Strategic Analysis of Nike, Inc. Submitted to: A.J. Almaney, Ph.D. ISS 395 DePaul University Chicago, IL 60604 March 14, 2000 Submitted by: Group 1 Kim Enderle Dan Hirsch Lisa Micka Brian Saving Sheetal Shah Tatiana Szerwinski TABLE OF CONTENTS Executive Summary…………………………………………………………………….…………p.4 History…………………………..…………………………………………………………………..p.6 Profile of CEO………………….…………………………………………………………………..p.7 Competitor’s Profile………….…………………………………………………………………….p.7 Industry Profile……………………………………………………………………………………..p.8 Company Analysis…………………………………………………………………………………p.9 Industry Analysis………………………………………………………………………………......p.24 Top Competitor Analysis………………………………………………………………………….p.25 Other External Forces…………………………………………………………………………….p.26 Key Opportunity……………………………………………………………………………..….…p.27 Key Threat…………………………………………………………………………………………p.27 Major and Subordinate Problems………………………………………………………….……p.28 Strategic Match…………………………………………………………………………………...p.29 Primary Strategic Match Position……………………………………………………………….p.30 Strategic Plan……………………………………………………………………………………..p.33 Conclusion………………………………………………………………………………………...p.38 LIST OF EXHIBITS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Sales Trends Graph……………………………………………………………………………p.5 Net Income Trends Graph…………………………………………………………………….p.5 Nike Board of Directors Table………………………………………………………………...p.11 Table of Key Financial Ratios………………………………………………………………...p.22 Net Income Trend Graph………………………………………………………………….…..p.24 Primary Strategic Match Position Chart……………………………………………………..p.30 Industry Attractiveness Matrix………………………………………………………………..p.31 Business Strength/Competitive Position Chart……………………………………………..p.32 Grand Strategy Chart………………………………………………………………………… p.34 Marketing Short-term Strategy Chart………………………………………………………..p.35 11. 12. 13. 14. Production Short-term Strategy Chart……………………………………………………….p.36 Research and Development Short-term Strategy Chart…………………………………..p.37 Human Resources Short-term Strategy Chart……………………………………………...p.37 Finance Short-term Strategy Chart.………………………………………………………….p.38 EXECUTIVE SUMMARY Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership under the name, Blue Ribbon Sports. Our modest goal then was to distribute low-cost, high-quality Japanese athletic shoes to American consumers in an attempt to break Germany's domination of the domestic industry. Today in 2000, Nike Inc. not only manufactures and distributes athletic shoes at every marketable price point to a global market, but over 40% of our sales come from athletic apparel, sports equipment, and subsidiary ventures. Nike maintains traditional and non-traditional distribution channels in more than 100 countries targeting its primary market regions: United States, Europe, Asia Pacific, and the Americas (not including the United States). We utilize over 20,000 retailers, Nike factory stores, Nike stores, NikeTowns, Cole Haan stores, and internet-based Web sites to sell our sports and leisure products. We dominate sales in the athletic footwear industry with a 33% global market share. Nike Inc. has been able to attain this premier position through "quality production, innovative products, and aggressive marketing." As a result, for the fiscal year end 1999, Nike's 20,700 employees generated almost $8.8 billion in revenue.1 Products Our primary product focus is athletic footwear designed for specific-sport and/or leisure use(s). We also sell athletic apparel carrying the same trademarks and brand names as many of our footwear lines. Among our newer product offerings, we sell a line of performance equipment under the Nike brand name that includes sport balls, timepieces, eyewear, skates, bats, and other equipment designed for sports activities. In addition, we utilize the following whollyowned subsidiaries to sell additional sports-related merchandise and raw materials: Cole Haan Holdings Inc., Nike Team Sports, Inc., Nike IHM, Inc., and Bauer Nike Hockey Inc. Our most popular product categories include the following: Running Basketball Cross-Training Outdoor Activities Tennis Golf Soccer Baseball Football Bicycling Volleyball Wrestling Cheerleading Aquatic Activities Auto Racing Other athletic and recreational uses Sales and Income Trends Revenues in the fiscal year ended May 31, 1999, declined by 8% over the prior year to $8.777 billion. As illustrated in the graph below, this marked the first time since 1994 that revenues have declined. Regardless of this year's decline, Nike Inc. achieved 300% revenue growth over a 10-year period, rising from 1990 sales of $2.235 billion. Exhibit 1 * Obtained from Nike, Inc. 1999 Annual Report Although revenues declined in 1999, net income increased by 13% over the prior year. As the graph below illustrates, net income has been volatile in the latter half of the 90's. Sharp decreases in 1998 and 1999 net income were due to restructuring charges. If these charges had not been incurred, income would have been flat for both years. Efficiency in cost control and inventory management has allowed net income to increase while revenues decreased in 1999. Note that the largest growth rate was 43% in 1997 over the prior year with net income of $795.8 million. Exhibit 2 * Obtained from Nike, Inc. 1999 Annual Report Challenges Our greatest challenge in 2000 will be to maintain the operational and financial initiatives we worked so hard to implement in 1998 and 1999. We must maintain our inventory levels low enough that will allow us to adapt to quickly changing market trends. Financially, we must remain conservative in our cost structure. Cuts to operating expenses of almost $200 million this past year demonstrated that we are in a position to be nimble in light of our industry-dominating size. With the gradual economic recovery in the Asia Pacific region, we can capitalize on customers who are financially stronger. Our sponsorship of the 2000 Olympic Games in Sydney, Australia, and the 2002 World Cup in Japan and Korea will be the start of many opportunities to bring sports events into the mainstream for regional and global markets. With added exposure, we are challenged to respond to a market demand for fashionable athletic footwear and apparel. In this quest, we will succeed if we keep quality and performance at the core of our business. The Internet is a rapidly changing medium. As the first company in our industry to offer e-commerce capabilities, we must proceed with caution and stealth in order to select an enduring strategy that will complement our existing distribution channels. HISTORY Bill Bowerman and Phil Knight founded Nike Inc. as Blue Ribbon Sports in 1962. The partners began their relationship at the University of Oregon where Bowerman was Knight’s track and field coach. While attending Stanford University, Knight wrote a paper about breaking the German dominance of the U.S. athletic shoe industry with low-priced Japanese shoes. In an attempt to realize his theory, Knight visited Japan and engineered an agreement with the Onitsuka Tiger company, a manufacturer of quality athletic shoes, to be their sole distributor in the United States. In 1962, Knight received the first shipment of 200 pairs of Tiger shoes to his parent’s garage in Oregon. The shoes were bought by Blue Ribbon Sports (BRS), the name of the partnership between Knight and Bowerman that they formed with only $1,000 in capital. Knight peddled Tiger’s shoes at local track meets grossing $8,000 of sales in their first year. In 1966, Bowerman, who had previously designed shoes for his university athletes, worked with Tiger to design the Cortez running shoe. The shoe was a worldwide success for the Onitsuka Tiger Company and was sold at the first BRS store. In 1971, BRS, with creditor support, started manufacturing their own line of shoes. Later that year, the first BRS shoe was introduced. The shoe was a soccer shoe that bore the Nike brand name, referring to the Greek Goddess of Victory, and the Swoosh trademark. A student designed the Swoosh trademark for a paltry fee of $35. The Swoosh was meant to symbolize a wing of the Greek Goddess. 1972 marked the breakup of the BRS/Tiger relationship. BRS soon changed its name to Nike, Inc. and debuted itself at the 1972 Olympic trials. In 1973, Steve Prefontaine was the first prominent track star to wear Nike shoes. The late 70’s and early 80’s also saw John McEnroe, Carl Lewis, and Joan Benoit sporting Nike shoes. Nike popularity grew so much that in 1979 they claimed 50% of the U.S. running market. A year later with 2,700 employees, Nike went public selling 2 million shares on the New York Stock Exchange. The 1980’s were marked by the signing of Michael Jordan as a product spokesperson, revenues in excess of $1 billion, the formation of Nike International Ltd., and the "Just Do It" campaign. Nike also expanded its product line to include specialty apparel for a variety of sports. In 1990, Nike surpassed the $2 billion mark in consolidated revenue with 5,300 employees worldwide. In addition, we opened the Nike World Campus in Beaverton, Oregon. In 1991, Nike pushed revenues to $3 billion, up from $2 billion the prior year. This mark would continue to grow throughout the 90’s, with revenues in 1999 reaching $8.8 billion. These revenues grew based on improvements in shoe technology and successful marketing campaigns. International revenues fueled a great portion of this growth with an 80% increase in 1991 from the prior year. In 1992 international revenues topped $1 billion for the first time and accounted for over one-third of our total revenues. Such growth continued throughout the 1990's as we continued to focus our marketing efforts on major sporting events like the World Cup, and the next generation of celebrity endorsers, such as Tiger Woods, Lance Armstrong, and the players of women's professional basketball (WNBA). At the end of the 90’s, Nike’s goal, as stated in our company web site, is to become a truly global brand. PROFILE OF THE CEO Phillip H. Knight, Chairman and Chief Executive Officer, is the co-founder of Nike, Inc. He has been the driving force behind our company's success since its inception in 1964 under the name Blue Ribbon Sports. Knight is 61 years of age and holds an undergraduate degree from the University of Oregon and an MBA from Stanford University. Knight practiced as a CPA and taught at Portland State University prior to founding the company known today as Nike. He has been an innovative visionary in the industry of athletic footwear and apparel. His efforts have helped to establish Nike as an industry leader in both national and international markets. Knight's managerial mode is one that is characterized by strategic planning. This mode is representative of an open-minded CEO, one willing to take calculated risks and make conservative decisions based on careful analysis of external and internal environments. Knight's decision-making style favors the participative approach. He is not hesitant to make unilateral decisions, but prefers to look to his trusted management team for their insight and ideas before choosing a course of action. PROFILE OF THE COMPETITOR Reebok, in terms of their products, is not entirely different from Nike. Reebok is involved in the design and marketing of both athletic and non-athletic footwear and apparel, as well as other various fitness projects. Reebok’s market share is a distant third in the footwear industry at 11.2% (compared to 30.4% and 15.5% for Nike and Adidas respectively). Reebok’s financial position has been gradually slipping for a number of years. This is evident in their declining stock price, which has fallen by over 80 percent in the last four years. Reebok’s financial woes are illustrated in their declining net sales. Reebok’s net sales declined 9% during the first three-quarters of fiscal year 1999. During that same period, net income declined 17%. Taking these and other factors into account leaves Reebok’s current financial position, as a whole, looking bleak. PROFILE OF THE INDUSTRY Industry Size In 1998, Americans spent approximately $38 billion to purchase more than 1.1 billion pairs of shoes. The wholesale value of athletic shoes for the US market totaled $8.7 billion in 1998 down 8.5% from the year before. According to the Sporting Goods Manufacturers Association, athletic footwear accounts for almost 35% of all footwear purchases. In general, consumers are spending less worldwide for athletic footwear. The current domestic industry focus is on casual and comfortable shoes. Although athletic footwear sales appear to be recovering, demand is still leaning toward the "brown shoe" casual footwear with a comfortable and rugged design. This switch is due to the increasing number of workplaces adopting casual dress codes. Industry Profitability The athletic footwear industry is a challenging and saturated market. Intense competition, fashion trends, and price conscious consumers have slowed growth in this industry. Manufacturers are combating sluggish sales with radical new styles, along with offering more styles at lower price points. Companies are looking for new ways to boost sales by capitalizing on direct Internet sales to consumers. Many companies are also increasing profitability by transferring production to cheaper offshore facilities. This segment has reached a point of maturity in the domestic market and can look forward to only modest sales growth for the long term. However, sales are improving slightly, especially in the areas of running shoes, cross-trainers and basketball shoes. Therefore, companies with strong brands will increasingly turn to international markets for growth. Industry Seasonality Overall, sales in the athletic footwear industry remain stable throughout the year. The global variance in our market balances the seasonal fluctuations. Typical trends in seasonality appear for spring apparel, the back-to-school season, and the Christmas holiday season. Industry Cyclicality In fiscal year 1999, the economy was relatively favorable for footwear manufacturers. The footwear industry and its profitability are closely tied to economic cycles. Modest inflation, low unemployment, and a booming stock market will all contribute to healthy consumer spending. The theory behind the slowdown in sales is that growth in athletic footwear and apparel is cyclically sensitive to the Olympics. Historically, years of the Olympic Games have demonstrated surges in growth followed by difficult sales periods. The outlook for increased sales trends is optimistic due to the upcoming Olympic Games slated for this year. Nike can also look forward to a boost in demand from the World Cup events. Industry Entry and Exit Barriers Entry Barriers The athletic footwear industry is a very competitive and mature market. The leaders of this industry are very well established. Leaders like Nike and Reebok have made the industry what it is today. Consequently, long-time competitors like Saucony and K-Swiss have been struggling for years just to keep their brands alive. This cutthroat environment has hindered the entry of new competitors. Economies of scale also contribute to the lack of newcomers into this market. In order to have an edge over the leaders, companies must be able to compete at all levels such as reasonable pricing, efficient production, and high product quality. These things are difficult to achieve without the resources of an established manufacturer. Another key barrier to entry is the access of traditional distribution channels. When combing the shelves at stores like Sports Authority and FootLocker, it is evident that the leaders dominate the shelves. Lesser-known brands are viewed by retailers as being too risky to replace an established brand name like Nike or Reebok on the shelf. These walls seem to be breaking down with the help of the Internet. The costs of overhead that come along with traditional brick and mortar retail distributors are being significantly diminished. New entrants are now able to slide into markets without these high startup costs, making it more profitable to begin production. Exit Barriers When a company decides to exit from this industry it must be aware of things such as indebtedness and its ability to meet those obligations. A company must also be cognizant of lawsuits filed by its stakeholders and claims made on any residual assets. COMPANY ANALYSIS Strengths and Weaknesses of the Corporate/Business Level Strategic Managers Board of Directors - Strength Nike’s board of directors consists of both management directors and independent directors. The combination of these two types of directors benefits Nike in that there is a presence of those directly involved with Nike as well as others indirectly involved who bring outside experience, provide another frame of reference and can assist the overall board in thinking "outside the box." Nike’s board would be classified as an oversight board, playing an active role with regards to management’s decisions in the area of strategy formulation. Board of Directors - Weakness The average age of Nike’s board is 62, the youngest member being 49 and oldest being 79. This constitutes a possible weakness in that there is a lack of younger members of the board who could serve to bring a new perspective to the company and assist in achieving Nike’s goals. Exhibit 3 Nike, Inc. 1999 Board of Directors* Thomas E. Clarke President and Chief Operating Officer, Nike, Inc., Beaverton, OR Jill K. Conway Visiting Scholar, Massachusetts Institute of Technology, Boston, MA Ralph D. DeNunzio President, Harbor Point Associates, Inc., New York City, NY Richard K. Donahue Vice Chairman of the Board, Lowell, Massachusetts Delbert J. Hayes, Newberg, OR Douglas G. Houser Assistant Secretary, Nike, Inc., Partner – Bullivant, Houser, Bailey, Pendergrass & Hoffman Attorneys, Portland, OR John E. Jaqua Secretary, Nike, Inc., Partner – Jaqua & Wheatley, P.C. Attorneys, Eugene, OR Philip H. Knight Chairman of the Board and Chief Executive Officer, Nike, Inc., Beaverton, OR Charles W. Robinson President, Robinson & Associates, Santa Fe, NM A. Michael Spence John R. Thompson, Jr. Dean, Graduate School of Business, Stanford University, Palo Alto, CA Former Head Coach, Georgetown University, Washington, D.C. William J. Bowerman Director Emeritus * Nike, Inc. 1999 Annual Report Top Management - Strength Co-founder, Philip H. Knight, has been with Nike since its inception. As a result, he has much knowledge and experience about the company and the industries in which it competes. Knight’s strategic planning managerial style serves as a strength in that his actions are planned and calculated, allowing for both risky and conservative decisions based on careful thought and analysis. His participative decision-making style can also be viewed as a strength such that Knight is willing to listen to others to generate ideas. He does not limit the company’s options to one-sided ideas and decisions. Environmental Analysis Internal – Strength Nike’s management analyzes its internal environment and makes decisions based on that analysis. Because of Nike’s marketing research, the company has decided to revamp its apparel division to be more fashion savvy. As a result of product and pricing research, Nike has decided to continue to focus on the high end market while increasing its market share in the middle and low price ranges in an attempt to broaden Nike’s product spectrum. External - Weakness Nike’s failure to foresee problems in relation to labor and factory conditions at production locations has resulted in bad publicity and declining sales as society and consumers call for more "socially responsible" companies. Strategy Formulation Mission - Weakness Nike's Corporate Mission Statement: "To be the world's leading sports and fitness company." Nike’s mission statement resembles a vision statement and is therefore a weakness. While the mission does broadly identify the business we are in, namely the sports and fitness industry, it is not specific as to what products and services we provide. The mission statement also omits any mention of distribution channels and customers. It does, however, portray management’s beliefs and values of our desire to be number one and maintain the leading position in the sports and fitness shoe and apparel industry. Corporate Objectives – Weakness Nike has no published corporate objectives in relation to the overall company. This lack of corporate objectives represents a weakness. Stakeholders should be well aware and informed of a company’s corporate objectives to better understand the nature of the company and its direction. Nike has established corporate objectives in relation to our perceived corporate responsibility. Our objective is to "lead in corporate citizenship through programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike." This corporate objective represents a weakness as it does not meet the two requirements of being measurable and having a time frame in which to complete or accomplish said objective. Nike’s objective is immeasurable and broad lacking any time specifications for implementation of programs to meet this objective. Grand Strategies - Strength For our grand strategy, Nike utilizes innovation to produce top quality athletic footwear and apparel. As a result of devoting vast resources to the research and development of its products, Nike has captured the largest market share in the athletic footwear and apparel industry and continues to be the leader of quality products. Competitive Strategies - Strength The competitive strategy that Nike introduced at the end of the 1990's concentrates on honing the focus of our marketing strategies and product offerings through product differentiation. We realize that the team-mentality that captured the spirit of athletics in the late 1980's and early 1990's has been replaced by a sense of individualism. Younger consumers especially, look to extreme sports and retail outlets such as Ambercrombie & Fitch and Old Navy to find a sense of individual style. We are responding to this movement in a number of ways. While retaining our company's long-standing tradition of placing performance through new-product development as a top priority, a never-before seen element of fashion will receive a second-place priority built into our products and image. For the 1999 back-to-school season, we conducted fashion shows in twelve U.S. cities. In addition, an element of individualism is most obvious in our Web site. Customers can select the color and design a monogrammed heel-insignia for our made-to-order athletic shoes. Strategy Implementation Corporate Culture - Strength Nike has created a corporate culture rich with employee loyalty and team spirit. Red "Swooshes" float across everything from screen savers to coffee cups at the company's headquarters in Beaverton, Oregon. The company chooses to call its headquarters a "campus" instead of an office. Employees are called "players," supervisors are "coaches" and meetings are "huddles." These terms go a long way to make the daily work experience less than dull for the lucky employees in Beaverton. In 1985, thirteen years after the company was founded, Nike was blindsided when Reebok developed its multicolored aerobic shoes. It was then that we decided to reinvent our business and culture, becoming highly motivated about selling sports and a "Nike way-of-life." With this decision the company also restructured its marketing campaign, focusing more on an image rather than just product advertising, a strategy which led to the "Just Do It" mantra. Since then, Nike has been striving towards an inner culture that reflects this mantra. Employees are given an hour and a half for lunch to play sports or simply workout. The new Nike is not just about shoes and slam-dunks, but about promoting a lifestyle. All new employees view a video of sports highlights accompanied by a soundtrack that discusses the soul of the athlete and the competitive spirit. In addition, management sends weekly emails to update employees on the recent successes of Nike-sponsored athletes, and often hosts spokespeople to motivate and thank its staff for contributions to the sports world. It is not surprising that an athletic background helps a prospective employee. In keeping with its sports approach Nike asks its players to work by two principals above all others -- "Honesty first, and competition second. Compete with yourself not your colleagues." Nelson Ferris, a 47 year-old head of its corporate education department states that, "The Swoosh represents something other than just a company. It represents a whole value system."2 Ferris, a longtime employee, even has a Swoosh tattooed above his ankle. "It stops being a job and starts to become a way that your are defining the way your are living on earth."2 Communication - Strength In late spring of 1999, Nike Retail, Nike's subsidiary consisting of the Nike Town shops and employee stores around the world, upgraded their hardware and software. Our former technology offerings consisted of IBM 4690-series point-of-sale cash registers running on the OS/2 operating system. We have upgraded to PC-based systems running the more sophisticated Windows NT operating system. The software we have been using for the past few years called, Connect: Remote, made by Sterling Commerce Inc., is also being upgraded to the new operating platform. Corporate office communications capabilities with these branch locations will be improved dramatically. Sales and inventory data can be monitored in real-time. Electronic journaling, credit authorization, and sales reconciliation processing-efficiency will increase due to the addition of in-store databases. Modems transmitting data at 56K BPS, or even with digital technology, will replace the 9600 BPS modems and provide for quicker processing times. All of these innovations will allow executives at the corporate office and in other branches to better manage operations. Leadership - Strength Nike’s top management’s leadership style can be characterized by the team management approach. Top management consists of a committed group of executives all bringing together vast experience and knowledge. The group is team oriented, but is capable and does work independently recognizing the common stake that each places in Nike. This style of leadership leads to relationships of trust and respect. The company culture lends a hand to the fact that top management’s teamwork style has spread throughout the organization. Motivation - Weakness While Nike employees have been loyal and committed workers, after the cost-reductions that took place in the fourth quarter of 1998 resulting in a reduction of the number of employees, we have had to place greater emphasis on motivation among the retained employees. Morale also fell as a result of bad media coverage over reports of substandard working conditions for our Asian factory workers. While initiatives have been set to increase overall employee morale, this area remains a challenge to the company. Strategy Control Establishment of Standards - Strength A comprehensive establishment of profitability standards has assisted Nike in our evaluation of individual performance as well as a comparison to other competitors. Nike utilizes standards such as net profit, earnings per share, return on investment, return on equity, sales growth and asset growth. Performance standards are also established and checked regularly. Some of the areas in which our company has established standards are productivity of productions sites, competitive position in the United States relative to the global market, technological leadership in comparison to competitors and overall social responsibility and the public’s perception. Evaluation of Performance - Strength Nike thoroughly examines and compares the aforementioned performance standards to the actual results that have occurred as a result of implementing strategies to meet or exceed performance standards. These standards are important to Nike as a comparison of past performance to present performance as well as in our attempt to forecast future results in these areas. Correction of Deviation - Strength Though Nike has established profitability and performance standards, correction of discovered deviations has been a slower and less timely process. Management’s slow response time can be attributed to the careful analysis that is performed prior to making any decisions. While in general this is a good policy to abide by, at times Nike would be better served by a management team that can react more quickly to given information. Strengths and Weaknesses of the Functional Level Marketing Market Share - Strength Nike’s global market share was an impressive 30.4% in 1998. Despite a slight decline from prior years, Nike continues to have the greatest market share in the U.S. branded athletic footwear market. In 1998, the closest competitor, Adidas, held 15.5% of the market share while Reebok held 11.2%. The remaining competitors, including Fila, Timberland, Asics, Converse, and New Balance, among others, each hold approximately 3-5% of the remaining market share. While Nike’s market share is still in the lead, it is expected to increase with new products. Nike’s market share is expected to do especially well as a result of sponsoring the summer Olympics in 2000 in Sydney, Australia, the 2002 World Cup in Japan and Korea, and the U.S. Speedskating team in the 2002 Winter Olympics in Salt Lake City, Utah. Distribution through E-commerce - Strength Nike has taken the lead in e-commerce by being the first to market with its e-commerce web-site. Nike launched its ecommerce site in April 1999 by offering 65 styles of shoes to the U.S. market for purchase. Nike increased its ecommerce presence by launching NIKEiD in November 1999. NIKEiD enables online consumers to design key elements of the shoes they purchase. The program represents the first time a company has offered mass customization of footwear. Nike’s future plans include opening an online shop for the Japanese market next year followed by global rollout. By being the first to market, Nike enables itself to become established while competitors rush to join us. Advertising and Promotion - Strength Nike’s brand images, including the Nike name and the trademark Swoosh, are considered to represent one of the most recognizable brands in the world. This brand power translates into bottom-line revenues. The Nike name and associated trademarks have appeared everywhere from players' shirts, pants, and hats to stadium banners and walls. Aggressive advertising campaigns, celebrity endorsements, and quality products enhance the brand. Nike demonstrated an example of Nike’s brand presence at the 1999 NCAA Basketball tournament when 42 of the 64 teams participating wore shoes provided. Nike's most recent brand-building endeavors are focused on strengthening our association with women’s sports. Some examples are our sponsorship of the 1999 Women's World Cup Soccer Tournament and our sponsorship of the U.S. Speedskating team in the upcoming 2002 Winter Olympics. Products - Strength Though Nike leads the apparel division among industry competitors, Nike has not claimed to be leading the race among the apparel industry as a whole. Due to increased emphasis by consumers on fashion in relation to sportswear, we have had to make strides to appeal to a fashion savvy market. Our apparel line is not only being challenged by our typical industry competitors such as Adidas and Reebok, but also by clothing and accessories retailers such as Old Navy and Abercrombie & Fitch. Continuous marketing research could prove to be key in assessing the market. Nike is planning on initiating five structures within the apparel division to focus on the following areas: Women Men Kids sports graphics and caps strategic response independently We are also spending more time on continuing to support and develop programs to gain a better understanding what our customers would like to see in the market. Products - Weakness Nike has had much success as a result of collaborating with other companies within the sports and fitness industry. However, at times we expanded into markets for which we were not strategically suited. An example is the decrease in brands made available due to declining sales of in-line skating and roller hockey products at Bauer Nike Hockey. As a result, we have had to exit two manufacturing operations at our Bauer Nike subsidiary. We had to terminate 51 employees. Had we anticipated the decline sooner, perhaps gradual changes could have been made so that the end result may not have been as finite in nature. The desire to prevent situations such as these from continuing to occur, we have initiated a more aggressive program to review product collaborations that are outside of our core basis of products. Pricing - Weakness In general, Nike’s products are considered to be of higher quality and as a result have higher prices relative to our competitors. While the prices are realistic given the nature of the products we offer to our consumers, at times our consumers may not agree. This presents a weakness. To mitigate any future problems in our high quality/high price lines, we are placing a renewed emphasis on emerging technology and innovation towards the development of new products, specifically the Nike Alpha Project, a revolutionary new line of athletic shoes. Despite the fact that in the past we may have overlooked the mid- to lower-price-point products, presenting another weakness with room for improvement, we are dedicating our time and money to better develop our competitive position at all price points to build strengths at each of these levels. We see much potential in the lower price points and plan to meet the needs of those markets. Marketing Research - Strength Nike primarily conducts marketing research on a continual basis to assist in maintaining our company’s position as the leader in the athletic footwear and apparel industry. Because of such research, we have decided to revamp our apparel division, an area in which we can still greatly improve. Nike will be organizing the internal business by gender as opposed to sport category and conducting increasing amounts of research addressing the buying habits of men, who tend to be item-driven, and women, who tend to be collection-driven, with specifically targeted product lines. Production Location of Facilities - Strength Nike’s facilities are located throughout Asia and South America. The locations are geographically dispersed which works well in our mission to be a truly global company. The production facilities are located close to raw materials and cheap labor sources. They have been strategically placed in their locations for just this purpose. In general, the facilities are located further from most customers, resulting in higher distribution costs. However, the cost savings due to the placement of our production facilities allows for cheaper production of our products despite the higher costs of transporting our products. As Nike continues to expand in the global economy and increase its market throughout the world, these dispersed facilities will prove to be beneficial. Newness of Facilities - Weakness Our facilities abroad have attracted bad publicity in recent years. Though our facilities comply with local labor standards, generally, they have not met U.S. standards. We want to be a leader and set a responsible corporate example for other businesses to follow. As part of Nike’s new labor initiative, we commit to: Expanding our current independent monitoring programs to include non-governmental organizations, foundations and educational institutions. We want to make summaries of their findings public; Adopting U.S. Occupational Safety and Health Administration (OSHA) indoor air quality standards for all footwear factories; Funding university research and open forums to explore issues related to global manufacturing and responsible business practices such as independent monitoring and air quality standards. While establishing these policies is a step in the right direction for Nike, the difficult task at hand will be the implementation of the aforementioned goals to ensure the success of the program. Research and Development Focus - Strength Although Nike conducts continuous, basic research that benefits numerous facets of the sports and fitness industry, our primary focus is directed towards applied research. Applied research focuses on short-term initiatives such as successfully developing new product lines. This proves to be a strength in that this method of research is less costly than basic research, and less risky due to the short-term nature. Successful projects can realize immediate profitability while unsuccessful projects may be discontinued without enduring materially large losses. Focus – Weakness Focusing on applied research can be a weakness as well. Many new, innovative ideas come into existence as a result of basic, unspecific research. Though more risky and expensive, Nike would benefit from increasing the amount of basic research we conduct with hopes of uncovering potential opportunities of which Nike could take advantage. Posture - Strength Our posture is primarily innovative, while at times adjusting to a protective position, and other times a catch-up stance. Nike prides itself on being a premiere provider of high quality sports footwear and apparel. Innovation has been the key to aiding Nike in securing its position as the leader in the market. Due to the lead Nike possesses in the industry, we can afford to look long-term and place a greater emphasis on innovation as opposed to other companies with a short-term outlook attempting to improve upon existing products and services. At times, we need to adjust our posture in relation to a particular product line or area of products. In these instances, Nike may choose a defensive strategy to remedy the current situation. We may also choose a catch-up strategy and mimic what is working well for other companies in the industry. Human Resources Human Capital - Weakness No successful company can exist and succeed without utilizing its human capital. While Nike has had various policies in place, weaknesses still exist in regards to labor policies in overseas locations. We received much bad publicity as well as experienced a decrease in sales as a result of poor labor policies and lack of policies established abroad. Because of this and Nike’s goal to be a responsible citizen of the corporate world, Nike has committed to goals to better the problems as part of the aforementioned labor initiative: Increasing the minimum age of footwear factory workers to 18, and minimum age for all other lightmanufacturing workers (apparel, accessories, equipment) to 16; Expanding education programs, including junior and high school equivalency courses, for workers in all Nike footwear factories; Increasing support of its current micro-enterprise loan program to 1,000 families each in Vietnam, Indonesia, Pakistan, and Thailand. While establishing these policies is a step in the right direction for Nike, the difficult task at hand will be the implementation of the aforementioned goals of the new labor initiative to ensure the success of the program. Public Affairs Ethics – Weakness Accusations of unethical behavior, whether or not they are true, only serve to injure Nike’s image, and, as a result, product sales. One such example of questionable behavior relates to Vietnam and the trade embargo placed on the communist country as a result of United States POWs/MIAs. In 1993, United States President, Bill Clinton, promised to keep the embargo in place until the U.S. received an accurate picture of the situation. However, two years later President Clinton normalized trade relations to the dismay of the POW/MIA families involved, yet to the delight of the corporations operating in Vietnam. White House documents have revealed large donations to the Democratic National Committee by companies with an interest in seeing the embargo lifted. The author of the article, "Nike’s Dirty Little Secret," alludes to the fact that Nike was present on this list. The image of profitability being more important than American POW/MIAs has led to an unfavorable image with armed forces, families and Americans as a whole. This, combined with the "sweatshop" operations in Nike facilities in Vietnam and other countries, has negatively impacted Nike’s image. While the worst is over, Nike is still working on initiatives to change the current situations throughout factories. Whether true or not, the company still suffers from this unethical image and must sway the minds of the consumer and give them a renewed faith in the responsibility of Nike. Social Responsibility - Strength In response to accusations by consumer groups over unfair labor practices, Nike has developed a Corporate Responsibility Policy that discusses how we will improve working conditions for our international employees. The Policy outlined on our web-site has the following mission, "To lead in corporate citizenship through operations that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike." The policy includes, but is not limited to, the following initiatives: raising age limits in factories to 18 years, securing independent monitoring for our factories, extending a commitment to the environment, improving safety and health conditions, and developing programs to provide educational programs. The policy shows Nike’s commitment to responding to the concerns of consumers, as well as a commitment to our employees around the world. Finance/Accounting (For the following, see Exhibit 4, Table of Key Financial Ratios on page 22) Management of Cash - Weakness Our company’s current ratio is 2.26, just slightly below the industry average of 2.28. The current ratio, while not a major strength, shows that Nike is inline with the industry concerning ease of converting assets to cash to cover short-term obligations. The quick ratio of 1.43 is above the industry average of 1.17. Being slightly above the industry indicates that we could sell less of our inventory than what other companies in the industry would have to sell to meet current obligations. Neither the current or quick ratio exceeds the industry average substantially enough to be considered a true strength. The fact that we are not leaders is ultimately a weakness. Management of Inventories - Strength Nike’s inventory turnover of 7.32 exceeds the industry average of 4.34. Reducing inventory levels was a key initiative for Nike in fiscal year 1999. Due to our ability to quickly turnover inventory, Nike benefits from greater cash flows, reduced storage costs, and less spoilage. In addition, quick turnover reduces Nike’s inventory of out-of-style shoes and clothing. Company management stated, "We put a considerable amount of effort into improving product buying power patterns and as a result the composition and levels of inventory resulted in improved gross margins relative to a year ago." Inventory levels are being reduced due to increased sales in the company's own branch retail stores. Management of Accounts Receivable - Weakness Nike does permit sales in cash, cash equivalents and on credit. Our collection procedures have been lax compared to others in the industry resulting in slow payers and defaulting customers. Our collection period calculates to 63.17 days while the industry average is only 7.71 days. Steps are being taken to alleviate the problem of collecting accounts receivable in a more timely fashion. We have just recently changed our collection period from 90 days to 60 days as an attempt to encourage faster payment. Management of Debt - Strength Our debt-to-total-assets ratio is 15.36%, which is far below the industry average of 40.69%. Nike is not as leveraged as competitors in the industry and uses less debt financing to finance firm operations. This can be interpreted as a strength as we do not rely as heavily as our competitors on debt financing. However, our highly liquid position gives us the ability to increase debt financing should we need or desire additional capital for company operations, research and development, or other changes as top management sees fit. Management of Debt - Weakness Despite the lower percentage of assets that are borrowed to finance Nike, our times interest earned ratio is weaker than the industry average. Our ratio of 19.43 reflects the number of times funds available from earnings can cover interest payments. The industry average of 21.88 indicates that the industry as a whole is in a slightly better position to cover its interest charges. Profitability - Weakness Nike’s profitability is wavering in comparison to the industry average. Our profit margin of 5.14% to the industry’s 5.69% is partially due to decreasing sales. Though net income did increase from 1998 to 1999, this was in part due to a reduction of our marketing budget by $100 million and terminating 7% of our employees. Our return on equity of 13.54% in relation to the industry mean of 18.77 indicates that Nike is realizing a lower percentage of earnings on stockholders’ investment. Nike’s low ROE can be linked to the dropping stock price as a reflection of stockholder confidence in our company. Exhibit 4 Table of Key Financial Ratios RATIO: Formula: Calculation : NIKE: Industry : (in millions) Liquidity Current Current assets/current liabilities 3264.9 1446.9 =2.26 times =2.28 times Activity Leverage Quick/acid test Current assetsInv./current liabilities 3264.9-1199.3 Inventory turnover Sales/inventory 8776.9 Collection period Accounts Rec./Average sales per day Total assets turnover Sales/total assets 8776.9 Debt to total assets Total debt/total assets 806.2 1199.3 1540.1 8776.9/360 5247.7 Times interest earned Net operating income/Interest expense 856.8 Profit margin Net income/net sales 451.4 Return on Equity Net income/net worth =1.17 times =7.32 times =4.34 times =63.17 days =7.71 days =1.67 times =1.69 times =15.36% =40.69% =19.43 times =21.88 times =5.14% = 5.69% =13.54% =18.77 % 1446.9 5247.7 Profitability =1.43 times 44.1 8776.9 451.4 3334.9 Distinctive Competency Nike’s distinctive competency lies in the area of marketing, particularity in the area of consumer brand awareness and brand power. While the reasons that Nike is successful in marketing our products are numerous, this key distinctive competency towers over our competitors. As a result, Nike’s market share is number-one in the athletic footwear industry. Catch phrases like, "Just Do It," and symbols like the Nike "Swoosh," couple with sports icons to serve as instant reminders of the Nike empire. Two key attributes of a distinctive competency are its inability to be easily replicated and the value or benefit it offers to consumers. As Nike becomes a more integrated part of American and world culture, our brand power becomes increasingly difficult to replicate. The premise of a trademark and a slogan is that they are a company’s fingerprints. Nike is able to capitalize on its unique identity due to our industry-leading financial strength. Nike reaches millions of consumers through large-scale marketing campaigns made possible by significant budgetary appropriations. Few companies have such a recognizable image and the resources to promote it. This ultimately translates into added value for consumers. The public benefits from the strength of Nike’s image at the point of purchase. For decades, consumers have come to associate the Nike image with quality products. By associating star athletes and motivational slogans like, "Just Do It," with marketing campaigns that emphasize fitness, competition, and sportsmanship, consumers identify their purchases with the prospect of achieving greatness. Younger consumers especially benefit from this positive influence. This image is something that competing companies can not easily duplicate by simply enhancing the physical characteristics of their products. Key Weakness The key weakness of Nike, Inc. resides in our financial status. While we are not in financial trouble, we recognize that strengthening the financial well being of the company can only assist our company in the short- and long-run. We have many areas challenging our continued success such as increasing our profitability and bettering our management of cash, accounts receivable, and debt. Nike suffered a blow to sales and revenue sparked by bad publicity in 1997 about our international labor policies. Since then, we have attempted to overcome the bad press by raising and enforcing minimum age requirements for employees in overseas factories. Nike attempted to regain its mid-90's momentum as shown in 1998’s recovery, but the loss of Michael Jordan as our spokesman and the Asian financial crisis put a damper on gains that year. During 1999, the company made some changes in its products and deeply cut costs. These initiatives, in addition to the stabilization in the Asian financial picture, will combine to fuel the recovery that Nike expects in the near future. Nike's recent alliance with Fogdog Sports, an Internet sporting goods retailer, and our presence in the 2000 Sydney Olympic games will also aid in sales growth. Exhibit 5 * Nike, Inc. 1999 Nike Annual Report As a result of reducing our marketing budget by $100 million and eliminating 7% of our employees, Nike’s net income has increased for fiscal year 1999. In fiscal year 1998, the company incurred a one-time restructuring charge to better align our overall cost structure and planned revenue levels. Overall, Nike is recovering from a large decline in 1997’s numbers. As noted above, the labor controversy has been the biggest factor in the changes shown. Competitors can exploit our financial weakness by emphasizing their own individual strengths and attempting to gain greater shares in the market while we are revamping processes from within. This could be a key time during which other companies in sound financial condition, such as Adidas, could utilize their resources in an attempt to overshadow our existing and new product lines. INDUSTRY ANALYSIS Opportunities The athletic footwear and apparel industries will benefit from the currently strong economic backdrop in the United States. Spending is high and is expected to result in sales growth industry-wide. Athletic shoes and apparel have become a staple in wardrobes worldwide. This is due to both the increasing numbers of people exercising and the trend towards casual apparel. Competition is fierce at all levels in within the industry, especially among the leaders. This creates a sense of security for the companies that have been able to create a niche. Cost cutting due to restructuring of operations will give many companies the chance to price products more competitively. One area in the industry that is ever changing is research and development. The strong departments will surely capitalize on the trends of tomorrow if their efforts are successful. Increasing financial recovery in overseas markets proves to be an area of expansion for the athletic footwear and apparel industry. E-tailing, or customer-designed internet merchandise, is threatening the traditional distribution channels, thus eliminating the "middle-man" distributors and allowing for increasing profitability. Threats The industry has reached a level of maturity. While style and technology in athletic apparel and footwear has reached a leveling-off point, the important aspect now is for companies to differentiate their lines. Inflation is looming over the U.S. economy, which may spark a cutback in consumer spending. Consumers are becoming savvier and may lean towards discounted items. In terms of market saturation, many of the key manufacturers in this industry have been around for many years. Consumers may be scanning the market for new and different footwear and apparel products. TOP COMPETITOR ANALYSIS Distinctive Competency - Marketing (Consumer Loyalty) Despite the tough times Reebok has recently come upon, reasons for optimism remain. Reebok has managed to hold the loyalty of a large portion of the industry’s female consumers market. While Reebok’s spending on advertising has fluctuated, individual product designs have come and gone, female consumers have, as a group, remained loyal to Reebok and their products. Can Reebok use this distinctive competency to inflict damage on Nike? Yes, Reebok can use their distinctive competency to wound our company. If Reebok can expand their appeal to incorporate female consumers who are not currently Reebok customers, Reebok could expand their market share and take customers away from Nike products. Can Nike protect itself against this threat? Yes, we can protect our market share among female consumers within the industry by targeting some of our promotions to female consumers. Nike’s sponsorship of the 1999 Women’s World Cup Soccer Tournament was a great example of how Nike is appealing to female athletes. Competitor’s Key Weakness – Marketing – (Advertising/Promotion) The leading cause of Reebok’s recent tumbles stemmed from problems relating to poor marketing. Reebok’s shortcoming in the area of marketing is their key weakness. While other athletic shoe companies bombard the airwaves with commercials pushing their product lines, Reebok remains out of sight and out of mind. While Reebok’s competitors are known by familiar slogans like Nike's "Just Do It," Reebok’s, "Are You Feeling It," does not equate to their brand name in the eyes of most consumers. Can Reebok’s key weakness damage their competitive position? Yes, Reebok’s chances of growing their market share are slim as long as their advertising endeavors remain to be so unsuccessful. For Reebok to rebound from their current economic woes, they will have to improve the quality of their overall marketing operations. Can Nike take advantage of our competitor’s key weakness? Yes, Nike can take advantage of Reebok’s marketing woes by doing one of the things we do best: marketing. Continuing our successful marketing programs should allow Nike to court the customers Reebok fails to draw in with their weak marketing initiatives. OTHER EXTERNAL FORCES Demographics Opportunity Nike's once loyal market is currently aging. This means that our customers are not as athletic as they may have been in the past. However, this poses as an opportunity for Nike because they have the ability to influence the next generation of Nike customers. The older generation of Nike brand purchasers have the power to influence their children - part of the next generation of Nike loyalists. In addition, by marketing different types of shoes to this market, these existing customers will continue to be loyal to Nike. Threat The phenomenon of the aging of our most loyal market segment questions whether there is a threat that the new generation will not be exclusively loyal to Nike. In the current market there are a number of other competitors that are not mainly athletically oriented. Examples include such manufacturer-retailers as The Gap and Old Navy. Their clothing and shoes are competing with Nike's. In addition, Nike is not keeping up with the latest trends and styles like some of its competitors have been. For that reason, the newer generation is attracted by Adidas and Tommy Hilfiger. Pressure groups Opportunity An opportunity produced by pressure groups is the ability to react in a positive manner to concerns of the public as well as customers. Consumer watch groups are paying especially close attention to Nike's use of sweatshops and child labor to produce our products. Nike's opportunity lies in being able to show the consumer force that we are indeed taking steps to reduce and eventually eliminate sweatshops and child labor through new policies and strict implementation procedures. Also, by responding to such consumer activism, we are portraying a positive image in that we are promoting ethics even while we are trying to be efficient and economical. Threat In the same manner, not responding to these consumer activist groups poses a threat to Nike. The negative publicity that Nike has received thus far has lowered its image to that of being an ethical company. Such publicity has the potential to ruin a company permanently. By disregarding the voice of concerned citizens, we are disregarding our customers, one of our most important stakeholders. KEY OPPORTUNITY The key opportunity for Nike, Inc. currently is the booming economy of the United States. Currently the company has the ability and the resources to exploit this opportunity. Nike has capitalized on the recent economic boom with higher sales and income. However, we are not using our resources to the fullest degree. There are currently many areas in which Nike is not paying attention. We have not catered to a large portion of the new generation that demand the latest trends and styles. Also, Nike must take into account the changing demographics in this country. There is a much higher proportion of Hispanics, Asians, and African Americans than there was before. These groups have somewhat different tastes that Nike should be able to satisfy. To exploit this opportunity, Nike needs to focus on who the next generation of loyal customers will be and cater to their needs. In addition, the world economy is recovering currently, which allows Nike to make an impression in foreign markets as well. Nike is strong in many foreign countries, but we need to focus on the younger market of consumers. Nike has been doing a great deal of research and development, but if we want to keep the lead in market share, we must look at trends while maintaining our high standards of quality. KEY THREAT The key threat for Nike, Inc. is market saturation. The problem is that the athletic shoe market is already full of different brands and companies. Now, there is very little room for new companies. There is also very little room for new product innovation and growth of market share for companies like Nike, Inc. Since Nike is currently holding the lead in the market as far as market share, there is little room for them to expand. In fact, we must hold onto our market share because if anything it is ours to lose. Nike, Inc. is now competing with other athletic companies as well as companies that just sell clothing or other types of shoes. If all of these other companies merely gain a small percentage of the market, Nike will be one of the main companies to start losing market share. In response to this threat, we would focus on keeping our market share and making sure that competitors like Old Nay do not steal away our market share. We will do this by focusing our efforts on a broader market. This would include the younger generation that is interested in sports as well as extreme sports. We need to make sure that we not only stay abreast of the athletic shoes market but also are competitive in the athletic apparel market. MAJOR AND SUBORDINATE PROBLEMS Major Problem: Finance Symptom: Declining stock market price Causes: 1. 2. 3. 4. Declines in net income of $344M from 1997 to 1999. Declines in sales revenues of $410M from 1997 to 199912. Recent declines in market share in the United States. Operating in a mature market with minimal opportunity for growth. Subordinate Problem: Strategy Formulation, Competitive Strategies Symptom: Loss in market share for shoes and apparel to non-traditional athletic companies (e.g. Old Navy). Causes: 1. Poor management foresight in predicting consumer and fashion trends moving away from athletic shoes. 2. Cyclicality in footwear and apparel industries. 3. Nike’s product offerings are limited to athletic footwear and apparel. Subordinate Problem: Marketing Symptom: Drop in sales revenues in 1999 from 1998. Causes: 1. An over reliance on Michael Jordan as a central marketing figure, his departure caused a decline in sales. 2. Recent marketing campaigns are vague, focusing on relating Nike to a non-related item. Poor reception of these ads by consumers. Subordinate Problem: Public Affairs Symptom: Public outrage over manufacturing and labor practices. Causes: 1. Underage employment in foreign operations discovered by consumer watch groups. 2. Poor work environments in foreign operations reported in the national media. 3. Foreign wages paid are considered unjust when compared to U.S. wages. Why Finance? We choose finance as our major problem because continuing success for Nike is based on our ability to generate future cash flows by producing higher revenues and net income. Future positive cash flows are required to invest in research & development, marketing campaigns, and capital improvements required by our production activities. This choice is also consistent with finance being identified as our company’s key weakness (see page 23). Additionally, financial performance effects the public perception of Nike in the marketplace. For these reasons, we chose finance as our major problem. STRATEGIC MATCH Leverage Strength: Opportunity: ➝ Effective Marketing ➝ Recovering International Economies Constraint Weakness: Opportunity: ➝ Declining Profitability ➝ Robust Economy Maintenance Strength: Threat: ➝ Largest Market Share ➝ Market Saturation Vulnerability Weakness: Threat: ➝ Poor Competitive Strategy ➝ Changing Demographics PRIMARY STRATEGIC MATCH POSITION Business Strength/Competitive Position Matrix Exhibit 6 Success Factors 1. Market Share Breadth of Product Line Against Adidas Against Reebok Weight Rating** Score Rating** Score .07 5 .35 4 .28 .10 5 .50 3 .30 Sales Distribution Effectiveness .06 4 .24 3 .18 Price Competitiveness .10 3 .30 2 .20 Advertising Effectiveness .14 5 .70 3 .42 Facilities location and newness X* X X X X Production Capacity .04 5 .20 4 .16 Relative Product Quality .10 4 .40 3 .30 R & D position .18 4 .72 3 .54 Caliber of top management .03 5 .15 4 .12 Customer Service X* X X X X Experience Curve .05 5 .25 4 .20 Corporate Culture .05 5 .25 3 .15 Profitability Ratios .08 5 .40 4 .32 TOTAL 1.00 4.46 3.17 * X means that the criterion is not applicable ** 1 means that the firm’s competitive position is very weak 5 means that the firm’s competitive position is very strong Exhibit 7 Industry Attractiveness Matrix Evaluation Criteria Weight Ranking Weighted Score .08 2 .16 Size .06 4 .24 Profitability .06 2 .12 Cyclicality .03 3 .09 Seasonality .03 3 .09 1. Industry Growth Entry/exit barriers .01 2 .02 Customers .05 4 .20 Competitors .08 2 .16 Suppliers .06 3 .18 Government Regulations .02 2 .04 Labor unions .02 4 .08 Demographics .12 3 .36 Culture .10 2 .20 Economy .12 5 .60 Politics .02 4 .08 Technology .10 3 .30 Pressure groups .04 2 .08 TOTAL 1.00 3.00 * X means that the evaluation criterion does not apply to the particular industry ** 1 means that the evaluation criterion (or the industry condition) is very unattractive 5 means that the evaluation criterion is very attractive Primary Strategic Match Position Average Business Strength/Competitive Position Index = 3.82 Industry Attractiveness Index = 3.00 Exhibit 8 Business Strength/Competitive Position Low High Average Industry Attractiveness High Leverage Constraint Average Maintenance Low Vulnerability THE STRATEGIC PLAN Mission Statement Our mission at Nike is to be a company that surpasses all others in the athletic industry. We will maintain our position by providing quality footwear, apparel and equipment to institutions and individual consumers of all ages and lifestyles. We pledge to make our products easy available worldwide through the use of retail outlets, mail order and our company web site. Nike’s management believes that our success lies in the hands of our teammates, customers, shareholders and the communities in which we operate. We vow to keep this in mind with the execution of every decision within our company. Values Statement Nike will focus its commitment to all stakeholders by continuing to make strides towards being a company that sets the precedents in social responsibility. Nike is continuously making efforts to ensure that all employees and members of its surrounding communities are treated in a manner that is inline with our mission. Nike has made many alliances with human rights organizations in an attempt to ensure labor rights for employees of the industry overseas. We are committed to treating our employees with the utmost respect, which is reflected in our compensation and human resource policies. We are also committed to making sound decisions in regards to our environment, resources, and the fight against pollution. Vision Statement At Nike, our vision is to remain the leader in our industry. We will continue to produce the quality products that we have provided in the past. Most importantly, we will continue to meet the ever-changing needs of our customers, through product innovation. Alternative Strategic Slogan Nike…as always, a step ahead of the rest! Alternative Marketing Slogans Nike, try to catch us. (Lisa) Give yourself an edge. (Brian) For the top athlete in all of us. (Kim) Finish First. (Sheetal) ***THE WINNER…Second Place is for Losers (Dan) Long-Term Corporate Objectives The following are Nike Inc.'s 5-Year long-term corporate objectives: Continue our improvement in stockholders' return on equity to achieve a 20.0% return in 2004. This would be an increase of almost 6.5% from 1999. Increase earnings per share to $2.70 per diluted share by 2004 in an overall effort to bolster the long-term resilience of our stock's value. This would surpass our 1997 record high. Short-Term Corporate Objectives The following are Nike Inc.'s short-term corporate objectives for fiscal year 2000: Increase net income to $550 million by the end of fiscal year 2000 in order to reach our long-term goals of improved return on equity and higher EPS. This 22% increase from 1999 is realistic in light of combined 1st & 2nd Quarter income already 32% higher compared to the same time last year. Recover the market price of our stock from its 52-week low of $26.50 per share on February 8, 2000, to a value that approximates its 52-week average of $50 per share. Grand Strategy Nike Inc. can utilize the complete structured approach to select a grand strategy in carrying out the above corporate objectives. The table below concludes that focusing on product development will allow Nike to continue to build upon our founding tenant that has secured us a position that borders on leverage and maintenance within the athletic footwear, apparel, and accessories markets. Because Nike has such a strong history of effective marketing in key global regions, concentration is an alternate strategy. Market development is a third strategy for consideration due to Nike's ability to geographically expand our product offerings. The three strategies are very closely linked. To determine which would prevail as our overriding strategic position, four evaluation criteria were weighted according to each strategy: distinctive competency, culture, timing, and demographics. With a total weighted score of 4.40 product development surpasses second place, concentration, and third place, market development. Exhibit 9 Evaluating Leverage/Maintenance Strategies -- Structured Approach Concentration Product Development Market Development Weight* Rating** Weighted Score*** 1. Distinctive Competency .35 4 1.40 5 1.75 3 1.05 2. Culture .25 4 1.00 5 1.25 4 1.00 3. Timing .20 4 .80 3 .60 4 .80 4. Demographics .20 4 .80 4 .80 3 .60 Total 1.00 Evaluation Criteria 4.00 Rating** Weighted Score*** Rating** Weighted Score*** 4.40 3.45 * represents the value of the criteria to Nike ** effectiveness of strategic option in terms of its ability to satisfy the criteria: 1 = undesirable 5 = desirable *** (weight) x (criteria) The core of our business is our products. Producing merchandise that is high in quality, technologically advanced, and fashionable will allow us to achieve our corporate objectives of profitability and shareholder value. Utilizing this strategy will also allow us to capitalize on our key opportunity. The global economy is becoming so strong that by improving our products in order to extend their life cycle we will be making a long-term investment in this financial boom. Our products will be able to better withstand the risk of passing fads. Incorporating fashion into our products is one way to achieve this strategy. The two alternate marketing strategies will be just as necessary in order to incorporate our products into the shopping habits of consumers. Competitive Strategy In the past, our company has utilized product differentiation as our competitive strategy. As our reputation dictates, we will continue to place our emphasis in this area. Nike has built its business on providing products that rise above all others; it has made us the success that we are today. Nike is known for its technologically advanced products. We are the leaders in this area, which allows our products to stand out from the rest. Our focus also allows us to maintain a somewhat narrow niche that enables us to effectively capture the needs and wants of our consumers. Nike will also focus on making a strong effort in price leadership. Our products in the past have been concentrated in the higher end of the pricing category. We will now make an entrance into lower price categories with our quality products. This will enable us to capture an even greater hold on market share. Operational (Functional) Strategies Marketing Objectives Long-Term: Increase our market share in the Asia Pacific region from 26% to 30% by 2004. Short-Term: Increase our market share in the Asia Pacific region from 26% to 27% by fiscal year end 2000. Exhibit 10 Short-Term Strategy Start Date Market Research 1. Hire a market research firm familiar with Asia, specifically the booming market of Japan, to study the buying habits of Asian consumers. Determine what factors motivate their athletic footwear and apparel purchases. 2. Conduct focus groups in Asia to get feedback on our existing products, as well as our prototypes. Pricing Completion Date* Budget 5/1 $400,000 5/1 $80,000 3/1 3/1 Savings 1. Determine price points for our Asian product offerings that are properly adjusted for regional buying power, competition, and currency valuation. 4/1 3/1 Advertising and Promotion 1. Sponsor regional sporting events for professional, amateur, and collegiate teams. Include sponsorship of the 2002 World Cup in Korea and Japan. 2. Run advertisements in the most popular forms of regional media: television, newspaper, magazines, billboards, and/or radio. 3. Offer rebates and discounts for certain late-model shoes to encourage sales and inventory turnover. 4. Conduct fashion shows at top retail venues to display our latest merchandise offerings to consumers and the media. 5/31 3/1 $5,000,000 5/31 3/1 $10,000,000 5/31 3/1 $1,000,000 5/1 3/1 Total $100,000 3 months $16,580,000 * completion date based on a 5/31 fiscal year end. Production Objectives Long-Term: Decrease our cost of sales from 62.59% of sales to 59% of sales by fiscal year end 2004. Short-Term: Decrease our cost of sales from 62.59% to 62% in fiscal year 2000. Exhibit 11 Short-Term Strategy Start Date Location, Newness, and Layout of Facilities 1. Hire independent industrial engineers and analysts to work with manufacturing facilities in order to maximize efficiency of operations: 3/1 Completion Date* Budget Savings 5/1 $10,000,000 $30,000,000 shop layout, processes, etc. Inventory 1. Reduce inventory at all levels of production: raw materials, work-inprocess, and finished goods. 2. Work with 3rd party shipping agents to manage the flow of orders from factories to distribution centers. 3. Work with suppliers to implement the next generation of electronic data interchange (EDI) technology in an attempt to achieve just-in-time inventory. 5/31 $40,000,000 5/31 $1,000,000 5/31 $20,000,000 3/1 3/1 3/1 $10,000,000 Total 3 months $20,000,000 $91,000,000 * completion date based on a 5/31 fiscal year end. Research & Development Objectives Long-Term: Maintain a range of R&D expenditures that does not fluctuate more than 1.5% or less than .75% of projected sales in the next 5 years. Short-Term: Increase spending on R&D to 1.2% of projected revenues in fiscal year 2000 to achieve increased market share. Exhibit 12 Short-Term Strategy Focus Start Date Completion Date* 3/1 5/31 3/1 4/1 Budget 1. Shift funding to applied research in "up-and-coming" sports. Experiment with cutting-edge fashion. Budget 1. Infuse new funding, in addition to shifting current budgetary allocations, for researching sports that could be popular in the future. Total $15,000,000 3 months $15,000,000 Savings * completion date based on a 5/31 fiscal year end. Human Resource Objectives Long-Term: Increase availability of educational assistance programs for world-wide manufacturing employees from 50% of factories to 100% by 2004. Short-Term: Increase availability of educational assistance programs for world-wide manufacturing employees from 50% of factories to 70% by 2000. Exhibit 13 Short-Term Strategy Start Date Recruitment and Selection 1. Hire factory workers who express an interest in educational programs. These employees would achieve the maximum benefit from educational assistance programs by being more loyal and productive. Completion Date* Budget 5/31 3/1 Training and Development 1. Offer general education classes for factory workers who want to learn how to read, write, or fill any gaps in their childhood education. 2. Conduct seminars and workshops for supervisors in factories so that they may improve their production and management skills. 5/31 3/1 5/31 Compensation 1. Increase salaries of factory workers who are promoted as a result of $5,000,000 3/1 $3,000,000 Savings completing our educational assistance programs. 5/31 3/1 Total $5,000,000 3 months $13,000,000 * completion date based on a 5/31 fiscal year end. Finance Objectives Long-Term: Increase net income 70% to $767 million by fiscal year end 2004. Short-Term: Increase net income 22% to $550 million in fiscal year 2000. Exhibit 14 Short-Term Strategy Start Date Management of Accounts Receivable 1. Implement stricter credit terms with retailers to minimize bad debt expense. 2. Hire 10 additional employees in the corporate Accounts Receivable Department to maintain and collect aging accounts. 3/1 Budget $20,000,000 4/1 $25,000,000 $400,000 5/31 1. Sell non-productive equipment or buildings to reduce depreciation and maintenance expenses. Total * completion date based on a 5/31 fiscal year end. Savings 5/31 3/1 Management of Total Assets CONCLUSION Completion Date* 3/1 $50,000,000 $300,000 3 months $700,000 $95,000,000 Nike, Inc. is a company rooted in competition. From equipping athletes with the finest sports equipment in the world to continuously improving our own financial performance, Nike dominates its competitors. Phil Knight and Bill Bowerman probably could not have imagined in 1962 to what degree their $500 investments would yield in 2000. They did know that product quality and innovation would help athletes to achieve greater goals. Nike still operates on this philosophy today. It is one that has helped athletes and stakeholders alike to realize athletic and financial greatness. Despite a changing marketplace for athletic footwear, we will continue to expand our product lines and marketing reach to become a more powerful global brand.