Nike, The Innovation Machine

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Helixa 16, rue Brey -‐ 75017 Paris Crea7ve Commons License August 2012

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Why Nike?

§  Nike is the global largest athletic brand retailer The company has delivered a +19% CAGR in revenues over the last 33 years…from 1978 to 2011; to reach $21b in 2012

§  Nike has developed a leadership strategy outperforming its competitors both in

footwear and apparel “At Nike, we are leaders. When we fail is when we are followers.” Tinker Hatfield, VP of Innovation Nike has maintained a clear leadership position since the 1980s outrivaling top sportswear companies and fashion leaders

§  Nike is consistently reinventing the way of retailing and branding thanks to innovation

and resilience “Sports created Nike, but design and innovation made it grow.” Mark Parker, CEO Nike focuses on connecting with the consumer emotions and developing ways to turn transactional relationships into experiences: both online and o!line, locally and globally. To achieve this ambition, Nike rests on a deep innovation pipeline

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INTRO: Nike at a glance 1

Nike, a top brand with outstanding results 2

Strengthening its leadership position consistently 3

… by being pioneer, innovative and resilient 4

Nike is facing multiple challenges 5

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Nike Inc.’s History Timeline

Bill Bowerman and his University of Oregon runner Phil Knight form Blue Ribbon Sports (BRS) to distribute athletic shoes.

1962 Knight approaches Je! Johnson to sell shoes for BRS.

Johnson starts selling T-shirts as well 1965

Steve Prefontaine becomes Nike’s first endorser 1973

BRS launches its own Nike shoe under the famous “Swoosh” giving birth to Nike Brand 1971

Nike signs basketball superstar Michael Jordan 1984

Net Sales top $21 billion Global expansion, including a strong growth in China, 2012

Knight and Johnson open the first BRS retail store in Santa Monica, California. 1966

BRS o!icially changes its name to Nike and in 1980, Nike takes over from Adidas, capturing more than 50% of US

market share 1979

Nike sales top $3 billion 1991 Nike hit by allegations of sweatshop labour

Late 1990

Niketown: the 1st home to a new

retail-as-theatre experience, 1990

Nike signs Brazilian football superstar Ronaldinho 2006

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Nike Inc. Key Figures, The largest apparel & footwear company in the world

HEADQUARTERS

2011 KEY FIGURES

GLOBAL PRESENCE

Beaverton, Oregon (The United States)

§  Net sales: $20,9 bn §  Operating profit: $2,8 bn

(13% of net sales)

§  Net profit: $2,1 bn (10% of net sales)

§  Employees: 38 000

§  The U.S: 36% of net revenues §  Europe: 23%

§  Asia Pacific: 14% §  Others: 27%

Sources: Nike Annual report / 2011 figures

Nike, Inc. (Nike), incorporated in 1968, designs, develops and markets athletic footwear, apparel, equipment and accessories primarily under the Nike brand

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The Acquisition Timeline: Nike’s wholly-owned A!iliates Brands

1985 2013

2004 Acquires Starter for $43 million

1994 Acquires Canstar (Bauer Parent) for $400 million

2003 Acquires Converse, the classic and retro-style shoe brand (founded in 1908) for $305 million with sales growing 20% per year from $200 million to $1 billion in FY 2011 under Nike’s ownership to date

1998 Nike Golf established

1988 Acquires Cole Haan, a NYC-based luxury shoes, handbags, accessories & coats brand, for $80 million

2008 Sells Starter for $60 million

2002 Acquires Hurley devoted to action sports and youth lifestyle footwear, apparel and accessories

2007 Acquires Umbro for $630 million, a Manchester-based soccer brand

2008 Sells Bauer Hockey for $200 million

2013 Nike to sell Umbro and Cole Haan to focus on its core brands

Sources: Je!eries / 2011 figures

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Nike Brand is the strongest brand of Nike Inc. brand portfolio

11 493 M$

5475 M$

1013 M$

2881 M$

Footwear (55%)

Apparel (26%)

Equipment (5%)

Others

$20.9 B 2011 SALES

+19% CAGR (1978-2011)

756 STORES

§  $18.0 b Nike’s sales

§  86% of Nike Inc sales

§  $2.9 b A!iliates’ sales

§  14% of Nike Inc sales

§  $1.1 b Converse’s sales

NIKE BRAND

Sources: Nike Annual report / 2011 figures

$343M Web Sales (2%)

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Nike brand’s global expansion: China & Emerging markets are the two fastest growing geographic segment

Roughly 42% of Nike Brand’s sales is coming from the U.S. and 27% from Europe. Growth should be more heavily weighted to developing regions, with particular strength coming

from Greater China and emerging markets

US North America: 42%

of Nike sales (+13% vs.2010)

Europe Western Europe: 21%

of Nike sales (-2% vs.2010)

Central & Eastern: 6% of Nike sales

(+4% vs.2010)

Asia Greater China: 11%

of Nike sales (+18% vs.2010)

Japan: 4% of Nike sales

(-13% vs.2010)

Others Emerging Markets:

15% of Nike sales (+24% vs.2010)

Sources: Nike’s Annual Report

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Nike Inc.’s exceptional growth in 33 years

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Revenues (USD in billion)

Compound Annual Growth Rate

Net income (USD in billion)

CAGR Revenue 78-11: +19%

CAGR Revenue: 1978-2011: 19% 1990-2000: 15% 1978-2002: 23% 2002-2011: 9% 2007-2011: 6%

Nike, Inc. (Nike) has grown at a rate of 19% year-to-year over the past 33 years despite the strong impact of Nike’s sweatshops controversy

and the financial crises. Nike’s net income represents 10% of net sales in 2011

CRISES

CHILD LABOR & SWEATSHOP

BOYCOTT

2,1

0,3 0,7

Sources: Nike’s Annual Report – The Promise and Perils of Globalization: the case of Nike by Locke

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In the late 1990s, Nike already dominated its competitors…

Since displacing Adidas in the early 1980s and Reebok in the early 1990s, Nike has become the largest and most important athletic shoe brand in the world.

A clear soaring of Nike since 1994

Sources: HBS Case #9-299-084 "Nike, Inc.: Entering the Millennium, March 31,1999 and Footwear News, December 27, 1999

23%

25% 24% 23%

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25%

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1991 1992 1993 1994 1995 1996 1997 1999

GLOBAL ATHLETIC FOOTWEAR MARKET SHARE from 1991 to 1999

BOYCOTT

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…And Today, Nike Inc. is still the No. 1 sportswear company

Sales $17.3 bn FY11 EBIT (% sales) FY11: 8%

Net income (% sales) FY11: 5%

Sales $20.9 bn FY11 EBIT (% sales) FY11: 13%

Net income (% sales) FY11: 10% Sales $3.8 bn FY11 EBIT (% sales) FY11: 11%

Net income (% sales) FY11: 10%

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NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM

2005 2006 2007 2008 2009 2010 2011

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Nike’s sales CAGR 06-11: +7%

Adidas’ sales CAGR 06-11: +5%

Puma’s sales CAGR 06-11: +2%

EBIT CAGR 06-11: +6%

Net income CAGR 06-11: -3%

EBIT CAGR 06-11: +2%

EBIT CAGR 06-11: -2%

Net income CAGR 06-11: +9%

Net income CAGR 06-11: +6%

* In 2006, Adidas acquired Reebok for $3.8 billion

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A Strong Marketing Spend: a distinct advantage in an industry that is heavily reliant on sports endorsements

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Under Amour

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ANNUAL DEMAND CREATION PEER COMPARISON ($ AND % OF SALES FY11)

Nike invests heavily in brand-building e!orts by spending $2.7B on demand creation

(marketing, sponsorship…) with help from its advertising partner, Wieden+Kennedy

Nike has entered into endor-sement agreements with some of the most famous athletes in the world, such as basketball icon Michael Jordan, golf legend Tiger Woods, Swiss tennis phe-nomenon Roger Federer, and Brazilian soccer super-star Ronaldinho, etc.

In FY11, Nike had $4.4 bn of endorsement obligations outstanding.

Sources: Company data and Morgan Stanley Research 2012

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Pioneer & Innovative

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An historic product Innovation pipeline…

The Wa!le trainer is introduced 1974

Nike introduces its first golf clubs 2002

Nike Free is launched 2005

Nike unveils its Shox technology 2000

Flyknit upper technology is introduced 2012

The first Air-Sole units are created (Nike Air cushioning) 1978

the Tailwind, the first running shoe with Nike Air 1979

Air Force 1, the first Nike basketball shoe to incorporate Nike Air cushioning 1982

The Air Trainer High shoe and the Air Max shoe 1987

Air Max 360 (new method of creating Air-Sole units) 2006

Nike+ is launched (currently 6 million members) 2006

Nike‘s Lunar foam is launched and Nike Flywire technology 2008

Pro Combat performance apparel is launched 2009

Nike‘s FuelBand is launched 2012

NIKE TAILWIND WAFFLE TRAINER

AIR MAX SHOE AIR FORCE 1

AIR TRAINER HIGH SHOE NIKE SHOX

NIKE FREE NIKE +

LUNAR FLYWIRE

PRO COMBAT FUELBAND FLYKNIT

Sources: Company reports and JMS Research – May 2012

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…With (R)evolutionary Platforms that keep product pipeline full

Nike Air Max 2006

Nike Free Launched: 2005

Nike Lunar 2008

Nike Flyknit 2012

Innovative sole featuring siping

(deep slices) that allow for a more natural movement that

resembles bare feet.

Air platform that features Max Air – a new design utilizing air

throughout the midsole

Ultra-lightweight composite foam – 30% reduced weight versus previous materials

Revolutionary upper construction made from a single

strand of yard (entire shoe weighs 5.6 oz)

Estimated: $500M Business Estimated: $750M - $1B Estimated: $1B Business Estimated opportunity: $1B+


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…Even in Apparel, Nike is taking performance to another level

Nike aims to serve athletes across apparel segments with compelling choices for competing (Elite), training (Everyday), and leisure (Lifestyle)

Lightweight, moisture wicking apparel and accessories

(tops, bottoms, hats)

Football-specific apparel featuring cooling, warmth, and/or built-in

protection technology

Nike Dri-FIT Launched: 1991

Nike Pro Combat 2009

Nike HyperElite 2012

Lightweight (shorts weigh only 5

ounces) and breathable basketball apparel made of recycled materials


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The first to use digital technology for products to elevate the brand

Nike is positioning as a vanguard for premium athletic/consumer products. The Brand tries to establish deeper connections with the consumer

Nike ID Launched: 2000

Allows customers to design

personalized and custom-built footwear, clothing, and gear

Nike + 2006

Sensor based technology and

integrated social “ecosystem” that allows for movement tracking

Nike FuelBrand 2012

3-axis gyroscopic wristband that

allows for real-time tracking of daily movement


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Focus: Nike, the pioneer of Mass Customization

Mi Adidas was launched in April 2000

Sources: The “mi adidas” Mass Customization Initiative by Pr. R.W. Seifert (IMD) 29.05.2006

Nike Inc. dedided to bring Mass Customization to the web in November 1999… Then accessed in select physical branches. Nike was the first to make substantial profits

employing mass customization

Nike ID (web first, then in store) NikeID co-creation platform brought in over $100 million in revenue for the fiscal year of 2009

Louis Vuitton’s Special Orders Department for unique cutomers

1859 Nov. 1999

SPECIAL ORDERS MASS CUSTOMIZATION

April 2000

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The co-creation of value through customers’ experiences §  Customers need no longer be mere passive recipients of value propositions o!ered by firms. They are

now informed, connected and networked… §  ...Leading firms are then responding by engaging their customers in the co-creation of value §  Co-creative interactions are an emerging strategy for value creation. By engaging with informed,

connected, and networked customers around the globe, the shoe company Nike has found a new source of value

Nike is Building a Co-creative Organization to Generate New Strategic Assets through Valuable Engagement Experiences

Joga.com was in e!ect a thematic community that enabled individuals to share personal and collective soccer experiences (videos downloaded over 32 million times). With over one million fans participating in this innovative brand building e!ort, Nike had a unique opportunity to learn directly from its customers NikeID provided software tools to co-design and customize the shoe. Nike can tap into the collective creativity of its customer base. NikeID co-creation platform brought in over $100 million in revenue for the fiscal year of 2009 The Nike+ co-creation platform capitalizes firstly on the connection between running and music. The combination of innovative, mobile technology, online communities (currently 6 million members) and athletic gear expands the field for co-creation

Nike’s Co-creation Examples

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A revolution in its relationship with customers (1/2)

« Nike is becoming a company that isn't just focused on products… …but is focused on products and services » Stefan OLANDER, Nike's VP of Digital Sport

PRODUCT SERVICES

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A revolution in its relationship with customers (2/2)

« Before the product was the end point of the consumer experience… …now it is the starting point » Stefan OLANDER, Nike's VP of Digital Sport

PRODUCT EXPERIENCES SERVICES

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Nike is always one step ahead, including on the Internet

Nike Launched: 1999

Nike.com NikeStore.com

NikeID.com

§  2011 Web Sales: $343M (2% of Nike brand’s net sales)

§ CAGR 2004-2011: +28%

§ Monthly Unique Visitors: 4,1M

§ Monthly Visits: 7,5M

§ Total SKUs on Web: 30 000

Foot Locker 2000

FootLocker / LadyFootLocker.com KidsFootLocker.com

Eastbay.com / Footaction.com ChampsSports.com / CCS.com

§  2011 Web Sales: $457M (8% of group’s net sales)

§ CAGR 2004-2011: +12%



§ Total SKUs on Web: 80 000

Adidas 2006

ShopAdidas.com Miadidas.com Reebok.com

Shop.adidasGolf.com

§  2011 Web Sales: $78M (1% of Adidas group’s net sales)

§ CAGR 2004-2011: +21%



§ Total SKUs on Web: 6 000 Sources: Internet Retailer – June 2012

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Among the first of the major sportswear brands to embrace Social Media

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9,3M fans

8,0M

7,4M

1,1M

0,6M

458 665 Followers

279 216

245 766

64 077

58 358

Sources: Facebook and Twitter data 06/2012

Nike uses social media with the most relevant ones in each country: Facebook and Twitter in the US, in China with Weibo, Ren Ren, QQ, and in Russia Vkontakte..which supports Nike’s

position as tech-led, early adopting and youthful

SOCIAL PRESENCE IN CHINA

SOCIAL PRESENCE IN RUSSIA

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Distribution channel: One of the first owned retail stores within Sport industry…

In FY15, Nike expects to exceed $5,5 billion in DTC sales, on 850 owned stores for the Nike brand across concepts and more than 300 a!iliate stores.

DTC= $3,2B in revenue in FY11 (in-line stores (+12%), factory stores (+15%) and e-commerce (+25%) Sources: Business week Nike: It's Not A Shoe, It's A Community – july 2006

U.S. stores non-U.S. Total Nike factory stores 150 243 393 Nike stores 16 50 66 NIKETOWNs 9 3 12

57% of total revenues

43%

OWNED RETAIL STORES §  1966: The first Blue Ribbon Sports retail store opened in California §  1990: The first Flagship NIKETOWN store opened in downtown Portland

Compared to §  1986: First Flagship Ralph Lauren shop in NYC §  1999: First Flagship Foot Locker store in NYC §  2001: First Adidas Originals store

BRANDED RETAIL COLLABORATIONS

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China : a first mover Represents 10% of Nike Inc’s Sales & 15% of Profits

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CHINA REVENUES ($ BILLION): NIKE & ADIDAS VS. CHINESE BRANDS

Sources: AlphaWise (July 2011), Morgan Stanley Research 2012 – Je!eries Estimates and company data

§  Nike is the market leader in China, home to 1.3 billion people, 300 million basketball fans

§  Having been in China since the 1980s, its first-mover advantage has allowed the company to dominate its competition, generating $2.3B in sales in FY11 (11% of Nike Inc’s revenue; +18% vs. 2010), vs $1.3B at adidas and less than $500M at Puma

§  Given its position and strength in sports relevant to the Chinese consumer (particularly golf and basketball), Nike will continue to capitalize on growth potential

§  Nike has Kobe Bryant, the most popular basketball player in China

Nike is far and away the largest athletic brand in the Chinese market.

Kobe endorsement Nike in QQ.com

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…and also Resilient Nike finally took the lead to become sustainable

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A Heavy Burden…

1970 §  Nike opened up its own shoe

factories in Maine and New Hampshire

§ At the same time, it also began to cultivate potential suppliers in Korea, Thailand, China and Taiwan.

Mid 1980s

§ Rising of US wages, closing of Nike US Factory and outsourcing manufacturing to Asia

§  1982: 86% of Nike’s athletic footwear came from Korea and Taiwan

§ Then, it opened up manufacturing plants in Indonesia, China and Vietnam

§ Already in the early 1980s, Nike had been criticized for sourcing its products in factories/countries where low wages, poor working conditions and human rights problems

1990s

§ A series of public relations nightmares, involving:

ü  Underpaid workers in Indonesia

ü  Child labor in Cambodia and Pakistan

ü  Poor working conditions in China and Vietnam

§ Anti-Nike campaign and the film of Michael Moore The Big One (1998) revealed the deplorable conditions of Nike’s suppliers

§ Nike described as “sweatshops”

Sources: Richard M. Locke (2001) The Promise and Perils of Globalization: The Case of Nike

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…Many Challenges to Face

NIKE

NGOs ATTACK

LEGISLATION PRESSURES

CONSUMER BOYCOTT

COMPANY IMAGE

COMPETITORS

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Nike’s Response… forced to be the first-mover

Mid 1980s

1990s

Late 1990s

BLIND SPOTS COMPLIANCE TRANSPARENCY

§  At first, Nike managers refused to accept any responsibility for the various labor and environmental/health problems found at their suppliers’ plants

§ According to Nike… Workers at these factories were not Nike employees, and thus Nike had no responsibility towards them

§  1992: Nike formulated a Code of conduct for its suppliers (minimalist and not fully enforced)

§  Introduction of the Safety, Health, Attitudes of management, People Investment and Environment program (SHAPE)

§ Nike has increased the minimum age of footwear factory workers to 18 and to 16 in apparel, equipment (1998)

§ New sta! and Training by creating several new departments: ü  Labor Practices (1996) ü  Nike Environmental Action

Team (1993)

§ Nike has increased monitoring of its suppliers : SHAPE inspection

§ Nike suppliers are regularly audited by external firms like Ernst and Young, PWC,…

§ Relations with international and Non-Profit Organizations ü  Involved in the UN Global

Impact ü  Founded Global Alliance for

Workers and Communities ü  Active in the Fair Labor

Association

§  « Transparency 101 » program

Sources: Richard M. Locke (2001) The Promise and Perils of Globalization: The Case of Nike

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...Reflected in Its o!ering: Nike sustainable innovations

Nike Trash Talk, a basketball shoe made from manufacturing waste

Sources: Nikeinc.com

Recycle shoes with Nike « Reuse a shoe »

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Some of its latest remarkable sustainable initiatives…

A strategic partnership with DyeCoo Textile Systems B.V., a Netherlands-based company that has developed and built the first commercially available waterless textile dyeing machines.

The 2012 National Team Kit Nike’s most environmentally-friendly Kits are made with made with at least 96% recycled polyester, each jersey is made using an average of 7 plastic bottles. Each short is made using an average of 6 recycled plastic bottles—adding up to 13 plastic bottles per kit

2012

F l y k n i t : a r e v o l u t i o n a r y u p p e r construction made from a single strand of yarn that is extremely lightweight Flyknit’s aim: - To cut labor costs and production time (less waste, reduced labor) To increasing profit margins and opportunities for personalization

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Integrating Sustainability into its Game Plan ...Nike rethinks its Value Chain

1. Using the fewest possible materials

2. Designed for easy disassembly

3. Allowing them to be recycled into new product or safely

returned to nature at the end of their life

Cradle-to-Cradle model Plan, Design, Make, Move, Sell, Use, Reuse

Sources: Nikeinc.com – Cradle-to-Cradle

SUSTAINABILITY PILLARS ü  Creating a portfolio of sustainable materials ü  Prototyping and scaling sustainable sourcing

and manufacturing models ü  Igniting and driving market transformation ü  Creating digital services revenue

NIKE INC. CURRENT VALUE CHAIN FINAL GOAL: FULLY CLOSED-LOOP

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In a constantly changing world, companies can no longer do business in the same way as in the past. Indeed, companies now have to steer a course through a world where everything is changing at a high speed . It is forcing them to rethink their strategic choices along completely di!erent lines. Those firms able to rapidly identify disruptive innovation and take up adequate strategies can gain the upper hand on competitors and become the next winners.

To build such strategies, Helixa has devised a series of new tools and proceeds by combining creativity with analysis to imagine for its clients what has as yet never seen light of day. With its wealth of experience in such sectors as luxury goods, media, retailing, chemistry, energy and internet and given its design thinking inspiration, Helixa can o!er highly e!ective tailor-made solutions. Helixa’s team mixes engineers, strategists and designers.

Strategic Innovation to reinvent businesses

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