NIKE, products for men, women, boys, and girls.

                  NIKE, Inc., established on
September 8, 1969, is one of the famous sports
companies which designs, develops, markets and sells the products of athletic
footwear, apparel, equipment, accessories,
and services. The Company operates some locations in the world. They are in
North America, Western Europe, Central & Eastern Europe, China, Japan and Emerging Markets. (Reuters,
2018) NIKE, Inc., include a few
portfolio brands such as the NIKE Brand, Jordan Brand, Hurley, and Converse.
NIKE, Inc., sells its products to retail stores and internet web sites, and a
mix of independent distributors and licensees across the world. (Reuters, 2018) The company produces
specifically for athletic use.The company also provides products for casual and
leisure purposes. The company sells a range of products for men, women, boys,
and girls. NIKE Brands offers three main types of products such as shoes,
clothing, and accessories and equipment. The Company’s footwear products are
designed primarily for lifestyle, running, basketball, training & gym,
soccer, skateboarding, boots and custom Shoes. The Company also sells sports
clothing such as compression & Nike Pro, Tops & T-Shirts, Polos,
Hoodies & Sweatshirts, Jackets & Vests, Pants & Tights, Shorts,
Surf & Swimwear, Socks The Company also markets clothing with a
professional team, licensed college, and league logos. (NIKE, 2017) Besides, NIKE Brands
produces accessories and equipment such as bags, backpacks, hats, and
sunglasses.  (NIKE, 2017) The Company’s brand
is Converse which designs, distributes and licenses casual sneakers, clothing,
and accessories and equipment under the Converse, Chuck Taylor, All Star, One
Star, Star Chevron and Jack Purcell trademarks. (Reuters, 2018) Its most
significant growth drivers will likely come from international markets such as
China and Western EuropeG1 G2 . There are some companies
compete with NIKE. They are Adidas, Lululemon, Puma, and Under Armour. Nike is an example of
monopolistic competition as it
has the characteristics that a perfect competition
has, except the fact that its products are not exactly like its competitors
such as Adidas and Under Armour. Product
differentiation is the real or perceived differences between competing
products in the same industry.G3  Clothing segment revenue,
grew faster, than total company revenues, at 4.65 %, but underperformed its
competitors within this segment. (CSIMarket, 2017) Equipment and
anotherG4  segment, NIKE lost its market
share to about 14.53 percent while footwear segment, NIKE grew its market share
of 8.98 percent. NIKE improved market share to approximate 39.93 percent. (CSIMarket,
2017)G5 

Appendix 1: NIKE’s stock
performance relative to its competitorsG6 G7 

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Source: Consider Nike and its
strong track record. (2017, December 29). Retrieved January 02, 2018, from
http://www.spokesman.com/stories/2017/dec/31/the-motley-fool-consider-nike-and-its-strong-track/

I.             
Production costs and
scale

      NIKE doesn’t own any factories
for manufacturing its footwear and clothing, which make up almost 88% of its
revenues. In its place, manufacturing is subcontracted to third parties as
the cost advantages of doing so. Most raw materials in NIKE’s supply chain
are sourced in the manufacturing host country by independent contractors. NIKE’s growth in
international markets helped the company’s profit and sales quarterly; however,
there is a decline in gross margins showed severe price competition in North
America which is its largest market. (channelnewsasia, 2017) NIKE’s
second-quarter gross margins fell 1.2 percentage points to 43 percent because
of a stronger dollar and higher production costs. (Financial Times, 2017) NIKE’s selling and
administrative expenses rose 10 percent for the quarter because it spent more
on advertising in the North American market. (Financial Times, 2017) The decline in
demand for its products such as footwear and sports equipment in North America
also led to a 5 percent drop in revenue from the market. (Financial
Times, 2017) (Financial
Times, 2017)
However, it was offset by an increase in demand from China and Europe.
Quarterly income from China rose 16 percent and Europe 19 percent. (Financial
Times, 2017)
Since 2015, NIKE has been working with Flex, the high-tech manufacturing
company well-known for producing Fitbit activity trackers and Lenovo servers. (Financial
Times, 2017)
It introduces greater automation into the labor-intensive activity of making a
shoe. Flex’s capacity in Mexico becomes one of the company’s most important
factories that are responsible not just for a growth of the company’s products
but also for a succession of innovations across NIKE’s supplier base such as
laser-cutting and automated gluing. The shift to higher automation has two big
attractions. By cutting down costs, it could lead to a dramatic improvement in
profit margins. (Appendix 2) It would also allow the company to deliver new
designs more quickly at a premium. For example, a pair of Nike Roshe shoes costs $75
without Flyknit uppers, compared to as much as $130 with Flyknit.G8  (Financial Times, 2017) Due to a competitive
retail environment, NIKE has been seen as racking up expenses, favoring
discounts and massive spending to grow its direct-to-consumer business. The 24
percent fall could be attributed to gross margin decline, a higher effective
tax rate, and other expenses. Also, NIKE has planned to cut 2 percent of its
global workforce and trim its geography segments from six to four. They are
North America; Europe, Middle East and Africa; China; and Asia-Pacific and
Latin America. (Financial Times, 2017)G9 

Appendix 2: How NIKE could use Flex to boost margins

 

 

 

 

 

 

 

 

 

Source: Financial Times
Nike’s focus on robotics threatens Asia’s low-cost workforce. (n.d.). Retrieved
January 02, 2018, from
https://www.ft.com/content/585866fc-a841-11e7-ab55-27219df83c97

II.           
Macro Business Environment

                  NIKE has moved more than 900
million units through its supply chain in 2016. There are 700 factories in 42
countries which its manufacturing network consists of. In the USA, NIKE products
are sold through 22,000 retail accounts; worldwide, the company’s products are
sold in more than 160 countries. (Drive, 2017) Both domestically
and overseas, NIKE operates retail stores, including NikeTowns and factory
outlets. Nearly all of the items are manufactured by independent contractors,
primarily located abroad, with NIKE involved in the design, development, and
marketing. NIKE corporation is an American international company. Because policies of the US
government have grown, NIKE has gained benefits significantly by maintaining
low-interest rates, currency exchange stability, and internationally
competitive tax arrangements. NIKE has also benefited from cooperation with
government initiatives regarding transparency in the global value chain.
Because the company produces and sells physical goods, NIKE is subject to
changes in tax and manufacturing laws. Various political conflicts can always
make customs related processes difficult, or prevent imports and exports. By moving
production closer to its key markets will help satisfy some of that demand.
NIKE has opened up new political issues in the countries where it has been
operating for the past two decades. The company risks being attacked for depriving
jobs of its Asian workers. Legal factor has to do with the regulations of the government that come
into play from time to time. They relate to the legal environment of an
organization and the impacts they execute on the performance of an organization
in the marketplace which includes health and safety laws, consumer law,
competition law, employment law, and discrimination law. NIKE has faced a lot
of legal issues in its process of growth and development. In the past, NIKE has
faced several lawsuits related to labor abuse and wages. (Financial Times, 2017) An
employee was paid low wages and benefits. Furthermore, the salary issues led to
change of management regulatory the factor which affected the organization
competitiveness in the market.

      NIKE sells a medium range
product; therefore, they are a few vulnerable to economic factors than other
brands. However, there are some of the economic variables. A market downfall
could be a disadvantage for NIKE. Consumers may decide to switch to lower-end,
cheaper products if this were to happen, or if it is just as a decent level of
quality becomes easier to produce. NIKE’s revenues depend on the low cost of
labor in far eastern countries. This can also mean the higher its prices across
the world will become with the development in less economically developed
countries. NIKE focuses on the condition of economies where it sells it’s all
sports products. The advance and developed nations have an almost stable
economy with the same purchasing power of the customers.  Also, NIKE would make better economic
policies to target some developing countries. The opportunities that could be
the opportunity for the NIKE are the economic stability of the developed
economy in its target countries as well as the time, and again the rapid growth
of emerging markets could also be seen as the most significant opportunity for
the organization. In this regard, USA market has been given a vast opportunity
to Nike to expand and increase the growth rate. Over the last 20 years, the increased demand in the sporting
clothing market in the USA provided an excellent opportunity for NIKE. The only
high-quality brand that existed in the US market was Adidas which were very
expensive and not available. This economic situation provided a perfect
environment for NIKE brand to take advantage very quickly due to its
availability and affordability. NIKE usually makes much profit because of its
increased sales and low costs due to economies of scale it is enjoying.
Besides, the strong US currency is led to the selling of the NIKE shoes at
lower prices than Adidas even though both brands had the same quality.

      Fitness is a critical
concern for all people in these days. Therefore, NIKE has increased the
interest in sports. Most people nowadays are actively participating in fitness
clubs and sports competitions.  NIKE can
take advantages of this influencing social dynamic by introducing its fine
quality athletic and other sports products. The company targeted athletes and
their need for quality affordable shoes. Changing the customer’s needs and
preferences for high-quality, affordable sports gear and the changing
lifestyles increased the pace of product change to fit the customers’ needs.
Consumers look for products that despite being athletic are stylish and
fashionable. The market might be growing, but NIKE still holds its valuable
position in its market. Olympics season remains highly essential and profitable
for NIKE and competing brands. For NIKE, culture is a crucial factor and brands
may be required to alter its product styles to gain popularity in the abroad
markets. NIKE has used a different advertisement in the USA and another one in
China. In China, there are over 400
million people active in sports and exercise nowadays, and Nike believes that
the Chinese market will eventually expand to become more than ten times the
size of Nike’s North American consumer base.G10 G11 G12 G13 G14  (The Spokesman Review, 2017)  Then it is due to the
cultural differences as a culture also affects marketing and marketing
expenses. G15 G16 G17 

                    Mostly, NIKE has outsourced its production to contracted
suppliers. However, in some areas such as inventory and distribution, its
performance is still affected by the use of technology. The company has been using new technology to help
reduce costs and to maximize profits which reduces the amount of employment on offer. The
ILO estimates almost 56 percent of the workforce in Cambodia, Indonesia, the
Philippines, Thailand, and Vietnam are at a risk of being automated over the
next decade or two, with clothing and footwear manufacturing jobs among the
hardest hit. (Financial Times, 2017) NIKE also gets the
opportunity to use its information because of technological advances, allowing
the company to optimize targeting and production, and maximize revenue.       

III.         
Sustainability practice of the business

      By becoming a partner with
bluesign technologies, NIKE is enabling its material suppliers to access two
innovative tools which are the bluesign bluefinder and the bluesign blueguide
to accelerate innovation in more sustainable materials. (NIKE, 2017) With bluefinder, a
supplier can access pre-screened and more sustainable textile preparations.
They are dye systems, detergents and other chemicals that are used in the
manufacturing process. The bluefinder also allows suppliers to effectively
manage restricted substances and provides the opportunity to increase water and
energy efficiency. The blueguide gives the company access to more than 30,000
materials are produced by using chemicals from the bluefinder at facilities
which have undergone rigorous assessment. (NIKE, 2017) In
the previous time, to access these tools and data, a brand needed to take its
supply chain contractors through individual factory assessments. For an out-souG18 G19 rced global supply chain of NIKE’s size, that would require significant
investment and many years. This agreement opens access to bluesign
technologies’ key tools and data for an expanded supplier base at the nominal
cost across NIKE’s global supply chain, which go
throG20 ugh G21 almost 50 countries and over 800 contracted factories with hundreds of
textile manufacturers supplying the factories making NIKE products. (NIKE, 2017) NIKE is also
committed to the change in the world of materials, eliminating of hazardous substances
and innovating new and sustainable materials. To shift to maintain sustainable
materials, numerous stakeholders must work together to innovate better
chemistry and remove harmful chemistry.

         In 2001, NIKE introduced a
restricted substances list based on the most strict worldwide legislation plus
other non-restricted substances, is practicing an integrated strategy to
encourage chemical suppliers and textile manufacturers to practice positive
chemistry and also to work together to eliminate hazardous substances through
its internal operating processes and policies. NIKE’s partnership with bluesign
technologies enables NIKE to put a set of positive chemistries in the hands of
materials suppliers. The company believes that this partnership will help
encourage others to collaborate in changing the way textiles are created. As environmental
awareness in the world has risen, the impact of environmental factors on
industry performance and profitability has also grown. In the past, NIKE
encountered several protests over its environmental impact which was mainly due
to the bad environmental practices by its suppliers. However, over time the
company has managed this pressure and framed policies for its suppliers to
create sustainable products. Recently, sustainability is linked to innovation
and strategic plans at NIKE. Besides, NIKE has put many efforts towards
implementation of sustainable product innovation cycle. The environmental
program exhibited by NIKE has helped in building robust public relations and
has enticed many customers and investors. Many American investors are
environmentally conscious. G22 G23 G24 (NIKE, 2017)
Thus they feel actively involved in environmental protection by investing in
NIKE, which they feel are ethical environmentally. NIKE shoes are greener and
more ethical as compared with other products in the USA market because NIKE
shoes are more comfortable to recycle, and the solvent use of reduced by over
85% when compared with other brands such as tiger and Adidas.G25 G26 G27 G28 G29 G30 G31 G32 G33 G34 G35 

IV.         
Conclusion

      In conclusion, NIKE has improved its
profit margins by reducing inventories, minimizing price markdowns, and
ensuring that the customers receive the right product variety on time so far. However,
for the past two years, NIKE faced some problems for not doing enough to
address issues at one of its supplier’s factories. The major problem which
affected the reputation of NIKE is employee wages and benefits. Sustainable innovation is a
promoter for revolutionizing the way NIKE does its business and an opportunity
that’s been integrated across its business in policies, processes, and
products. NIKE has put the effort in innovating solutions that benefit
athletes, the company, and the world. According to Nike,
“Sustainable innovation is a catalyst for revolutionizing the way we do
business and an opportunity that’s been integrated across our business in
policies, processes, and products. NIKE is trying to shrink lead times on
production while increasing direct sales to consumers as retail partners. Nike’s time-tested brand and unmatched supply chain
network form a defensive moat that should help it capture growth in the apparel
industry. It’s worth a closer look for long-term investors. To achieve these
goals, the company is readjusting the growth by committing to serve consumers
in 12 cities in 10 key countries. (The Spokesman Review, 2017) They are New York,
London, Shanghai, Beijing, Los Angeles, Tokyo, Paris, Berlin, Mexico City,
Barcelona, Seoul, and Milan. These locations will make up 80% of Nike’s growth
through 2020. (The Spokesman Review, 2017)

 

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