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Nike is a US sports company that is based in Beaverton, Oregon. Nike's initial name was Blue Ribbon Sports and its mission was and is today "to be the world's leading sports and fitness company" (International Directory of Companies History). Nike has continued to rise in its market by acquiring Reebok and by being ahead of Adidas, Fila, Converse, and New Balance. However these competitors are known to be ahead by glare of publicity with negative views on how their manufacturing companies are failing in their workplace ethics. Nike Inc. is therefore one the largest global manufacturer of sports footwear and apparel by sales. According to a Wiki Invest report of the Fiscal Year 2009 the total sales totaled to $19.2 billion (Nike, 2009). Besides that the indicates that the company has a global presence with 34% of its total revenue in the year 2009 coming from the US and at the same time Europe, the Middle east and Africa accounting for 29% of its revenue in that year (Nike Wiki Analysis report, 2009).
During the last two years global slowdown in sales retail and consumption the company (Nike) was hard hit. The reason for this was that the company's revenue grew only by 3% to an approximation of $19.2 billion while the Nike's net income fell by 21% to $1.5 billion. This meant that the company still expected lower revenues in the first half of the current year 2010 (Wiki Invest, 2009). Consequently, Wiki Invest (2009) says that Nike Inc. has since the year 2004 invested 11%-13% of revenue in its marketing activities annually. In the year 2008, the companies advertising costs were equivalent to 12.4% of its total revenue an indication that the company has very strong emphasizes on its marketing strategy. Wiki Invest (2009) indicated that the marketing strategy took the form of traditional television and print advertisement with a special focus on celebrity athlete endorsements.
According to Nike Wiki Invest analysis (2009) Nike supports marquee athletes in basketball, golf, soccer, and tennis. For example, Nike Wiki Invest analysis (2009) says that "in the year 2008, Nike's extensive advertising efforts in the Beijing 2008 Olympics and European Football Championship led to a 15% surge in the company's 2008 SGA expenses." On the other hand Nike Wiki Invest analysis (2009)established that "in December of 2009 Nike began to feel the ill effects of the Tiger Woods scandal, and are considering spending less on sports sponsorships to avoid similar difficulties in the future (it currently spends 5-7% of sales on sponsorships)."
Nike is the largest seller of athletic footwear and apparel worldwide by sales revenue. Nike Inc. specializes in the development and sale of athletic footwear, apparel, and equipment. The company's footwear is Nike's largest product category which represents 53.7% of the company's total revenue. Nike Wiki Invest analysis (2009) also says that for its name sake brand the company is involved in the development and marketing of footwear and apparel products under the Cole Haan, Converse, Hurley International, as well as Umbro Inc brand name.
Nike Wiki Invest analysis (2009) also says that "Nike sales its products in over 180 countries around the world through its company owned retail stores and internet sites". In this context Nike divides its sales into four regions around the world which includes the United States of America, Middle East, Europe, Africa, Asaia Pacific and Central and South America. In the fiscal year 2009 these regions accounted for Nike's increase in revenue with America and Europe accounting for 34.1% and 28.7% respectively. Middle East and Africa accounted for 17.3% and 6.7% of Nike's revenue respectively (Nike Wiki Invest analysis, 2009).
Through its business segments Nike Wiki Invest analysis (2009) report says that footwear was particularly fundamental in the growth of the company's revenue. This was because footwear sales increased by 14% in 2009 thus reaching to about 10.3 billion and this accounted for 54% of Nike's 2009 revenue. At the same time it important to note that much of the growth in footwear revenue was attributed to the 15% increase in footwear sales in the Asia Pacific region (Nike Wiki Invest analysis, 2009). Also on the basis of "Nike's footwear an estimated 44% and 33% of the its 2009 footwear sales were obtained from united states and EMEA regions respectively" (Nike Wiki Invest analysis, 2009).
Nike's apparel accounted for 27% revenue. Nike Wiki Invest analysis (2009) says that Nike Inc. sales sports apparel which include running shorts, t-shirts and licensed apparel. According to the Nike Wiki Invest analysis (2009) report Nike's apparel sales totaled to 5.24 billion in 2009 which was a record increase of 0.2% from the year 2008. This positive trend was associated with increase in sales from the upcoming markets such as Russia and EMEA and the currency neutral 50% increase in sales in the China (Nike Wiki Invest analysis, 2009). Also generally the Europe, Middle East, and Africa regions accounts for Nike's majority of apparel sales that accounts for its 38% revenue earned from apparel (Nike Wiki Invest analysis, 2009).
Nike's sports equipment brought a 6% of the company's total revenue. Nike Wiki Invest analysis (2009) says that these equipments include balls, protective sports equipment, and golf clubs. Nike Wiki Invest analysis (2009) further says that "the sales of the company's branded equipments reached $1.11 billion in the year 2010 which was an increase of 9.5% from 2008." The increase was attributed by an 10% increase in equipment sales in the Asia region.
In addition, Nike Inc. also sales apparel and footwear under the Nike Golf, Cole Haan, Thyai Dunn also worked with Converse a Nike subsidiary. Nike thus earned an estimation of 13% of its revenue from these subsidiary business segments. For example, Nike Golf sells lines of footwear, apparel, and equipment for golfers. In this context Nike Golf revenue decreased by 11% during the fiscal year 2009. On the other hand Umbro which partners with Nike sells soccer footwear and apparel. Nike Wiki Invest analysis (2009) says that "Nike purchased Umbro during 2008 for $576 million in order to enhance the company's position in the soccer footwear and apparel industry." In addition Nike Wiki Invest analysis (2009) report says that "in August 2009, Nike sold Umbro's ownership of the United Soccer Leagues, a Florida based professional soccer league, to NuRock Soccer Holdings."
Nike sales have grown to 52% since the year 2005 thus reaching $18.6 billion in the year 2009. Nike Wiki Invest analysis (2009) says that "this growth was largely contributed by the rapid increase in sales and more specifically to the increase in consumption in the global emerging markets of the company's products such as Russia and China." Nike Wiki Invest analysis (2009) further says that "sales in emerging markets like Russia and Turkey in the EMEA region increased 25%, while revenues from China climbed over 50% during 2009."
Moreover, Nike Inc. gross margin increased to 45% in the year 2009 up from 43.9% and 44% in the year 2008 (Nike Wiki Invest analysis, 2009). The company further says that the increase in gross margin to slight price increases and a reduction in close out sales because of enhanced inventory management during the year 2009. Nike Wiki Invest analysis (2009) also indicated that "this was partially offset by the company's 12% growth in cost of sales in the year 2008." Besides this Nike Inc. SGA expenses increased 18% in 2009 because of a 15% increase in advertising costs related with the 2008 Beijing Olympic competitions and European Football Championship (Nike Wiki Invest analysis, 2009).
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In the year 2009 Nike Inc. earned $1.88 billion in net income which marked a 100% increase since the year 2005. The report Nike Wiki Invest analysis (2009) also indicates that Nike's 2009 net income represented a 26.3% increase from 2008 which can be mainly associated to a significant tax savings associated with the company's purchase of Umbro coupled with its improved gross margin. Nike Wiki Invest analysis (2009) also says that "Nike Inc. operated at 10.1% net profit margin in 2009 from 9.1% in 2008 mainly because of increased prices."
The company's effective tax rate for fiscal year 2009 was 80 basis points lower than the effective tax rate for the fiscal year 2008. NKE Income Tax report (2009) says that these was primarily due to the tax benefit related to the impairment of goodwill, intangible and other assets of Umbro that had a favorable impact of 250 basis points. NKE Income Tax report (2009) also indicated that profits earned outside the United States the impact of the resolution of foreign audit items and the retroactive reinstatement of the research and development tax credit also positively impacted the company's fiscal 2009 effective tax rate. As a result the company estimated that its effective tax rate for the fiscal year 2010 will be approximated at 22.5%.
NKE Income Tax report (2009) further says that Nike's effective tax rate for fiscal 2008 was 24.8%, 740 basis points lower than the prior year. It has been noted that international entities generated losses for which we did not recognize the corresponding tax benefits, as the realization of those benefits was uncertain. NKE Income Tax report (2009) also found out that reflected in the year over year effective tax rate improvement was a reduction in the on-going effective tax rate resulting from our profits earned outside the United States.
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In the February 28, 2009, the total gross unrecognized tax benefits, excluding related interest and penalties were $286.7 million. $70.3 million of which would affect the company's effective tax rate if recognized in future periods. NKE Income Tax report (2009) moreover ascertains that "total gross unrecognized tax benefits excluding interest and penalties as at may 31, 2008 was 425.1 million, $60.6 million of which would affect the Company's effective tax rate if recognized in future periods." NKE Income Tax report (2009) also indicates that the liability for payment of interest and penalties increased $15.7 million during the nine months ended February 28, 2009. The income tax report for Nike Inc. also states that as of February 28, 2009, the accrued interest and penalties related to uncertain tax positions were $88.9 million excluding U.S federal benefit.
Challenges faced by Nike
The case study named Nike final (n.d.) says that Nike Inc. challenges are from the legal, cultural, and ethical points of view. This is because the company subcontracts its other companies overseas, Nike has the responsibility to ensure the manufacturing sites are run with a lot of business integrity. The report named Nike final (n.d.) says that after the negative press and investigations that took place to prove Nike was guilty of running sweat shops, the company had to re-strategize its position overseas. This was because this had negative effect on its financial performance from an ethical point of view. The company has made systematic changes for its suppliers and the entire industry is affected.
In order to counter these ethical and legal challenges, the company has developed a supplier code of conduct. Nike final (n.d.) report says that Nike has also assembled an internal team to enforce the codes of conduct besides working with outside processes so as to observe the policies put in place and at the same time have continued contact with its stakeholders. The company had to counter the challenge of reducing overtime pay for the factory workers, implementing human resource management programs and ensure educational training would be tailored to their subcontracted facilities (Nike final, n.d.).
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Nike continues to face strategic and operational challenges that are facing global managers. Nike final (n.d.) publication indicates that the company should try to better its business performance and relationships with its foreign investments. These changes can be effected by continuing to change the supplier code of conduct besides maintain a good corporate social responsibility. It is also important that the company embraces continued auditing procedures, keeping ensuring best practices education, rewarding compliance and ensuring that variances from the standard are not neglected (Nike final, n.d.).
Despite these global challenges faced by Nike Inc. the company cannot be technically removed from responsibility in these areas. Nike final (n.d.) publication indicates that the pay and working conditions that the workers get is mainly part of the contract that has to be negotiated by Nike. This implies that if Nike chooses to improve the working conditions of workers in overseas company investments, these benefits should be passed to the workers.
Furthermore, Nike final (n.d.) says that the company's personal belief is that the hosting country and the foreign investor have a responsibility not only to improve the country but both entities must ensure employees in those factories no matter their gender, educational and social status. Nike Inc. requires that individuals should be treated with respect no matter what their social status and therefore money looks like it is the social status behind Nike and host countries government (Nike final, n.d.).
According to Nike Wiki Invest analysis (2009) report, Nike was the clear market leader with 31% of the global athletic footwear market in 2007. In relation to these and looking at the current market in the United States of America, Europe or Asia this reveals a picture that Nike's market share in these regions hovers around 36%, followed by Adidas at 20% with Puma and New Balance as the third and fourth respectively. Nike Wiki Invest analysis (2009) report also notes that the global market for athletic footwear is concentrated with the top four firms controlling 71%. On the contrary the report Nike Wiki Invest analysis (2009) established that the market for athletic apparel is both larger $49.5 billion in 2005 and more diffuse the top five firms control only 27% of the market. However, Nike Inc. is the global leader in apparel with a market share of 7% as at the year 2007 (Nike Wiki Invest analysis, 2009).
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Standard & Poor's Guide (2009) says that Nike is the world's largest supplier of athletic footwear, with an estimated 50% of this $20 billion market. The summary also indicates that sports apparel and equipment were also sold under Nike banner and the company's other segments which accounted for 13% market share. Standard & Poor's (2009) further indicates that innovation; marketing and the sports cycle dictate and drive Nike's global footwear, apparel market share. On the same context, technologically superior performance products convey the idea of extraordinary ability to the wearer and are the root of the market share. In relation to this individuals are attracted to a brands attributes of an active lifestyle despite their sport participation.
Since Nike Inc. sells products for such a wide range of sports, the company competes against many niche companies such as New Balance. Nike also competes against similar large athletic footwear and apparel manufacturers such as Adidas and Puma. Nike Wiki Invest analysis (2009) report says that one of Nike's major competitor Adidas AG recorded revenues of $13.8 billion in the year 2009. The Adidas Group competes in the overall sporting goods market. Adidas makes sports footwear, apparel, accessories, and equipment. Like Nike, the Adidas Group is also much larger than Puma in terms of sales (Nike Wiki Invest analysis 2009 report). On the other hand Puma AG had $3.3 billion revenue in the year 2009. Nike Wiki Invest analysis (2009) report says that Puma is a Germany based competitor that sells sportswear, apparel, accessories, and equipment. Puma also operates through two brands which are Puma and Tretorn.
Another competitor of Nike Inc. is Under Armour (UA). In the Fiscal year 2009Under Armour reported $856.4 million revenue. Although under Armour is a fairly new company which was incorporated in 1996 it designs and sells sports footwear, apparel and accessories Under Armour products are designed with microfibers intended to wick away perspiration, extended across the sporting goods, outdoor and active lifestyle markets. It has been noted that Under Armour's sales are growing at a high rate with a five year growth rate of 65.03% and an industry average of 16%.
|Revenue 2009 (Millions)
|Net Income 2009 (Millions)
|Nike (2009 Data)
|Adidas AG (ADDYY)
|Puma AG Rudolf Dassler Sport (PMMAY)
|Under Armour (UA)
Nike's competitive advantage is built around product innovation. Lamb, Hair & McDaniel (2008) says that Nike maintains its competitive advantage through its ability build sustainable competitive advantage. For Nike the notion for competitive advantage means that the company stakes out a position unique in some manner from its competitors. Lamb, Hair & McDaniel (2008) also says that Nike's competitors rarely stand still and therefore imitation causes mangers to feel trapped in a seemingly endless game of catch up. Nike builds their own competitive advantage whose sources include skills and assets of the organization. Lamb, Hair & McDaniel (2008) further say Nike assets include patents, copyrights, locations, equipment, and technology which are superior to those of its competitors. For Nike Inc. skills are functions such as customer service that the firm performs better than its competitors (Lamb, Hair & McDaniel, 2008).
The company's sustainable competitive advantage is a function of the speed with which competitors can imitate a leading company strategy and plans. Nike's competitive advantage has been hard to imitate because the competitors are not able to determine how the company attains it hence it is hard for them to learn and duplicate it (Lamb, Hair & McDaniel, 2008).
Trends and Forces
Nike's forces and trends are based on the company's strengths and weaknesses analysis. Nike Wiki Invest analysis (2009) says that with estimated $18.6 billion in revenue, the company was the industry leader because they used Thyai Dunn in their commercials. Based on the report it is evident that Nike has since 2001 captured about 35% of the global market. Nike Wiki Invest analysis (2009) also says that Nike's scale advantage manifests itself in low advertising costs. In this context Nike spent $2.8 billion on advertising, which is 12.4% of revenue.
The report analysis also says that the demand for low performance footwear in USA and Europe has increased significantly. This trend has been fundamental for the performance of the company, and it has the company to come up with non athletic brand such as Converse as well as sports culture brands. The trend also indicates that Nike has been a relative latecomer to the low-performance market with a historic concentration in high performance athletic equipment (Nike Wiki Invest analysis, 2009). The trend has been positive since 1988 when Nike acquired Cole Haan, while at the same time in 2002, Nike acquired the sneaker maker Hurley and in 2003 it bought Converse.
It is important to note that the three brands that Nike acquired represent the main thrust of Nike's upward trend in the low performance market. Nike Wiki Invest analysis (2009) indicates that "Nike's sneakers have acquired enough of a cultural cache that they are no longer exclusively used for athletic purposes." The global market slowdown did not spare Nike Inc. either. According to the Nike Wiki Invest analysis (2009) report, the global market for athletic footwear has grown in the last several years, but the market is showing a reduced growth rate.
Global Trend and force analysis of Athletic Footwear and Apparel
From the above graph it can be noted that between the years 2003 to 2004, the market for footwear and apparel grew by $7.5 billion which represents 12%. Nike Wiki Invest analysis (2009) report also noted that from 2004 to the year 2005 the market for these products grew by less than $4 billion. Again in 2007, the global footwear sales reached $44.4 billion which attributed to 2% growth from 2006.This was caused by the weakened consumer spending as well as the rise in popularity of low performance footwear (Nike Wiki Invest analysis, 2009). In addition Nike performed better than its competitors because the company's footwear sales increased by 9% during the first quarter of 2009. This was a positive trend despite the global financial crisis (Nike Wiki Invest analysis, 2009).
One of the major forces of Nike is the rise of the emerging markets such as Turkey, Russia, and Brazil. Nike Wiki Invest analysis (2009) says that "these markets have become considerable growth opportunities for Nike." For example Nike Wiki Invest analysis (2009) report says that "sales in Turkey and Russia rose to 25% during 2008 and further grew an additional 30% in the first quarter of 2009." Additionally it was noted that South American sales increased by 30% during the first quarter of 2009 (Nike Wiki Invest analysis, 2009). Increase in sales from the emerging markets have helped Nike to protect its self from the global recession as well as reduced consumer buying.
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In conclusion the case study shows that Nike has been on the positive trend as per as its growth is concerned. The company's revenue reflects the continued efforts by the management to maintain its global leadership and competitive advantage as far as the manufacture and sale of footwear and apparels are concerned. The financial analysis reflects that despite the global financial meltdown, Nike Inc. was able to cover its self from those effects due to the company's agility in establishing new market segments especially in the emerging markets in countries such as China and Brazil. Nike has differentiated itself from its major competitor such as Puma, Adidas, and Under Armor by ensuring that it maintains its product innovation trend and sustainable competitive advantage.