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SPORTS FOOTWEAR AND APPAREL INDUSTRY ANALYSIS
Nike Corporation
DEFINING THE INDUSTRY
INDUSTRY DEFINED
20,000 retail accounts throughout the U. S. using
independent distributors and also has contracts with 110
other countries
Also has agreements with Internet companies and
subsidiaries
Operates within the sports footwear and apparel market.
Originally designing and producing running shoes, their
portfolio has broadened to include a wide range of sports and
leisure wear. This is all endorsed by top sporting personalities
NAICS CODES
North American Industry Classification System
The standard used by Federal statistical agencies in
classifying business establishments for the purpose of
collecting, analyzing, and publishing statistical data
related to the U.S. business economy
The first two digits of code designate the sector, the third
designates the subsector, the fourth digit designates the
industry group, the fifth digit designates the NAICS
industry, and sixth digit designates the U.S. detail industry
NAICS CODES EXAMPLENAICS Codes Name Classification Level
31-33 Manufacturing Sector
316Leather and Allied
Product Manufacturing
Subsector
3162Footwear
ManufacturingIndustry Group
31621Footwear
ManufacturingIndustry
316211
Rubber and Plastics
Footwear
Manufacturing
U.S. Detail Industry
NIKE PRODUCTS They design, develop, and market
high quality active sports apparel,
equipment, and accessory products
Nike distributes one new shoe style
every single day
Nike’s critical factors for success
are maintaining current standards,
closer working relationships, and
retaining customer loyalty by
guaranteed standard of product
NIKE PRODUCTS Their products are made for
men, women, and children of
all ages.
The company presently sells
roughly 300 models of
athletic shoes in 900 styles
for 25 different sports.
Nike's target market for
their shoes is males and
females between 18 and 35
years old.
NIKE PRODUCTS
T
hey not only see competition from Adidas and
Reebok, but also with Old Navy and Abercrombie
and Fitch
C
ontinuous marketing research is the key in assessing
the market
NIKE EXPANSION
Nike has success as a result of collaborating with
other companies within the sports and fitness
industry
But at other times, Nike expanded into markets for
which it is not strategically suited
Nike has realized to initiate more aggressive
programs to review product partnerships that are
outside of its core basis of products
NIKE’S BIGGEST COMPETITOR
C
onsist of 3 companies:• Adidas• Reebok• TaylorMade
Adidas Purpose:◦ The production and distribution of apparel, footwear and equipment for sports and leisure as well as
of products of adjoining fields, furthermore the commercialization of the registered trademark Adidas.
Adidas Mission:◦ To be the leading sports brand in the world.
The Adidas brand attitude “Impossible is nothing” drives all of their brand communication
initiatives and it helps them strengthen the Adidas brand’s bond with the consumer.
Reebok’s Mission:◦ Always challenge and lead through creativity.
At the core of the Reebok brand is the affirmation of the uniqueness of all people.
Reebok Strategic Focus:◦ to become a consumer-driven brand that reflects the emphasis on individuality.
Athletes Endorsed by Reebok:◦ Sidney Crosby◦ Alexander Ovechkin◦ Allen Iverson◦ Yao Ming◦ Thierry Henry
Reebok Partnerships:◦ NFL◦ NHL◦ MLB
TaylorMade’s Mission:◦ To have the leading performance golf brands in the world.
TaylorMade changed the game of golf by bringing the metalwood to the public 27
years ago, and today is the market leader in the metalwood category.
Strive to continually extend their brands’ positions as leaders in the development
and implementation of advanced performance technologies in all of their products
including clubs, balls, footwear and apparel.
Just to give you an idea of how well TaylorMade is doing, they currently endorse
55 professional golfers, one of which is Sergio Garcia, and as of February 17,
2009 he is ranked number two in world.
ADIDAS GROUP FINANCIALS
Net Sales in
millions
Nine Months
2008
Nine Months
2007Change
Adidas 6,004 5,465 9.9%
Reebok 1,587 1,765 (10.1)%
TaylorMade 614 609 0.8%
INDUSTRY STRUCTURE
GROWTH IN RECENT DECADES
N
ike and Reebok set the standard
N
ike gained popularity
L
urking competitors• Adidas Group• Under Armour
INDUSTRY WEAKENING
I
nternet skyrocketed sales in late 90’s
U
pcoming companies took advantage of new technologies
S
ales have slumped tremendously in past year
N
ike making 4% cut
U
nder Armour stated that analyst’s estimates are far below earlier predictions
THREAT OF NEW ENTRANTS
H
ighly saturated and challenging industry
D
epend in large part on first mover advantage and scale
economies
A
reas to focus: Technologies, pricing, and costs of
production
INNOVATOR
S
ports Apparel and Footwear industry relies mainly on innovations and creativity
I
nnovative Ideas=Key success factor
C
ompany could have an advantage
W
ithout proper funding and resources a firm could be at a severe disadvantage
T
hreat of new entrants based on first-mover advantage is minimal
ECONOMIES OF SCALE
D
ifficult to compete with large economies of scale
H
ard to handle all levels, more experienced firms are able to
disperse
N
ew entrants suffer a severe cost disadvantage
S
ignificant amount of assets needed
BARGAINING POWER OF BUYERS AND SUPPLIERS
Power of buyers can be determined by supply vs. demand
and number of buyers
Price sensitivity effects demand
Customers more affected by price
Suppliers are more powerful when the ratio to buyers is
more
The vast range of products in the Athletic Apparel industry
leads to a dissimilar amount of bargaining power for the
supplier
SUBSTITUTE PRODUCTS AND SERVICES
T
he threat of substitute products
The existence of close substitute products increases
the propensity of customers to switch to alternatives
in response to price increases
SUBSTITUTE PRODUCTS AND SERVICES
S
ubstitutes are a threat because:
1) They are an attractive alternative product or service, which
customers can easily shift to if there are low switching costs.
2) The availability of substitutes invites customers to make price,
quality and performance comparisons
3) Competitively priced substitutes impose a maximum value on
prices relevant industry can charge for its products or services
SUBSTITUTE PRODUCTS AND SERVICES
1) They are an attractive alternative product or service, which customers can easily shift to if there are low switching costs
OR
SUBSTITUTE PRODUCTS AND SERVICES
2) The availability of substitutes invites customers to make price, quality and performance comparisons
IS IT CHEAPER?
CAN I JUMP HIGHER? CAN I RUN
FASTER?
SUBSTITUTE PRODUCTS AND SERVICES
3
) Competitively priced substitutes impose a
maximum value on prices relevant industry can
charge for its products or services
What is worth ?
RIVALRY AMONG PARTICIPANTS
C
ompetitive rivalry
T
his is the major determinant of the competitiveness
of the industry. Sometimes rivals compete
aggressively and sometimes rivals compete in non-
price dimensions such as innovation, marketing, etc.
RIVALRY AMONG PARTICIPANTS
G
enerally competitive rivalry will be high if:T
here is little differentiation between the products sold between customers.
C
ompetitors are approximately the same size of each other
I
f the competitors all have similar strategies.
I
t is costly to leave the industry hence they fight to just stay in
H
igh fixed or storage costs, which encourages fast turnover of inventory.
RIVALRY AMONG PARTICIPANTS
M
arket of Competitive Rivalry
INDUSTRY ENVIRONMENT
NIKE VS. THE ECONOMY
As the economy slows, consumer purchases are down.
The biggest threat for Nike would be economic
recession.
Asian economic crisis also affects Nike since its goods
are manufactured in Asia. ◦ The labor costs and material prices are going up. Nike's
growth is not just affected by the local economy but also in the international economy.
◦ A weak Euro and an Asian recession could mean weak sales for Nike.
NIKE VS. ETHICS
I
n 1996, the ethical issue of child labor came to the
surface regarding the hiring of young employees by
Nike’s Asian and Latin subcontractors whose ages
ranged from very young to teenagers. The teen workers
would have not been so controversial; however, there
were no regulations or work permits issued.
NIKE VS. ETHICS
W
ithout proper management leading and planning in the
Nike Corporation, the company would have suffered from
the child labor issue.
N
ike has made a true bounce-back from the negative media
attention, and continues to be successful due to their
strong business ethic philosophy.
NIKE VS. SOCIETY
P
eople are more health conscious nowadays. Consequently,
more and more people are joining fitness clubs. There is
an accompanying growth for demands of fitness products
particularly exercise apparels, shoes and equipment.
Nike naturally is at the forefront of this surge in demand
as people are looking for sports shoes, apparels and
equipment.
NIKE VS. SOCIETY
T
he largest among Nike’s objectives, the women’s
athletic market will be a top priority in the next ten
years. The number of women collegiate athletes have
increased from a few thousand in the 1960’s to
almost one million today.
TECHNOLOGY
P
roduct technology must evolve as fitness evolves, in order to give
competitors an advantage
N
ike introduced Nike Shox, which revolutionized the cushioning
foam used in shoes
N
ike also collaborated with Apple and is launching new apparel
and footwear that will easily carry the consumer’s iPod
TECHNOLOGY
P
roduct innovation is an ongoing process and is vital to stay ahead of
competition
C
ompanies in this industry invest money in R&D to keep up with the new
demands of today’s athletes
N
ike employs many specialists including engineers, athletes,
biomechanics, and industrial designers to work together in the design
process
COMPETITION The top 3 firms in this industry are Nike, Adidas, and Puma
The industry is relatively old, so firms must fight for market
share rather than relying on market growth
AREAS FIRMS COMPETE ON
P
roduct offerings
T
echnologies
M
arketing Expenditures (endorsements and advertising)
P
ricing
C
osts of Production
C
ustomer Service
COMPETITION
Firms in athletic footwear and apparel also
compete with firms that provide other substitutes
(such as leisure and casual wear)
Skechers, K Swiss, New Balance, and Aasics
Nike has created their own lines of casual shoes
to compete in these markets as well◦ Example: Converse
COMPETITION
During hard economic times, people consume less
retail goods such as clothes and footwear
Bureau of the Census estimates that retail and food
service sales for January 2009 are 9.7% below a year
ago
Consequently, the industry has turned to emerging
markets to continue sales growth◦ China◦ Russia◦ Latin America
GEOGRAPHY
Production is outsourced to plants in Asia, Latin
America, and Africa◦ This reduces costs because labor is cheaper◦ Puts sources of production closer to where they will be sold
Firms who outsource lose the ability to closely monitor
product quality and working conditions
Although some people find this unethical, firms cannot
afford to keep production close to home and still
compete on profit margins
GEOGRAPHY
Plants are also located in many different countries,
rather than being concentrated in one area
Diversification of production plants reduces the risk
that a firm will greatly be affected by a problem in
any particular country◦ Example: Nike’s largest footwear factory accounts for
only 6% of the total footwear production◦ Nike claims it can recover from any loss in production
within one year’s time
CONCLUSION
OVERVIEW OF THE INDUSTRY
• In this industry there is intense competition,
fashion trends, and price conscious consumers that
have slowed growth in this industry.
• This creates difficult situations for companies to
produce a brand image that appeals to consumers
that want to shop for cheaper apparel, but also
apparel that has quality.
WHERE THE INDUSTRY IS NOW
F
inancially, the company must be aware that economies are not
up to par and that costs must be kept low to bring in the
revenue.
W
ith the internet being a huge entry to Nike’s products, the
company must find a way to keep their consumers to see them
as being more user friendly as compared to their competitors.
CONT.
W
ays for Nike to do this is to keep the site simple, fresh,
and easy to use.
B
y using new designs and better deals for orders made
online for the customers, it has the potential to bring in
more revenue, as well as improve the relationship
between the company and its clients.
INDUSTRY FORECAST
T
echnology is always changing, and if Nike can create apparel and
athletic equipment that the competitors cannot match, then Nike
will grow even higher than its rivals.
Technology can be based around anything from softer and more
durable running shoes, to a baseball bat with a new metal to
make the ball go further.