Introduction
Nike Inc. is one of the premier international companies in the sportswear industry. Its brand name and iconic logo are associated with high-quality shoes, gear, and sports equipment. The company employs over 73,000 workers and its current revenue stands at over 39 billion dollars (Nike, 2018). Nike keeps an active presence in the media by supporting various socially-driven projects, making a stance on social justice issues, and providing for the environment. At the same time, they face growing competition from other sportswear companies, such as Adidas, as well as other smaller producers like Reebok, Puma, and Under Armor (Mahdi, Abbas, Mazar, & George, 2015). Despite the competition, Nike maintains a comfortable lead and has the potential to improve its standing in the market. The purpose of this paper is to analyze the company using various marketing tools available and propose valid target market recommendations.
Company Background
Nike Inc. was founded in 1964 by Phil Knight and Bill Bowerman, originally bearing the name of Blue Ribbon Sports, which was changed to Nike in 1971, when the company went public (Meyer, 2019). Initially, the company operated from Santa Monica, California, where Knight and Bowerman owned a shop (Meyer, 2019). Its current headquarters are in Beaverton, Oregon, occupying space in Portland Metropolitan Area. The company had steadily grown over the years, establishing many sub-brands under its names, such as Nike Golf, Air Force 1, Air Jordan, Nike Skateboarding, Converse, and others (Nike, 2018). As it stands, Nike makes up for 47% of the global sportswear market share, with over 700 factories worldwide, and thousands of retailers purchasing the brand (Au, 2017). The company enjoys access to cheap material and labor due to its production values being located in Asia, exploiting the profitable economic position of countries such as China, Indonesia, Taiwan, Vietnam, Pakistan, India, and several others. Its number of employees exceeds 73,000 people working in 700 factories (Nike, 2018). The company works closely with nearly all sports leagues, including the NBA, which it supplies with official uniforms.
Macro Environment Analysis (PEST)
Politics, Rules, and Regulations
Familiarity with South-East Asia (Opportunity)
Nike is well-entrenched in South-Eastern Asia, where the majority of its production values are being located, and is well-informed of the rules and regulations required to function in those environments. Its relationship with the political and economic players in the region remains relatively cordial despite certain setbacks, such as the Yue Yuen Industrial Holdings Dongguan factory in 2014 (Meyer, 2019). Due to the family ties of David Chang and his connection with both Nike and the Chinese government, the political conditions are likely to remain favorable to the company.
Tax evasion lawsuits (Threat)
Nike is threatened by rules and regulations on taxation pressed by its home country as well as Europe. It is involved in the Paradise Papers scandal, according to which Nike was among the companies that used offshore companies in order to avoid taxes. While the procedures in Europe initiated by Dutch authorities have been in motion since 2014, the US Tax Court is currently suing Nike for paying 3.86 billion dollars in royalties between 2010 and 2012 (Meyer, 2019). Other issues regarding rules and regulations revolve around the use of underhanded labor practices, violating minimum wage laws in Vietnam, and exploiting child labor in Cambodia.
Economy
Cheap labor and materials (Opportunity)
Nike enjoys a stable economic growth stemming from the use of cheap labor and materials by trading with local producers and employing the labor of large factories in South-East Asia (Mahdi et al., 2015). The wages in those countries are significantly lower than those in Europe or the US, providing Nike with the much-needed cost-efficiency, which it uses to gain an advantage over its competitors, providing quality sportswear for cheaper than Adidas, Reebok, or Puma. The competitors are catching on to this practice, however, and are also moving to exploit the benefits of making products in China, India, and Vietnam. In addition, the reliance on local producers for materials helps diversify the supplies and conduct procurements at a lower cost.
Growing costs of labor (Threat)
The growth of China as a country and an economic superpower also comes with the increases in wages, which in turn would require Nike to pay its workers more. As the result, the overall costs for the company may grow, resulting in economic losses and a need for optimization, as the increase in prices would also dull Nike’s competitive edge it currently enjoys against its closest pursuers. Nevertheless, the risks suffered by the company are equally significant to other major players in the sportswear industry.
Society and Culture
Environmentally-friendly reputation (Opportunity)
Nike seeks to actively engage the new generations of customers, those being Millennials and Gen Z (Meyer, 2019). As such, it is trying to portray itself as a company that cares about environmental and social issues, which it does with a degree of success. Nike first drew major attention to socio-cultural issues when it supported the controversial figure of Colin Kaepernick, who refused to kneel to the American flag due to social justice issues currently present in the USA. In addition, Nike is known to be one of the more environmentally-friendly companies, currently being rated in Top 3 by Clean Air-Cool Planet list of 56 major producers (Meyer, 2018). Due to environmental issues and global warming being a pressing matter in today’s society and culture, Nike is looking favorable to customers who take world issues seriously.
Social Justice politics backfiring (Threat)
The emphasis on social justice and environmental friendliness can be unpredictable. Despite Nike gaining positive publicity from nearly all progressive media outlets, the stock prices immediately after their association with Kaepernick dropped by 2.2%, while the number of online orders increased by 27% (Nike, 2018). In addition, the emphasis on social justice might attract unwanted attention to Nike’s unsavory practices in Vietnam and China, causing the loss of the carefully cultivated brand name among the politically inclined youths.
Technology
Significant potential for innovation (Opportunity)
Nike is one of the premier producers of sportswear in the world. It has the resources and the facilities to develop new materials, implement new technologies, and create products that would be technologically superior to those of its direct competitors. As a result, it could stay one step ahead of the others, and maintain its comfortable lead in the market.
Imitation (Threat)
Despite new materials and technologies being introduced, the process of making shoes did not fundamentally change in the last decades (Au, 2017). Should Nike develop a new model of footwear or new material, it is likely for competition to catch on by analyzing and replicating the technology, while using a few alterations to avoid a copyright claim.
Competition Analysis
Competitor Introduction and Background
The primary competitor to Nike is Adidas. Together with its subsidiaries, such as Reebok, Runtastic, and Matix, it holds the second-largest market share in the sportswear industry, capping at 21.2% in comparison to 47% held by Nike and its branch brands (Adidas, 2018). Adidas is a German company founded in 1924, initially bearing the name of Dassler Brothers Shoe Factory, and rebranded in 1949 following the breakup between Adolf and Rudolf Dassler, who went on to create Puma – one of Adidas’s major rivals and competitors (Adidas, 2018). In 1987, the company was purchased from bankruptcy by Bernard Tapie, on a loan, but failed to pay off the interest for the debt. From 1994, the company was running by Robert Louis-Dreyfus, who became its CEO and managed to bring Adidas back into the market by following the reforms initiated by Tapie, such as the gradual transfer of production values to Asia, in order to remain competitive with Nike. The company’s total employees number at over 52,000, with its total revenues exceeding 22 billion as of 2018 (Adidas, 2018).
Strengths and Weaknesses in Comparison
Nike and Adidas are relatively similar in terms of their production location, as both companies utilize the cheap labor and materials from South-Eastern Asian countries in order to remain competitive in the global market. At the same time, their spheres of interest are relatively separated, with Nike dominating the American market and local sports, whereas Adidas is the premier choice for the European market, having gained recognition by supplying soccer players with quality footwear for years (Mahdi, 2015). Since soccer is considered to be a “world sport,” Adidas is a more recognizable brand in the developing nations of South America, India, and Eastern Europe. Adidas’s distinctive advantage over Nike is in its emphasis on the high-tech – since 2005, the company featured its model called Adidas 1, which featured a microcomputer built into the sole of the shoe, capable of configuring its position against the surface for better balance and traction (Mahdi, 2015). Nike did not feature any analogs of such products, with its own “smart shoes” only being capable of collecting statistical data, without any significant impact on the shoe’s properties.
In regards to their product range, Nike has a greater diversification when compared to Adidas, providing not only footwear and a narrow range of sports uniforms, but also products for skiing, foam, and a variety of choices for women and children. Adidas, on the other hand, specializes in sportswear alone. Both companies suffer from a relative lack of variety when compared to other clothes-making enterprises, leaving a relatively large market untapped (Mahdi, 2015). Lastly, both companies are relatively underrepresented in the developing markets. In these countries, both Adidas and Nike position themselves as premium high-value brands, which the majority of individuals could not afford. Thus, they lose to local brands and imitations in terms of accessibility. Nike, however, is making a move to take over the Chinese market, a move the company explains in its paradigm of “providing shoes for two billion feet” (Mahdi, 2015). Adidas, on the other hand, did not make any significant moves to capitalize on the huge Chinese market.
To summarize, the two competitors are relatively similar in their strengths, with Adidas’s technological edge being counterbalanced by Nike’s increased product range and scope of practice. Being the respective dominant forces in Europe and the USA, both companies cater to sports popular in these regions, while slowly trying to penetrate the outside markets. In that effort, Nike has more leverage than Adidas due to being more widespread in Asia, which contributes to its larger sales margin. Nevertheless, over 20% of the entire industry is held by smaller local enterprises, which both Nike and Adidas have the potential to expand into by providing appropriate products and services.
Target Market Analysis and Segmentation
Market Analysis
The world market analysis and segmentation should be performed in the division based on the overall market share, the overall revenues gained from selling the merchandise in a year, and the geographical segmentation of the market. The chart below shows the market share split between different competitors, with Nike holding 47%, 21.3% covered by Adidas, 3.5% – Converse, 6% – Fila, and other companies occupying 22.2% in combination (Nike, 2018; Adidas, 2018). In 2018, Nike earned 39.117 billion dollars, with Adidas claiming 26.601 billion, followed by PUMA with 5.706 billion, and the last three major competitors earning a bit over 11.5 billion dollars combined (see Fig. 2) (Nike, 2018; Adidas, 2018). In terms of the geographical segmentation of the sales, Nike remains strong in its respective region, with North America covering around 48% of the entire sale volume (see Fig. 3) (Nike, 2018; Adidas, 2018).
Strengths and Weaknesses of the Current Market
The strength of the US market lies in the fact that it is a very populous and high-paying region. Even the poorest individuals in the country can afford to buy comfortable sportswear, which is favored not just by athletes but also for everyday casual wear (Bruun & Langkjaer, 2016). Being a brand originating in the US, Nike has a strong sales pitch to the patriotically-inclined customers, who are not only familiar with the name but would also seek to support it based on where it originates geographically, despite the fact that all of the factories producing Nike shoes and sportswear are located in China. Therefore, the company can always bet on North America to be the cash cow when it comes to the majority of their revenues.
Another strength of the domestic market lies in the fact that Nike has major contracts with nearly all sports teams operating in the region, meaning that it could always count on steady orders of uniforms, shoes, and accessories from those teams in order to accommodate the athletes (Bruun & Langkjaer, 2016). These are high-priority orders of premium-class gear that would cost much more than the shoes available to the general audience. In addition to these orders inflating the revenue flow, they would also provide advertising that would attract additional market share. To sum things up, the strengths of the market include the high paying capacity of the customers in combination with high recognition of the brand by professionals and the general public.
The weaknesses of the market for Nike involve the complete saturation of the American market by sportswear (Bruun & Langkjaer, 2016). The competition is incredibly steep, with all major and minor brands having claimed their intended audience and watching one another to make a marketing move. It would be very hard to expand and claim additional market share without presenting a truly revolutionary and massively available product, which would be hard to make in the sports industry, where the basic technologies of shoemaking have not changed much since the 20th century. This is being illustrated by the slow overall growth rates Nike has been experiencing in the past years. While the overall sales were growing, the market share remained at 47%, moving up and down by several percent depending on the success or failure of a particular product.
The second weakness lies in the fact that the success of Nike’s products in the North American market is largely dependent on cooperation between China, where Nike’s production facilities and resources are located, and the US, which is the primary market (Bruun & Langkjaer, 2016). US-China politics, therefore, play a major role and can either enhance or disrupt the market for them. As it stands, the aggressive political stance of the current administration towards China may inflict losses to Nike, either by the imposition of additional taxes, shipment difficulties, and the removal of the protectorate given to Nike by the Chinese government due to a long-standing relationship. To summarize, the weakness of Nike’s position in the NA market includes the inability to expand further combined with external political risks.
Target Market Recommendations
As it was already established, expanding into the North American market by conventional means would be a very difficult endeavor, as it is a Red Sea market, where it takes high effort just to maintain the existing positions. Therefore, should Nike want to achieve greater success in this direction as opposed to exploring new markets, there are several venues for it to follow (Pride & Ferrell, 2016):
Buy out the competition (Pride & Ferrell, 2016)
While major competitors, such as Adidas and its proxies would not withdraw from the sportswear market, Nike has the potential to buy out other, smaller producers and incorporate them into its brand family, thus claiming their market share for itself, achieving greater dominance while reducing the amount of competition encountered. However, this move might be considered too aggressive and lead to monopolization charges – an event that already happened with Coca-Cola, when it tried to buy out Cadbury Schweppes in the US, Canada, Europe, and South America.
Expand to a non-sportswear segment of the market (Pride & Ferrell, 2016)
As it was mentioned, Nike’s product range, while wider than that of Adidas, is not exceptionally diverse. Aside from sportswear and a few options for women and children, the company does not provide other goods. At the same time, the Nike brand is strongly associated with quality clothing. There is the potential to expand into winter wear, casual clothing, and the economy segment of clothes wear by designing different models of clothes and putting them to apply in the Chinese factories. Since the majority of the super factories are already involved in the business of mass-producing affordable clothes, they have their own established supply chains. All Nike needs to do, is design the clothes, make contact, and facilitate production. The majority of clothing customers do not really choose casual clothes for brand names, but rather for their comfort and appearance. Nike could provide those while sporting a brand recognizable by everyone.
Reference List
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Bruun, M. B., & Langkjaer, M. A. (2016). Sportswear: Between fashion, innovation, and sustainability. Fashion Practice, 8(2), 181-188.
Nike. (2018). K-10 Form.
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Meyer, J. (2019). History of Nike: Timeline and facts. The Street.
Pride, W., & Ferrell, O. C. (2016). Marketing (16th ed.). New York, NY: Cengage.
Global sportswear market: Industry analysis & outlook (2017-2021). (2017). Web.