on information at [Link].
270 RANDY HARRIS
Recently, the company has issued a profit warning, announcing that net profits for
the first quarter of 2009 would plunge 97 percent, and it blamed the global recession for
these results. Hainer, CEO of Adidas, also cited rising raw materials prices, falling sales in
Europe and the United States, and a weaker dollar against the euro for the sudden down-
turn in Adidas profits. Hainer also warned that business for the rest of 2009 would be dif-
ficult, with margins and earnings expected to decline further.
Puma
Puma is the distant number-three competitor in the global market for athletic footwear.
Puma develops and markets a broad range of athletic and lifestyle articles, including
footwear, apparel, and accessories. Its 2008 sales were 2.5 billion euros. Selling products
under the Puma and Tretorn brands, the company employs more than 10,000 employees
and distributes its products in over 130 countries around the world. The company was
founded in 1948 when Rudolf “Rudi” Dassler split his business from his brother Adolf.
Rudi moved his business to the other side of the Aurach River from the Adidas company in
Herzogenaurach, Germany.
Puma has the long-term mission of becoming the most desirable sport lifestyle com-
pany. Not one to be outdone by its larger competitors, Puma made a splash in 2008 at the
Beijing Olympics. Before a stunned Olympic crowd, and wearing gold Puma Theseus II
spikes, Usain Bolt broke world records in the men’s 100-meter dash, 200-meter dash, and
the 4 × 100 meter relay.
Other Competitors
The athletic footwear industry contains numerous smaller competitors worldwide, such as
K-Swiss, Inc. in the United States and Li Ling Shoes in China. Athletic footwear compa-
nies also compete with other footwear companies for sales because consumers often wear
athletic footwear for leisure and fashion. Companies that competed in leisure and fashion
footwear included Crocs, Inc., Deckers Outdoor Group, Skechers USA Inc., and
Timberland Company.
Global Issues
The footwear industry is global in scale and scope, with several large, well-capitalized
firms competing worldwide for customers and market share, including firms like Nike,
Adidas, and Puma. These companies have been conducting business worldwide on the
basis of global competitive advantage, rather than local, by sourcing production to coun-
tries that provided a cost advantage, conducting research and development (R&D) from
their home location, and then marketing and selling their products in numerous countries
over sometimes as many as four different continents.
These multinational strategies allow the largest competitors to cope with slowing
demand in their core markets, such as the United States, by shifting their emphasis to countries
and regions that have higher rates of sales growth, such as Brazil, Eastern Europe, India, and
China. Companies like Adidas and Nike have moved aggressively into these areas to capital-
ize on the rapid pace of expansion in these emerging markets. In addition, companies have
diversified their holdings into sports apparel and equipment in order to complement their core
footwear offerings, expand revenues, and “deepen” their relationships with customers.
Footwear Production Is Outsourced
U.S. footwear imports totaled 2.36 billion pairs in 2007, or roughly 7.9 pairs per capita.
This number was up 0.4 percent from 2006. Domestic shoe production now accounts for
less than 5 percent of all shoe purchases in the United States. The remaining U.S. produc-
tion of footwear is primarily focused on protective or safety footwear, typically steel-toed
boots.
The drive for domestic manufacturers of footwear to offshore their production has
been part of an ongoing industry effort to cut expenses. This trend had been aided by the
implementation of the North American Free Trade Agreement (NAFTA) in 1995 and the
entry of China into the World Trade Organization (WTO) in 2001, both of which helped
CASE 27 • NIKE, INC. — 2010 271
eliminate quotas and tariff barriers for foreign footwear manufacturers to ship their goods
into the United States. China alone accounts for 86.4 percent (by volume) of all U.S.
imports of footwear into the United States.
Virtually all of Nike’s footwear is produced outside of the United States. In fiscal 2009,
contract suppliers in China, Vietnam, Indonesia, and Thailand manufactured 36 percent,
36 percent, 22 percent, and 6 percent of total Nike brand footwear, respectively. The com-
pany also has manufacturing agreements with independent factories in Argentina, Brazil,
India, and Mexico to manufacture footwear for sale primarily within those countries. Nike’s
largest single footwear factory accounted for approximately 5 percent of total fiscal 2009
footwear production.
Almost all of Nike brand apparel is manufactured outside of the United States by
independent contract manufacturers located in 34 countries. Most of this apparel produc-
tion occurred in China, Thailand, Indonesia, Malaysia, Vietnam, Turkey, Sri Lanka,
Cambodia, Taiwan, El Salvador, Mexico, India, and Israel. Nike’s largest single apparel
factory accounted for approximately 5 percent of total fiscal 2009 apparel production.
Technological Changes
The Internet allows footwear companies to pursue a direct to consumer sales channel.
Sales of apparel, accessories, and footwear on the Internet has been growing at a double-
digit pace, considerably faster than more traditional sales models such as retail stores.
Forrester Research predicts that Internet sales of apparel, accessories, and footwear could
reach 18 percent of category sales by 2012, up from 6.5 percent of all sales in 2006.
Companies that added a Web-based sales strategy are able to customize footwear and other
merchandise directly to the customer’s needs and taste, which enables companies to
achieve considerably better pricing as well as “deepening” the emotional bond consumers
have with the brand.
The Future
Nike needs a clear three-year strategic plan to succeed in the future. Provide this for Nike’s
top management team.
Endnotes
1. This case study was prepared as a basis for class discussion rather than to
illustrate either effective or ineffective handling of an administrative situation.
Not for reproduction or distribution without permission of the author. Contact
info: Randall Harris. Dept. of Management. CSU. Stanislaus. 801 W. Monte Vista
Avenue. Turlock. CA 95382. raharris@[Link] (209) 667–3723. Review copy
for Strategic Management, 13th Edition. © 2009 by Randall Harris. Draft dated
May 8, 2009.