Competitive/Industry Analysis

Prof.C.S.Balasubramaniam

External Analysis - Industry/Competition – Porters

5 forcesCurrent Rivalry Opportunities/ThreatsPotential/Recent Entrant Opportunities/ThreatsBargaining Power of Buyer

Opportunities/ThreatsBargaining Power of Supplier

Opportunities/ThreatsSubstitute/Alternative Product

Opportunities/Threats

Current Rivalry OpportunitiesAcquisitions – in 2007, Adidas, already Nike’s

largest competitor, purchased Reebok immediately increasing its market share 6%.

Marketing – Adidas has harnessed the Nike marketing engine. Notice the similarities.

http://www.youtube.com/watch?v=wW7expVd9owhttp://www.youtube.com/watch?v=RnPV8F0GkigIn the first two quarters of 2010 alone, Adidas

has seen a jump in sales of 26% from same period one year ago.

Current Rivalry Threats -Numerous equally balanced competitor

Nike has seen its market share decrease by 15% since 1998.

Adidas has taken a dominant lead in the soccer market and is poised to expand this lead with sponsorship of the world cup.

Current Rivalry Threats -High Strategic Stakes/High Exit Barriers –

The footwear industry is similar to the automobile industry in the fact that the established firms have the upper hand. It is a red ocean, and these firms spend millions in marketing effortsFixed capital investment is too high for a

competitor to exit, even in the case of K-Swiss who’s stock has devalued some 66% since 2006.

Current Rivalry Threats -Diverse Competition

Each brand listed as main competition has a niche market New Balance – Superior walking shoes K-Swiss – Specialize in the tennis shoe market Adidas Group(Reebok + Adidas) – Worlds best

technology in soccer cleats

Potential/Recent Entrant Opportunities/ThreatsRecent entrant Under Armour Inc. has seen

its stock increase 30% since announcement of its new shoe line which released in first quarter 2009.Under Armour Inc. footwear department

specializes in football and baseball, two of Nike’s bigger revenue areas.

Under Armour continues to expand its territory, becoming a prominent sponsor of universities nationwide.

Bargaining Power of Buyers/SuppliersA benefit of the industry is the power lies

with the suppliers. Demand for shoes stays consistent since the stone ages, cavemen even needed shoes. A factor helping the suppliers is the profit margins realized from the sale of a pair of shoes. Average cost of raw materials to make a pair of shoes is around $10

Substitute/Alternative ThreatsSubstitutes for athletic shoes are shoes in

another category. Recently, TOMS shoes have become a popular commodity. Although this is likely not a direct threat, the loss of disposable income which could have been spent on athletic shoes is a factor.

Economic Opportunities/ThreatsOpportunity - The economy has been in recession

since late 2008, but analysist predict the recession will officially be declared over within the next year.The world cup also serves as an opportunity for

immediate increases in revenue, as overall expenditures are expected to be $3.4 billion dollars.

Threats – The recession of late means consumers have less disposable income. In turn, this effects the consumer by placing more emphasis on physiological, or basic needs, as opposed to the need for vanity products. Translated – Wal-mart shoes replace Nike, Adidas, etc.

Demographic Threats/OpportunitiesTargeted market segments for firms

specializing in athletic footwear range from pre-teens all the way to middle aged adults, with specific regards to the 14-20 range. Hispanic and Latino Americans accounted for almost half (1.4 million) of the national population growth of 2.9 million between July 1, 2005, and July 1, 2006. Several footwear organizations have seen this population growth as an opportunity and acted upon it creating specialized shoes for certain demographics.

Demographic Threats

College students, late twenties, and early thirties are a targeted demographic for athletic footwear industries. The looming debt crisis and the housing market crash have created overwhelming debt in recent years. Cost of tuition has tripled over the last 30 years even accounting for inflation. This will cause consumers to be more thrifty, buying the less expensive brand, or resorting to wearing really thick socks.

Socio cultural OpportunitiesVALS indicates four main types of consumers

Innovator – Consumers interested in the newest products which are cutting edge, who have the highest incomes. – trophy wives, retired businessmen

Achievers – Usually consistent of upper middle class social beings. Favor established brands and products. - neighborhood dads, soccer moms.

Strivers – These are the lower income segment susceptible to the influence of role models and celebrities alike. - lower class who want to “be like mike”

Experiencers – This is the largest target segment of the footwear industry. This group is characterized by casual athletes with ample energy and an inherent need to look and feel good through exercise

Socio cultural OpportunitiesHealth and fitness are no longer

considered a “Fad,” they are here to stay. The changing pattern of socially acceptable behaviors has tilted in the favor of the fitness industry over the years and those avid runners need specialized shoes.

Going Green – Several footwear organizations have seen the opportunity for CSR and in an attempt to gain better public relations have enacted recycling programs. Nike has recently released a shoe made from 100% recycled materials. Consumers want to see more responsibility like this and further green opportunities await.

Socio cultural ThreatsLabor regulations in the United States

are so fierce that it is no wonder why the Auto industry collapsed. The opposite is true abroad. There is almost no labor regulation, and child labor has run rampant. This poses a threat to the purchasing habits of moral individuals. The average pay in India, China, and Pakistan where the majority of Nike and Adidas are made is less in a week than what Americans make in a day.

Political/Legal OpportunitiesAmerican textile factories are almost a thing

of the past, but not yet. Textiles play a large fart in the shoemaking process. Politicians can only lobby so much before laws governing textiles abroad are wiped out. This poses an opportunity for shoemakers to forgo some profit in the case of PR and bring a factory home. The political support a firm stands to gain from a bold move would be applauded, however un-economic it may be.

Political/Legal ThreatsChild labor - With continuing trends leaning

towards fair treatment and human rights, it would not surpass logic to think that domestic regulation on foreign labor practices could be looming.

Patent – Acquiring design patents across industrialized nations can cost in excess of $100,000 for a patent in the 143 countries Nike does business in.

Technological Opportunities

New technologies allow for lighter weight materials which are more durable and easier to design with. If the rate of innovation continues in the shoe industry as it has, in the next fifteen years we will have shoes that weigh less than air.

Recent partnering of Nike and Apple have seen the creation of Nike + I-pod. This technology is currently in its infancy and is bound only to get better.

Technological ThreatsAn unfortunate truth in the footwear industry

is the fact that all of the main players are virtually neck and neck. Adidas is available in over 110 countries already and poised for additional growth with the internet lending a hand in sales.

The technology used in the shoemaking process is easily copied through reverse engineering. Nike released a 7oz soccer cleat in January only to have Adidas release a 5.8oz cleat 6 months later.

Internal AnalysisValue Chain Analysis-Systematic way of

examining all the organizations functional activities and how well they create customer value.

Organizational Capabilities Profile- An in-depth evaluation of an organizations abilities.

Internal Audit-Thorough assessment of an organizations internal areas.

Internal AuditResearch and DevelopmentHuman Resource ManagementProduction OperationsStrategic Management and Corporate

Culture

Management Roots and Corporate CultureNike Founded in 1968Formally Known as Blue Ribbon SportsNike “Swoosh” was created in 1971Nikes Rise to the top generated by marketing

expertiseCurrently Dominate in market share in the

global shoe market

Research and Development“The Oven”- is where Nike Golf designs, prototypes,

tests, and builds the golf clubs and balls that their PGA Tour players use, but also make the final versions that are sent out to be mass produced and sold to consumers

“The Kitchen”-Nike's 175-acre headquarters campus in Beaverton, Ore., the Kitchen is where Nike cooked up the shoes that made it the star of the $35 billion athletic footwear industry

Human Resource ManagementStarts with the rootsNike is peopleChanging the world one factory at a time

Production Operations strong team of machine operators, industrial maintenance technicians, quality assurance specialists and leadership

roles for each area. have engineering opportunities in the fields

of Quality Assurance, Manufacturing, Design, and Development

Organizational CapabilitiesResourcesFinancialHumanIntangiblePhysical

Three QuestionsCan it be used in a variety of ways?Does it contribute to superior customer

value?Is it difficult for competitors to imitate?

Primary Activities in the Value ChainInbound LogisticsOutbound LogisticsMarketing and SalesFirm Infrastructure

Inbound and Outbound Logistics

Marketing and SalesNike’s brand image is powerful2009 Sales (mil.) $19,176.1Approximatly 32% of market shareAdidas group made only 22%

InfrastructureNike's IT organization:Brand, Product, & Marketplace Solutions

Delivery & SupportRetail & eCommerce Solutions Delivery &

SupportBusiness Connectivity & Strategic PlanningEnterprise Architecture & ToolsFulfillment Solution Delivery & SupportIT Infrastructure Operations & Support

Financial RatiosCurrent RatioQuick RatioGross Profit

MarginOperating ExpenseAccounts

Receivable RatioNet Profit Margin

Ratio Cont.Asset TurnoverInventory TurnoverReturn on Assets Return on Equity Debt-to-Equity RatioWorking Capital Turnover

ConclusionP/E RatioP/B RatioFinal Recommendation