NIKE Apparel: An Analytical Investigation and Development of Plans

42 Pages·2012·1.15 MB·English

by  Jeremy Peacock

Core 11-130 Strategic Managemen t
Group Project

NIKE Apparel: An Analytical
Investigation and
Development of Plans

Megan Erspamer
Qassim Al Khamees
Togi Panjaitan
Jeremy Peacock

01 April 2011
i

Executive Summary

This report examines Nike’s business environment and identifies key
components and recommendations. Due to the vast size and nature of Nike this
analysis focuses on the apparel division.

Nike’s motto (“If you have a body, then you are an athlete”) combined with
other slogans (“Just do it”), identify its target market. To identify the key
issues, the important models analysed are the key success factors, driving
forces in the industry, human resources aspect and ultimately drilling down to
the SWOT analysis of the organisation.

In the conclusion of the report, it is strongly recommended that Nike focuses
on three main issues. These include:

1. Expanding more into the profitable Asia market
2. Implementing technology and stronger quality controls with the
aid of RFID and the Six Sigma quality control system
3. Maintaining the flagship of the industry by conducting more
research in the casual apparel industry

With the implementation of these three competitive strategies, this will allow
Nike to achieve and sustain their advantage in an extremely competitive
industry and environment.
Table of Contents

Executive Summary .......................................................................................................................... i
Who is the Customer? ...................................................................................................................... 2
Background Information ................................................................................................................. 2
Company’s Target Market .............................................................................................................. 2
Value Given to Customers .............................................................................................................. 2
Key Success Factors ......................................................................................................................... 3
Economies of Scale ........................................................................................................................ 3
Successful Human Resource Management ..................................................................................... 3
Advertising, Marketing and Branding Strategies ........................................................................... 4
Standard of Quality ......................................................................................................................... 4
Inventory Control ........................................................................................................................... 4
Driving Forces Identified from Macro-Environment Analysis .................................................... 5
Political Conditions ........................................................................................................................ 6
Economical Conditions ................................................................................................................... 6
Socio-Cultural Conditions .............................................................................................................. 6
Technological Conditions ............................................................................................................... 7
Environmental Conditions .............................................................................................................. 7
Legal/Governmental Conditions ..................................................................................................... 7
Porter’s Five Forces ......................................................................................................................... 8
Threat of New Entrants ................................................................................................................... 8
Threat of Substitutes ....................................................................................................................... 9
Bargaining Power of Buyers ........................................................................................................... 9
Bargaining Power of Suppliers ..................................................................................................... 10
Existing Rivalry ............................................................................................................................ 10
Analysis of Competitors ................................................................................................................. 11
Strategic Human Resource Management .................................................................................... 12
SWOT Analysis .............................................................................................................................. 14
What is the Issue? ........................................................................................................................... 19
Reliance on Footwear to Generate Revenue ................................................................................. 19
Weak in the Asia/Australasian Market ......................................................................................... 20
Implementation Items/Plans .......................................................................................................... 20
Weak in the Asia/Australasian Market ......................................................................................... 20
How Far Nike Can Stray from the Athletic Apparel into Casual Wear ....................................... 21
Changing Product Quality – Six Sigma and RFID ....................................................................... 21
Conclusion ....................................................................................................................................... 22
References ....................................................................................................................................... 23
Appendices ............................................................................................................................. A1-A15
2

Who is the Customer?

Background Information

Nike Incorporated is an apparel, footwear, equipment and accessories strategic business unit
which is seen as the world’s most dominant designer, marketer and distributor for a wide
range of sporting goods.1
Nike was originally founded in 1964 under the name Blue Ribbon Sports by both Phil Knight
and Bill Bowerman and became Nick Inc. in 1978. 2 Their headquarters are located in
Beaverton, Oregon.

Company’s Target Market

Nike operates in a Business to Consumer market with its focus on providing a product that is
high in value and appeals to the target market.
Nike’s main target market is active people age 16-35. However, Nike prides itself on their
own definition of an athlete, “[i]f you have a body, you are an athlete.”3 Therefore, everyone
is their target market.
Nike distributes directly to the end consumer through nike.com, Nike Town and Nike factory
outlets. They also channel their apparel through other retail outlets and online businesses,
such as Footlocker and Champs.

Value Given to Customers

The customer’s needs are:
 To look cool and “trendy”
 Being comfortable during their workout or social outing
 Adhere to the current fashion trends or styles
 Demonstrate the Nike logo which is seen as a prestigious fashion item

Fashion is dominant in today’s society and is always changing. This causes customer’s needs
and motives to fluctuate. This makes products in this industry have a short life cycle.

1 http://360.datamonitor.com.ezproxy.bond.edu.au/Product?pid=8E563969-FC1C-4D3A-8EEE-F9D79F81F0C3
2http://www.nikebiz.com/company_overview/
3 Ibid
3
Inventory
Key Success Factors Control

Economies

of Scale
Key success factors are
used in strategic
management to build
competitive strategies and
Standard
allow businesses to
of Quality Key
develop their core
Success
competencies.
Factors

Economies of Scale

Economies of scale are the
Successful
Advertising,
advantages of completing Human
Marketing
Resource
anything that helps reduce and
Manage-
Branding
cost.4 Business can ment
Strategies

generate economies of
scale by:5
 Spreading the administrative overheads over a bigger operation
 Using purchasing power to obtain better deals from suppliers
 Lower the costs in manufacturing
Nike has a strong economy of scale due to outsourcing all of its products, plus using
purchasing power to obtain better deals from suppliers.

Successful Human Resource Management

A successful human resource management (HRM) system can be an important strategic tool
and aid in creating an organisations competitive advantage.6 It can be used to improve
production efficiency, reduce costs and improve the value chain. Nike prides itself on having
a well developed HRM which has recently extended into its supplier factories to improve
working conditions and create a sustainable workforce.7

4 http://moneyterms.co.uk/economies-of-scale/
5 Ibid
6 Robbins, Bergman, Stagg and Coulter (2009), Management 5
7 http://www.nikebiz.com/crreport/content/workers-and-factories/3-9-1-our-approach.php?cat=hr
4

Advertising, Marketing and Branding Strategies

The apparel industry is very competitive, and hence it is vital to create strong marketing
campaigns/strategies and brand names. Advertising, marketing and branding is a key success
factor for any business, and if implemented well, can increase the potential earnings of a
company.
Due to its revenue and competitive size, Nike is able to lead the market place in
advertisement strategies as well as sustain a brand that is instantly recognisable.

Standard of Quality

Consumers are always in demand for a garment that is high in quality. Hence quality
measures such as ISO 9000 and Six Sigma standards should be of high importance to such
businesses.
Nike is highly concerned about its product quality and this is one of their core competencies.

Inventory Control

Inventory control is concerned with minimising the total cost of inventory so that extra costs
can be avoided.8 If not properly managed, inventory can result in a significant expense which
can affect profitability and the prospect of expansion.9
It is hard to justify whether Nike has a well implemented strategic inventory control due to
outsourcing all of its manufactures.

8 http://home.ubalt.edu/ntsbarsh/Business-stat/otherapplets/Inventory.htm
9 http://www.growingsmallbusiness.com/News/content_inventory.html
5

Driving Forces Identified from Macro-Environment Analysis

To identify the driving forces of an industry, a PESTEL/G analysis is used. This analysis
investigates the general environment in which businesses must consider as it provides a base
for corporate strategies. The analysis identifies such conditions as:

Economical Conditions
Political Conditions Socio-Cultural Conditions

 Household spending
 R e gulatory agencies  Consumer trends
 Economic forces
 Policies  Brand awareness

Technological Conditions
Legal/Governmental

Conditions
 RFID

 Atom isation of product line
Environmental Conditions  Trade policies
 Global law on copyright
 Emissions trading and infringement
“Green” businesses
6

Political Conditions

Political regulations facing the retail industry are becoming more complex and are beginning
to affect more business directly.10 For instance:
 Regulatory agencies:
 Environmental Protection Agency (EPA)
 Occupational Safety and Health Administration (OSHA)11
 Deregulation of trading hours in the United States, Europe and Pan Pacific region12

Economical Conditions

The economy plays a major role in determining the growth of retail. It is forecasted that the
retail sector will grow through to 2014 after a slump during the 2008 recession.13 For
example:
 No change in US interest rate of 0.25%14
 Growth in household spending picked up late last year, but remains constrained by
high unemployment, modest income growth, lower housing wealth, and tight credit15
 Unemployment in US dropped to 8.9%16
 Growing confidence in the effort to re-build a deflated economy.

Socio-Cultural Conditions

Consumers are:
 Increasingly health conscious
 Focused on dieting
 Focused on exercising
 In high demand for fitness products
 Looking for “green” companies
 Desiring to be affiliated with professional athletes
 Brand aware and place value on status symbols.

10 http://www.referenceforbusiness.com/management/Log-Mar/Macroenvironmental-Forces.html
11 Ibid
12 http://360.datamonitor.com.ezproxy.bond.edu.au/Product?pid=9A760E70-F6DF-4CEE-B5CF-333D5402D553
13 Ibid
14 Ibid
15 http://www.referenceforbusiness.com/management/Log-Mar/Macroenvironmental-Forces.html
16 http://www.businessweek.com/news/2011-03-04/u-s-economy-unemployment-rate-unexpectedly-
declines.html
7

Technological Conditions

Technology is always changing. For example:
 Adoption of RFID (Radio-frequency Identification) has begun to enter the mainstream
of the retail industry’s production (see Appendix A).17 RFID application to a business
organisation has a significant impact on the entire supply chain, from suppliers to retailers.18
 Expansion of e-business19
 Customisation of products20 (see Appendix B)
 Potential leading industry concept is use of robots in the production line.
 For example the shoe company Crocs21

Environmental Conditions

The environmental factors are becoming issues that are affecting many businesses in the retail
industry. For instance:
 Emissions trading and climate change schemes22
 Businesses committed towards becoming “green” and creating a sustainable and eco
friendly environment

Legal/Governmental Conditions

The United States is involved with many trade policies and agreements.
 The World Trade Organisation (WTO)
 Doha Development Round will hopefully restore economic growth.23
 US involved in 17 different free trade agreements (including Australia).24
 No global law on copyright infringement
 Countries around the world (especially Asia and Middle East) generate
revenue through counterfeit and copied apparel wear.

17 http://web.ebscohost.com.ezproxy.bond.edu.au/ehost/detail?hid=7&sid=3140fe5f-2cc7-4018-9bcf-
be32eab8c519%40sessionmgr10&vid=5&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=54628927
18 Ibid
19 http://www.powerretail.com.au/news/e-commerce-sites-aim-to-win-with-customised-approach/
20 http://www.businessweek.com/news/2011-03-04/u-s-economy-unemployment-rate-unexpectedly-
declines.html
21 http://www.crocs.com/on/demandware.store/Sites-crocs_au-Site/default/Page-Show?cid=homepage
22 http://www.abc.net.au/rural/news/content/200908/s2652175.htm
23 http://www.ustr.gov/trade-agreements
24 Ibid
8

Porter’s Five Forces

The Porter’s Five Forces analysis is important in any industry as there are five main forces
that together determine the industry’s attractiveness and
profitability.25
Bargaining Power

of Buyers

Threat of New
 Non-branded
Entrants products
 Branded
 Not a competitor Existing Rivalry
products
but works in the  Catering

i ndustry changes for diverse
approach
market
 T wo low-lying
 Many
competitors
m erge companies
trying to
gain
market
share and
Threat of
increase demand
Su bstitutes

 Lower

quality
Bargaining Power
 C heaper
of Suppliers
price
 C ounterfeit
goods  Power to
increase prices

Threat of New Entrants

Due to the large economy of scale of Nike and Adidas alone, it would be tough for a new
apparel store to become a threat because the top retailers in the industry (Nike, Adidas, Under
Armour) have money to maintain a performance advantage over emerging competitors.
However, if a company that isn’t a competitor but still works in the industry (Calvin Klein)
were to change their approach and merge into sport apparel, then this would be a major threat
as they already have the name, brand, money, apparel line and the backing.

25 Robbins, Bergman, Stagg and Coulter (2009), Management 5