The American company Nike is the leader of the world market and the national market for sporting goods, clothing, and footwear. Nike’s products are exported to all countries of the world. The company markets its products under its brand and Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding, including subsidiaries such as Cole Haan, Hurley International, and Converse. Additionally, the company sponsors many athletes and sports teams around the world. Combining functionality, modern design and high technology, Nike footwear have been a symbol of quality for generations (Childs and Jim 2017). The latest technologies are used in the production of these clothes, allowing them to provide maximum comfort and convenience when playing sports.
Porter’s 5 Forces Analysis
Competition in the Industry
The sports footwear market has a number of peculiarities. Its specificity is that in addition to the influence on the development of the industry of general economic factors, this market, like many others, depends on additional factors. These include world prices for ingredients not produced in the U.S. and the foreign economic policy of the state itself, such as customs tariffs, quotas, and incentives. Brujil (2018, p. 1) also suggests that “a competitive strategy should rest on an understanding of industry structures and the way they change”. The market also depends on such a capricious factor as fashion.
Today, Nike’s biggest competitors are Adidas, Reebok, and Puma. Although the company is the leader of the world as well as the domestic market of sports shoes, it should closely monitor the activities of its main competitors. The attractiveness of the sports footwear market is evidenced by an increase in the production of sports shoes, an increase in the income of the population, and, accordingly, the cost of sports shoes in households. Moreover, the sports footwear market is also income elastic – the income growth leads to an increase in product costs. Therefore, this market is characterized by a high degree of both price and non-price competition and the active use of marketing tools by manufacturers.
Potential of New Entrants into the Industry
Such a threat always exists, but it is much more difficult for new players in the sports goods market to break through. Firstly, it is necessary to produce something innovative, which is very difficult in itself, since large companies have better access to the latest developments and thus, every year something new is patented. Secondly, it is more difficult for beginners to break through as existing companies have a certain reputation with buyers and have long been entrenched in the minds of consumers. Thirdly, it is very difficult for new companies to create their own distribution network since, in order for them to break into the market, they will have to offer products at a lower price. A possible option for the emergence of a new strong competitor in this market may be either the emergence of some new direction in fashion, including sports. Another possible strategy would be to present similar products at lower prices which is a highly risky approach. Therefore, in general, the likelihood of new competitors appearing is very low.
Power of Suppliers
The suppliers of the enterprise influence the formation of the general resource potential by determining the possibilities to purchase material, financial and human resources. Jiang (2019, p. 86) states that “the competition of shoe industry inclines more towards the competition of the supply chain, so, it is essential to maintain a certain competitiveness in terms of supply chain.” The firm can control the impact of this factor on its activities by choosing the most reliable suppliers with optimal delivery conditions. Intermediaries form the sales opportunities of the company, providing services in distribution channels to reach the target market and bring sports shoes to end consumers. Nike uses their own branded stores to promote and bring their products to market and consumers.
Power of Customers
Consumer power is very high in the sports footwear market. Nike is a customer-oriented company, so it has to hold all kinds of promotions and discounts, as well as monitor closely the quality of customer service. The company also uses a loyal marketing program and thereby increasing the concentration of the business and creating a base of regular customers. Kanten and Darma (2017, p. 1) emphasize that “in order to gain better business performance, the marketing department has to combine consumer behaviour, marketing strategy, and customer satisfaction rather than just focusing their efforts only on marketing strategy.” Recently, among other things, the trend of the spread of a healthy lifestyle, including sports, has been increasing, which should further attract clients to the organization (Govindayapalli 2021). The current situation at hand requires a diversified approach that would fit various customer groups.
Threat of Substitute Products
Substitute goods include the casual wear sectors, which does not pose a significant threat to Nike’s overall performance. Nike is well-known for the high quality of its sports shoes and clothing, having built a certain reputation in the eyes of the customers. Thus, it is unlikely that consumers would choose substitutes, especially if they know these substitutes do not provide the same quality as Nike. Today, sportswear is also an element of a certain style and is included in the everyday clothes of many people, so this factor does not hold much influence over Nike. In addition, the company produces such lines as Nike+ and Converse, which allows them to become competitors in other markets.
Limitations
The power of suppliers and consumers remains strong in the sports footwear market, so they both present the main limitations for Nike. The company should strive to retain its customers base, as well as reach out towards new market segments. Moreover, the supply chains have suffered during the course of the pandemic, so it is possible that Nike would have to seek out new sources of supplies for their production. However, the most important limiting factor lies in competition – Adidas, Puma, and Reebok are increasing their influence on the market, expanding towards the segments Nike has not yet reached. The possibility of a new player entering the market is relatively low, so the company needs to reinforce its opposition to the competitors. For that, Nike would need to apply a new strategy that would allow it to tap into new market spheres and customer groups, such as women’s sportswear, casual wear, and, possibly, implementation of technology into existing products.
Nike Business Model
Nike, which started out as an import/export business for Japanese-made running shoes and did not own any of its factories, has become the prototype of a non-commodity brand. There was nothing innovative in the implementation of the golden rule of commerce – making a profit in the difference between the purchase price and the sales price. This tremendous growth in Nike’s scale was only possible because its CEO Phil Knight was one of the first to intuitively define a new type of company (Kim 2020). Within this approach, the main thing is not the commodity production itself and the presence of factories around the world but the marketing that is behind this product. According to Jankovic and Jaksic-Stoyanovic (2019, p. 77), “the role of media in sports branding is crucial in order to achieve a positive publicity and establish strong, emotional closeness with consumers of sports messages.” The company no longer aspired to serve the sport, it aspired to become its embodiment. Knight’s merit was the creation of a universal cultural code in which branding is not just a means to increase sales but a creative product that attracts more and more customers.
Further success for Nike is associated with the emergence of a unique product – after seeing his wife’s waffle iron, Bill Bowerman came up with a raised sole for sneakers, which became the “hallmark” of Nike. This idea helped reduce the weight of the shoe and improve traction but also became a recognizable design trick that pushed sales upwards. Overall, currently, Nike’s main sources of revenue are the sales of sports footwear for both professional and regular athletes, as well as the company’s sub-brand of sneakers Converse. The profitability of the company is ensured through the strong brand image Nike continues to enhance, innovative footwear designs, and collaboration with other brands such as Apple, for example.
Nike Financial Performance
Nike’s financial performance has grown significantly over the past three years, maintaining high revenues even during times of pandemic. The following financial information was acquired from Nike’s fiscal reports shared on the official website (Nike Inc. 2021):
A profit of $1.5 billion (93 cents per share) is seen in the fourth quarter of fiscal 2021, compared with a loss of $790 million (51 cents per share) a year earlier. Revenue for the period rose to $12.34 billion from $ 6.3 billion. Overall, earnings were expected at 51 cents per share on revenue of $ 11.01 billion, and online sales jumped 47% due to further COVID-related quarantine measures. Nike predicts that revenue will grow “double-digit” in fiscal 2022, expecting it to exceed $50 billion (Salpini 2021). According to the company’s analysts, expected revenue is to be around $48.46 billion in fiscal 2022. Moreover, the first half of the year growth is expected to be slightly higher than in the second half of the year.
Such strong results were driven by record sales in North America, the company’s largest market. In addition, management released a stronger revenue forecast for the coming year than previously expected, driven by the strong outlook for women’s apparel and footwear, as well as the Jordan brand. Despite the decrease of quarantine restrictions, consumers continue to show an increased interest in comfortable clothing for home and workouts. In addition, even after many people return to schools and offices, the demand for comfortable clothing and footwear such as elastic pants and trainers continues.
Nike’s Environmental, Social, and Governance Performance
In order to achieve world leadership, every year, Nike tries to reduce costs and conquer new geographic markets and territories. Nike’s macro-environment is represented by forces of a broad social plan, which create general conditions for finding an enterprise in it. Specifically, the socio-demographic and cultural environment is of particular interest to the company. Nike tries to keep up with the sociocultural situation in the U.S. and the world, appealing to the customer with strong inspirational advertising campaigns. For example, Chadwick and Zipp (2018, pp. 1) elaborate on “an advert in which young African Americans, Muslim women, physically impaired athletes and white skateboarders all encourage the viewer to follow their dreams”. With this approach, Nike establishes its connection to the social matters at hand.
At present, high rates of inflation, exceeding the rate of growth of incomes of the population, can lead to a decrease in the purchasing power of the population. Jung and Jeong (2021, p. 48) introduce “a quantitative perspective of Porter’s five forces framework using financial information proxies to gain enhanced framework usability.” Nike needs to ensure that governmental fluctuations and the country’s economic situation are accounted for in its marketing strategy, as a consequence, they can lead to a decrease in demand for sports products, and with it for sports shoes. Lukianov et al. (2020) suggest that a company needs to use each aspect of corporate governance, including risk management. Therefore, the company’s main goal is to develop a strategy that can adjust to the changing situation in the market.
Nike’s Future Prospects
If the company continues to be guided by its principles and basic strategies, then in 5-10 years, it should remain profitable and perhaps even more successful. The creation of innovations and the annual attraction of consumers’ attention should attract more and more new customers. Guven (2020, p. 234) adds that “it is the process of discovering innovations that are based on strategic intrapreneurship and future competitive advantages, and ensuring that business people strive to benefit from today’s competitive advantages.” Also, the implementation of new directions and ideas should lead the company towards success, allowing it to maintain its position on the market. According to Williams et at. (2018, p. 43), “the true benefit for a firm appears to lie not in any one particular action but in a conglomeration of strategic thinking approaches.” Today, Nike presents a great investment opportunity, as the company’s performance exceeds the market’s expectations.
Bibliography List
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