Nike Strategic Plan

Concordia University Nike, Inc.
Nike, Inc.: Strategic Assessment
Prepared by Learning Team 3: Dawn Ackerman, Brian Claar, Angelica Jackson
Presented to: Dr. Alain Gracianette, MBA 507
Concordia University
November 15, 2013
1
Special Note
Efforts were made to research legal and “fair use” of the Nike logo. Based upon the information
provide in the following statement found on Nike’s website: "Thank you for your interest in
Nike. Nike does not grant permission to use or modify our trademarks, logos, images, advertising
or similar materials. It is your responsibility to determine whether your proposed use is legally
permissible. For example, some uses of our logos in a textbook may be considered “fair use.”
Hence, the Nike logo is being used for this school project under “fair use” conditions.
Source: Nike, Inc. http://nikeinc.com/pages/contact-nike-inc
2
“A brand is something that has a clear-cut identity among consumers, which a company creates
by sending out a clear, consistent message over a period of years until it achieves a critical mass
of marketing.”
-Phil Knight
“Ultimately, we wanted Nike to be the world’s best sports and fitness company. Once you say
that, you have a focus. You don’t end up making wing tips or sponsoring the next Rolling Stones
world tour.”
-Phil Knight
“Nike is a marketing-oriented company, and the product is our most important marketing tool.”
-Phil Knight
3
Table of Contents
Executive Summary……………………………………………………………………………...5
Module 1: Overview of Company’s Fundamentals……………………………………………7
Module 2: Internal Assessment
Part 1: Qualitative Analysis……………………………………………………………14
Part 2: Quantitative/Financial Analysis……………………………………………….28
Module 3: External Assessment
Part 1: General Environment Analysis………………………………………………..36
Part 2: Industry, Market, and Competitive Analysis………………………………...46
Module 4: Situational Analysis………………………………………………………………...62
Module 5: Strategic Plan……………………………………………………………………….74
References……………………………………………………………………………………….76
Appendices………………………………………………………………………………………81
4
Executive Summary
The consulting team of DBA Consulting, LLC was established with a specific mission: intensely
analyze the market, operating conditions, and current strategy in use by worldwide powerhouse
Nike, Inc. in order to present a solid strategic assessment that both presents the findings as well
as showcases two alternative strategies for Nike, Inc. Internal and external environments were
also assessed as well as every aspect of the financial environment so that a key recommendation
for implementation of an alternative strategy to senior management could be made. The findings
are presented herein.
Nike, Inc. is an organization that has created an uncontested successful international business.
Nike, Inc. designs and sells athletic footwear, apparel, equipment, accessories and services
worldwide, employing approximately 44,000 employees. Essentially, Nike, Inc. has established
themselves as a successful company with a strong focus on innovation and operations based on
the establishment of a strong business model, key executives, a clear vision, mission, and stated
objectives. This document is composed of five modules beginning with an overview of the
company and ending with specific recommendations by DBA Consulting, LLC for Nike, Inc.
Module 1 begins with an overview of the fundamentals of Nike, Inc., clearly states a brief
history, business model, size, key activities and product lines, executive team, vision, mission,
and values, and company objectives. Nike, Inc.’s CEO Mark Parker leads the company with the
belief that a shared vision and strong supportive company culture, product innovation will be
fostered.
Module 2 furthers the analysis of Nike, Inc. with an internal assessment that includes both a
qualitative and quantitative approach. The examination of resources, capabilities, core
competencies, value chain, strategic intent and mission, key result areas, and long-term
objectives assisted in creating the qualitative section of the analysis. While a thorough financial
assessment aided in the creation of the quantitative section. Results show numerous strengths
associated with innovative approaches that drive disruptive outcomes, a company culture that
encourages collaboration and sustainability in both business and lifestyle practices, and global
brand recognition that is apparent worldwide. Quantitative results indicate a strong company
profile with consistent revenue growth, strong cash flow, and highly effective return on assets.
Although Nike, Inc. maintains a strong internal capacity, a few areas of concern exist. These
concerns include reliance on an extended global supply chain, and low gross profit margins when
compared to the industry norms.
Moving forward, Module 3 assesses the external environment and the impact on Nike, Inc. A
general environmental assessment consisting of seven areas of focus; geographic, demographic,
economic, political and legal, socio-cultural, global and technological was conducted. Combined
with an industry, market, and competitive environment assessment, this fully encompassing
environmental analysis helped illustrate a clear understanding of the opportunities and threats
presented to Nike, Inc. Among these environments key opportunities were addressed, including
opportunities to capitalize on the 20% increase in emerging markets and the significant increase
in income in foreign countries. Trends associated with increase in fitness devices and an increase
in healthy living offer key opportunities for Nike, Inc. In addition, the expansion of sports
5
internationally provides security in the sportswear industry. Key threats were also assessed with
areas to be aware of. The sportswear industry is highly competitive with new entrants emerging
both locally and globally in new innovative ways (despite barriers to entry). The importance of
brand image makes this industry competitive not only with the products offered but in the
marketing strategy between competitors. In addition, consumer preferences are in a constant state
of change and require constant adaptability.
A synthesis of the internal and external environment was conducting by DBA Consulting, LLC
for the purpose to determine the situational analysis. Module 4 represents a consolidation of the
findings and presents a general problem statement as a means to construct strategic alternatives.
In Module 4, two strategic alternatives were produced in conjunction with the current strategy.
Each option was compiled and the pros and cons weighed.
The final module, Module 5, presents the specific strategy recommendation made by DBA
Consulting, LLC, to Senior Executives at Nike, Inc. The recommended strategy, coined
“Focused Differentiation-International” takes into consideration Nike, Inc.’s core competencies,
strategic objections, and current market presence so that alignment of suggested
recommendations and mission and intent is achieved. A rationale and critical steps are stated.
The full Strategic Assessment presents the thorough analysis and explanation of relevant
findings.
6
Module 1: Overview of Company’s Fundamentals
Company Name
Nike, Inc.
Location
One Bowerman Drive Beaverton, OR 97005
Brief History and Years In Business
Nike, Inc. was originally founded on January 25, 1964 under the name, Blue Ribbon Sports by
Bill Bowerman and Phil Knight. Blue Ribbon Sports did not officially become Nike, Inc. until
May 30, 19781. In 1964 Bill Bowerman, a well-known track and field coach offered a
partnership to Phil Knight, a middle distance runner to start a business to distribute the Japanese
running shoe, Tiger Shoes. Around 1971 the relationship with Tiger Shoes began to fall apart. As
a result Knight and Bowerman decided to make the jump from being a footwear distributor to
designing and manufacturing their own athletic shoes2. Bowerman gathered inspiration from his
family waffle iron and made a shoe with the waffle impression sole. BRS honed its designs and
created the “Swoosh.” In 1972 the Nike line of footwear debut. Shortly after, the company
became Nike, Inc. (taking its name from the Greek goddess of victory, Nike). On December 2,
1980 Nike completed an initial public offering of 2,377,000 shares3.
Over the years, Nike, Inc. has leveraged athletes to endorse their products in a very successful
way. Among these athletes are; Steve Prefontaine, Michael Jordan, Bo Jackson, Tiger Woods,
Lebron James, Carmelo Anthony and many more.
Nike, Inc. is well known for the popular slogan, “Just Do It.” Some of Nike, Inc.’s subsidiaries
include Hurley International and Converse4.
In 1999 Bill Bowerman passed away. In 2004 Phil Knight stepped down from CEO and was
replaced by Mark Parker, the current President and CEO.
In 2003 for the first time Nike, Inc.’s international sales exceeded U.S. sales, this supports the
idea of Nike, Inc. being a truly global company.
Business Model
Nike, Inc. has created a business model that supports innovation, sustainability and transparency.
In more recent years, Nike, Inc. has aimed to create breakthroughs that will improve the world
1
Nike, Inc. (2013). Nike.com. Retrieved September 27, 2013, from History and Heritage:
http://nikeinc.com/pages/history-heritage
2
Ibid
3
Unknown. (2013). History of Nike. Retrieved September 27, 2013, from Kicks On Fire:
http://www.kicksonfire.com/history-of-nike/
4
Nike, Inc. (2013). Nike.com. Retrieved September 27, 2013, from
http://www.nikeresponsibility.com/report/content/chapter/business-overview
7
and that are better for athletes as well as investors. By maintaining focus on sustainability, Nike,
Inc. expects to deliver profitable growth while leveraging efficiencies in lean manufacturing.
They do this by minimizing environmental impact and using the tools available to bring about
positive change across the entire supply chain. Nike, Inc. takes a holistic approach to their
sustainability strategy and fully integrates that approach into the business to create value, not just
through risk mitigation, but also through top-line growth, cost avoidance and better access to
capital. Nike, Inc.’s business model includes their web-like value chain that offers seven
fundamental stages: Plan, Design, Make, Sell, Use, and Reuse5. This system allows Nike, Inc. to
better track, measure and report where they have influence, or control, and how the decisions
they make can impact energy and climate, labor, chemistry, water, wastes and community.
Vision/Mission/Company Values
Company Mission Statement: “To Bring Inspiration and Innovation to Every Athlete in the
World (if you have a body, you are an athlete).” 6
Nike, Inc. focus and company vision “to serve the athlete” began with the inception of the
company. Phil Knight’s focus on providing superior products for athletes provided the niche
market Nike, Inc. needed in order to become an incredible success in the marketplace. Nike Inc.
strives to bring products to the marketplace with an intense focus on what an athlete desires,
from a product with a specific functionality, to a product to the market that would suit the
general population7.
Nike believes that a strong company culture and shared vision leads to product innovation. In
order to achieve company goals Nike believes that the company must do so through creation and
perpetuation of shared values within the company ranks as well as a strong company culture. The
following 11 principles guide Nike employees:8
Ø It is our nature to innovate

Ø Nike is a company
Ø Nike is a brand
Ø Simplify and go
Ø The consumer decides
Ø Be a sponge
Ø Evolve immediately
Ø Do the right thing
Ø Master the fundamentals
Ø We are on the offense-always
5
Nike Inc. (2012). Nike, inc.-sustainable business report iii. impact areas; people and culture . Retrieved from
http://www.nikeresponsibility.com/report/content/chapter/people-and-culture
6
http://help-en-us.nike.com/app/answers/detail/a_id/113/p/3897
7
Nike Inc. (2012). Nike, inc.-sustainable business report iii. impact areas; people and culture . Retrieved from
8
8
Ø Remember the man (The late Bill Bowerman, Nike co-founder)
Through this shared valued systems Nike employees are empowered to respond quickly in
scenarios in a way that validates the collective consciousness of the company. This in turn
creates a certain ownership mindset of employees as guardians of the Nike brand itself. The
companies guiding principles also lay the groundwork for the overall business model itself. The
cultural and the business thus become mirror images conveying and reinforcing the ideas of
becoming the leader of emerging markets as well as current ones, viewing the company itself as
a member of the international community, and quick responsive product innovation that caters to
the athletes of the world 9.
Leadership
PHILIP H KNIGHT
Chairman of the Board of Directors
Mr. Knight, 75, director since 1968, is Chairman of the Board of Directors of Nike, Inc... Mr.
Knight is a co-founder of the Company and, except for the period from June 1983 through
September 1984, served as its President from 1968 to 1990, and from June 2000 to 2004. Prior to
1968, Mr. Knight was a certified public accountant with Price Waterhouse and Coopers &
Lybrand and was an Assistant Professor of Business Administration at Portland State University.
Mr. Knight led Nike, Inc. from a small partnership founded on a handshake to the world’s largest
footwear, apparel, and equipment company.10
MARK PARKER
President & Chief Executive Officer, NIKE, Inc.
Mr. Parker, 57, has been President and Chief Executive Officer and a director since 2006. He has
been employed by Nike, Inc. since 1979 with primary responsibilities in product research, design
and development, marketing, and brand management. Mr. Parker was appointed divisional Vice
President in charge of development in 1987, corporate Vice President in 1989, General Manager
in 1993, Vice President of Global Footwear in 1998, and President of the Nike, Inc. brand in
200111. In addition to helping lead the continued growth of the Nike brand, Parker is responsible
for the growth of Nike, Inc.'s global business portfolio, which includes Converse Inc., and
Hurley International LLC.
DON BLAIR
EVP & Chief Financial Officer
For more than 10 years, Don Blair has been Nike, Inc.’s Chief Financial Officer and a principal
architect of the company’s strategies for delivering sustainable, profitable growth. He is
responsible for the company’s finance, investor relations and strategic planning functions and for
9
Pearson Education. (2010). About nike case 1.1: Vision, initiative, mission & commitment-nike-origins of a sports
industry giant. Retrieved from
http://wps.pearsoncustom.com/pcp_collins_explorebus_1/68/17645/4517174.cw/content/index.html
10
NIKE, Inc. (2013). Annual Report 2013. Retrieved from http://investors.nikeinc.com/Investors/Financial-Reports-
and-Filings/Annual-Reports/default.aspx
11
Ibid
9
the last several years was named one of the best CFOs in the U.S. by a leading investment
community publication. Before joining Nike, Inc. Blair held a series of U.S. and Asia-based
finance and strategic planning positions over a 15-year career at PepsiCo.12
ERIC SPRUNK
Chief Operating Officer
Eric Sprunk is Nike, Inc.’s Chief Operating Officer leading all manufacturing, sourcing, IT and
procurement for the company. Sprunk also oversees the company's efforts to drive innovation in
the supply chain. Sprunk was previously Executive Vice President of Merchandising & Product
where he was responsible for all Nike Brand products across the company’s footwear, equipment
and apparel engines from design and development to manufacturing and sourcing, delivering
compelling stories to Nike consumers.13
Sprunk joined Nike, Inc. in 1993 and has worked in senior financial, product and global
management roles. His most recent position was Vice President of Global Footwear where he
drove the footwear creation process – developing new concepts, driving innovation and ensuring
supply chain management across the product categories. Before Nike, Inc. Eric was an executive
at Price Waterhouse managing the Nike, Inc. account.14
Key Markets
Nike, Inc. designs, develops, markets and sells athletic footwear, apparel, equipment, accessories
and services worldwide. It is the largest seller of athletic footwear and apparel in the world. It
sells products to retail accounts, through Nike-owned retail stores and internet websites, which
Nike refers to as its “Direct to Consumer” operations, and through a mix of independent
distributors, licensees and sales representatives in virtually all countries around the world.15
Nike, Inc. reports its Nike Brand operations based on its internal geographic organization. Each
Nike Brand geographically operates predominantly in one industry: the design, development,
marketing and selling of athletic footwear, apparel, equipment, accessories, and services. The
reportable operating segments for the Nike Brand are: North America, Western Europe, Central
& Eastern Europe, Greater China, Japan, and Emerging Markets.16 The NIKE Brand Direct to
Consumer operations is managed within each geographic segment.
Products
Nike, Inc. focuses on Nike Brand and Brand Jordan product offerings in seven key categories:
Running, Basketball, Football (Soccer), Men’s Training, Women’s Training, Nike Sportswear
(our sports-inspired lifestyle products), and Action Sports. It also markets products designed for
kids, as well as for other athletic and recreational uses such as baseball, cricket, golf, lacrosse,
outdoor activities, football, tennis, volleyball, walking, and wrestling.
12
13
Ibid
14
Ibid
15
Ibid
16
Ibid
10
Footwear
Nike’s athletic footwear products are designed primarily for specific athletic use,
although a large percentage of the products are worn for casual or leisure purposes. It
places considerable emphasis on high quality construction and innovation in its products.
Nike Sportswear, Running, Basketball, Football (Soccer), and kids’ shoes are currently
Nike’s top-selling footwear categories and it expects them to continue to lead in product
sales in the near future.17
Apparel
Nike sells sports apparel and accessories covering most of the above mentioned
categories, which feature the same trademarks and are sold predominantly through the
same marketing and distribution channels as athletic footwear. Nike often markets
footwear, apparel and accessories in “collections” of similar use or by category. It also
markets apparel with licensed college and professional team and league logos.18
Equipment & Accessories

Nike sells a line of performance equipment under the Nike Brand name, including bags,
socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective
equipment, golf clubs, and other equipment designed for sports activities. It also sells
small amounts of various plastic products to other manufacturers through its wholly-
owned subsidiary, Nike IHM, Inc.19
Stated Objectives
The stated objectives of Nike, Inc. are a direct reflection of a clear and well-articulated mission
statement. A major movement within Nike, Inc. is a shift to entirely sustainable practices both in
terms of operations and business structure. The company recognizes that innovation will be what
spurs the shift to sustainability. That movement has aided in the development of three stated
objectives that seamlessly fall in line with Nike, Inc.’s. overall vision20:
· Innovation to serve the athlete
· Innovation to grow the company
· Innovation to inspire the world
Size 21
Table 1: Size
Year Fiscal Year Revenue (in millions)
17
18
Ibid
19
Ibid
20
Strategy: Business Overview. http://www.nikeresponsibility.com/report/content/chapter/business-overview
21
Nike, Inc. Revenue Performance.
http://investors.nikeinc.com/files/doc_financials/AnnualReports/2013/index.html#select_financials
11
2009 $18,528
2010 $18,324
2011 $20,117
2012 $23,331
2013 $25,313
2012 $24,128
Source: Yahoo! Finance. (2013). Nike, Inc. Key Statistics.
Table 2 - Financial Brief for Nike, Inc. (NKE-

nyse) as of May 31, 2013
Number of Employees (Full Time) 48,000
Number of Facilities 645 DTC Stores (Direct to Consumers,

stores and websites)
Revenue (Fiscal Year Ends: May 31) 25.31 Billion
Profit Margin 9.82%
Return on Assets 12.31%
Gross Profit 11.03 Billion
EBITDA 3.71 Billion
Net Income 2.46 Billion
Total Cash 5.96 Billion
Total Debt 1.39 Billion
Total Debt/Equity 12.44
Current Ratio 3.47

Source: Yahoo! Finance. (2013). Nike, Inc. Key Statistics.
United States Facilities
12
Nike Brand Products has three significant distribution centers in the United States located
in Memphis, Tennessee. A separate facility is operated and leased for Nike Brand
Product returns. Another facility in Foothill Ranch, California also ships Nike Brand
Apparel and equipment. In total, there are 156 Nike factory stores, and 28 Nike in-line
stores (including Niketowns and employee-only stores in the United States).
International Facilities
16 distribution centers are operated outside the US in regions like Canada, Asia, Latin
America, and Europe. There are 308 Non-US Nike factory stores and 65 Non-US Nike
in-line stores (including Niketowns and employee-only stores).
Employees
As of May 31, 2012, Nike employed nearly 44,000 employees worldwide including retail
and part-time employees22. No employees are represented by a union, unless required by
law, meaning operations have never been interrupted because of labor disputes.
The overview of Nike, Inc. fundamentals illustrates a solid company structure that shares
clear goals created from roughly fifty years of dedication to inspire athletes. Nike, Inc. is a
successful company with complex international channels that positively impact the lives of
consumers, vendors, employees, and athletes. With a better understanding of these
fundamentals DBA Consulting, LLC will now address the internal factors responsible for
the development of Nike, Inc. as the company it is today.
22
“Labor.” http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance#Labor
13

Part 1: Qualitative Analysis
Abstract:
After an initial assessment of Nike, Inc.’s company fundamentals, DBA Consulting, LLC set out
to assess the internal environment of the company. Everything from tangible and intangible
resources to value chain to a balanced scorecard is presented. A specific area of focus and intent
was placed on the current state of Nike, Inc. including the objectives that go along with their
present strategy. The results show that Nike, Inc.’s efforts regarding all aspects of operations are
in harmony with one unified mission of sustainability.
A. Resources
Resources are defined as assets of a company that help create value. Categorized
generally in three sections; physical, human, and organizational, resources can be tangible as
well as intangible. Resources are valuable because they are the components that allow a
company to actualize their capabilities.23 Tangible resources include four sub-categories,
financial, organizational, physical, and technological. Intangible resources include three sub-
categories, human resources, innovation resources and reputational resources.
Tangible Resources:
Tangible resources are described as resources that are physical and easy to quantify. 24
These resources are important because they illustrate the financial, organizational,
physical and technological assets that a company has. The list below describes the
tangible resources of Nike, Inc.
-Financial
 Net income for Nike, Inc. at FYE 2013 was approximately 2.4 billion.
 Cash Flow at FYE 2013 was $3.3 billion.
 Total assets listed were $17.6 billion at FYE 2013.
This data shows a strong financial position. Nike, Inc. has a steady increase in revenues
over the past five years. Cash flow increased significantly mostly due to the increase in
net income from the previous year.25
-Organizational
 Nike, Inc. employs 40,000+ people

 Nike, Inc. has a matrix structure of organization that requires each employee two
executives to report to.
23
Strategic Management, 2013
24
Ibid
25
Nike, Inc. 2013 Annual Report
14
 Executive Structure includes: CEO, EVP of Global Human Resources, Chief

Financial Officer, President of Nike Brand, President of Product & Merchandising,
EVP Administrative Officer & General Counsel, EVP of Global Sports Marketing,
and Chief Operating Officer.26
The strategic implications of Nike, Inc.’s organizational structure are the ability to
receive feedback from two different departments that an employee is required to report
to. In addition, such a structure allows two separate departments to be aware of the
functions and production of specific employees.
-Physical: Property, Plant and Equipment
 Nike, Inc. owns locations worldwide including, World Headquarters in Beaverton,

OR, two distribution centers in Memphis, TN, Tomisato, Japan, Laakdal, Belgium,
Taicang, China, manufacturing facilities in Beaverton, OR and St. Charles,
Missouri27.
 Net property, plant and equipment at FYE 2013 are 2.4 billion28.
The strategic implications of this data suggest Nike, Inc.’s strength of physical assets. In
addition to owned facilities, Nike, Inc. has multiple leased facilities that make up the
majority of their locations. Having owned and leased buildings allow for less risk (lease)
and more control (owned).
-Technological
 World-class R&D department committed to constant innovation in shoe, apparel, and

equipment design and manufacturing.
 Multiple patents registered in multiple countries
 Patent on air technology.
 Efficient distribution technology for inbound and outbound logistics.
Strategic implications of technological resources are Nike, Inc.’s ability to develop,

recognize and protect their innovation.
Intangible
Intangible resources are resources that also hold value but are more difficult to quantify.
Although both tangible and intangible resources are valuable, most companies typically
rely on intangible resources as the foundation for their capabilities because they are more
difficult for competitors to imitate or substitute.29
26
http://nikeinc.com/pages/executives
27
28
Ibid
29
15
-Human Resources
 Nike’s “jocks” culture shows a strong homogeneity through a common passion for
sports and the betterment of athletes.
 Nike, Inc. has created employee networks to help facilitate relationships and
awareness regarding internal diversity. The Diversity & Inclusion team creates
inclusive environments by sharing the fundamentals of diversity, uses diversity and
inclusion to inspire new ideas, and encourages connections between unlikely players.
 Nike, Inc. has never had interruptions in operations due to employee disagreements. 30
The strategic implications of the successful human resources allow Nike, Inc. to have
strong employee loyalty, which, in turn can create a decrease in costs of employee
turnover.
-Innovation
 Nike, Inc. initiated the formation of Business for Innovation Climate and Energy
Policy (BICEP) and SB&I “Lab” for sustainable innovation through external
partnerships in 2009 thus creating an atmosphere and presence of being truly
innovative.31
 Nike, Inc. was created on a foundation of innovation starting with the waffle iron
inspired sole. This allowed traction with less material, resulting in a lighter weight
shoe.
 Nike Sports Research Lab (NSRL), designed to encompass the innovative ideas from
athletes, designers, engineers and scientists, this team was created to develop
solutions based on biomechanics, physiology, perception and athletic performance.32
Strategic implications of successful innovation for Nike, Inc. will create resiliency when
problems occur. The creation of innovative solutions can further strengthen internal
teams and in turn, have developed as a core competency.
-Reputation
 Globally recognized brand worth $16+ billion.33

 Brand Names-Nike Golf, Hurley International LLC, Converse, Inc., Jordan Brand.34
Nike, Inc. tagline, “Just Do It” and their mission, “To bring inspiration and
innovation to every athlete” and describing an athlete as “If you have a body you are
an athlete” are all the foundations of developing their reputation and brand.
30
31
http://nikeinc.com/news/nike-bicep-partner-to-work-on-climate-change-and-energy-issues-call-for-congressional-
action
32
http://nikeinc.com/news/nike-sport-research-lab-incubates-innovation
33
http://www.forbes.com/sites/mikeozanian/2012/10/17/the-forbes-fab-40-the-worlds-most-
valuable-sports-brands-4/
34
http://nikeinc.com/pages/our-portfolio-of-brands
16
A strong reputation further encourages and supports Nike, Inc.’s strategy of global exposure.
Reputation of a brand and a company creates customer loyalty and customer lifetime value.
B. Capabilities
Capabilities are the behaviors and tasks that a company performs with the resources they
have available. Some capabilities can develop into core competencies. Such capabilities can, in
turn become competitive advantages that create above average returns for the company.35 A
firm’s capabilities span across many areas of an organization; Distributions capabilities, Human
resource capabilities, and so on. Listed below are capabilities that are unique to Nike, Inc.
Leadership & Management

Leadership at Nike has been created on the foundation of transparency. Employees are
encouraged to offer feedback to create a better work environment.
Research and Development

Innovative ideas and patented technology allows for Nike, Inc. to stay on top of the
competition. Nike, Inc. has chosen to move from incremental innovation to disruptive
innovation in hopes to create better solutions
Global Marketing & Branding

Nike, Inc. has created a highly successful brand recognition approach by sponsoring
successful athletes. Nike, Inc. has more than 700 stores worldwide.36 Their success is in
part due to their ability to market towards everyone by stating, “If you have a body you
are an athlete.”
Globally-integrated Manufacturing & Supply Chain

Nike, Inc. has a commitment to transparency with regarding to manufacturing which
allows the disclosure of more than 800 factories worldwide that produce Nike, Inc.
products. They encourage and support new manufacturing models where skilled and
empowered workers are recognized as a competitive strength.
Global Distribution
Effective distribution channels including, 3 product lines shipped to 143 different
locations worldwide. Nike, Inc. manages their own logistics by creating an efficiently run
logistics department. Nike distributes through multiple channels. The bulk of distribution
occurs through wholesale sales to thousands of well-selected retailers such as large chains
like Footlocker and The Sports Authority, and countless independent sporting goods
stores. In addition, Nike engages in direct sales through three primary channels: hundreds
of company-owned outlets in North America, showrooms like Niketown, and the ability
for consumers to buy directly from Nike.com.
Human Resources
35
36
http://nikebrandanalysis.blogspot.com/2013/05/brand-awareness.html
17
Nike, Inc. employs 40,000+ people of diverse groups that strive to promote inclusion by
the composition of their leadership teams. Their goal is to capture unfiltered employee
feedback by replacing traditional census surveys with social technology that engages
their workforce.37
Information Systems
Nike, Inc. added 400 patents to Green Xchange, an internet marketplace where
companies share intellectual property to support sustainability and innovation for the
purpose of community collaborate.38
C. Core Competencies
Core competencies are created from a company’s capabilities that offer a competitive
advantage. They are considered the elements of a company that set them apart from their
competition.39 The criteria needed for capabilities to become core competencies are their ability
to be rare and valuable to a customer. To obtain a sustainable competitive advantage those rare
and value assets must also be costly to imitate and non-substitutable by competitors.40 Listed
below are capabilities of Nike, Inc. and their ability to be rare, valuable, costly to imitate, and
non-substitutable.
Table 3: Nike, Inc. Core Competencies
Capabilities Rare Costly to Valuable Non- Sustainable

Imitate Substitutable Competitive
Advantage
Efficient Y Y Y Y Y
Distribution
Channels
Global Brand Y Y Y Y Y
Recognition
Success with Y Y Y Y Y
Diverse Teams
Information N N Y Y N
Systems
Strong Research N Y Y Y N
& Development
Manufacturing N Y Y Y N
Standards
37
http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance#PeopleAndCulture
38
http://nikeinc.com/news/nike-releases-environmental-design-tool-to-industry
39
Strategic Mangement, 2013
40
Ibid
18
Table 4: Nike, Inc. Comparison, Capabilities and Core Competence
Functional Areas Capabilities Core Competence
Leadership & Strong and experienced Yes

Management leadership
Distribution Efficient Logistics and Yes
Distribution
Innovation Across Strong R&D, Matrix Yes
Multiple Management System,
Departments Innovative Technology
Information Effectively Share No
Systems Information
Marketing Global Brand Yes

Management
Manufacturing Globally-integrated Yes
supply chain
Human Resources Successful Inclusion of Yes
Diverse Teams
D. Value Chain
A value chain illustrates the system of tasks a company participates in to create value for
their customers. This process can includes, operations, distribution, marketing, and follow-up.41
An analysis of the value chain helps companies to determine which areas of the process creates
value for their customers. After a thorough evaluation of a value chain a company can find
strategic methods to improve their system.
Nike, Inc.’s value chain consists of seven fundamental components that help create value
for their customers. In addition, their value chain promotes sustainability by viewing their chain
as an intricate “web” as oppose to a linear chain. Each decision made influences the decisions of
other components, creating an environment of constant iteration. As an example, the knowledge
gathered through the Use phase helps to create new innovative solutions in their next Design
phase. Each decision impacts the choices discovered in subsequent phases. This
interconnectedness helps identify areas of improvement and allows dialog between each phase of
the value chain, resulting in better value for their customers. The key tool Nike, Inc. utilizes
helps to increase efficiencies as well as create better working conditions throughout the system.42
41
42
19
Figure 1: Nike, Inc. Value Chain
Plan
Reuse Design
Use Make
Sell Move
Source: DBA Consulting, LLC
Listed below are descriptions of the phases and how they create value for customers of Nike, Inc.
Plan-This phase starts with development of a plan based on the mission and value Nike, Inc.
promotes. Their resources and capabilities drive the production of this phase. Value is created
due to the commitment to uphold the standards of innovation that is passed on to the customer.
This phase is the foundation of everything that is created at Nike, Inc., the intentions of
management, the passion for innovation and sustainability and the commitment to create an
environment that supports diversity and ingenuity that Nike, Inc. is known for.
Design-The design phase is committed to finding innovative designs that include, form, function,
superior performance with the least amount of impact.43
Make-Nike, Inc. contracts with over 900 factories worldwide that offer the right knowledge and
skills required to maintain high standards.
Move-Nike, Inc. utilizes all forms of transportation to consistently and successfully move their
products around the world. Nike, Inc. had scheduled delivery of Nike Brand athletic footwear
43
Nike, Inc. http://www.nikeresponsibility.com/report/content/chapter/business-overview
20
and apparel reaching approximately $12 billion.44 Distribution channels include143 different
locations worldwide that are managed by Nike, Inc.
Sell-This phase of the value chain is comprised of 750 retail stores worldwide, direct sales
through their website and wholesale45. Nike, Inc. focuses on the experience created for customers
who visit their stores either physical or online. Value to the customer is created by their
commitment to make the buying experience pleasurable.
Use-Products purchased from Nike, Inc. hold a reputation of superior performance. Nike, Inc.
focuses on the customer experience of their products by offering a 30-day return policy for any
reason.46
Reuse-Nike, Inc. shows their commitment to minimizing their environmental impact by making
running tracks, sport courts and new products from recycled products.47
Figure 2: Nike, Inc. Customer Value
Design superior
products with a holistic
approach to address
multiple solutions
Successful solutions to
Control of quality
miniimize environmental Customer
distribution and inbound l
impact and to reuse product Value logistics
materials
Commitment to high
starndards of treatment of
workers worldwide
44
45
46
http://help-en-us.nike.com/app/answers/detail/article/returns-policy/a_id/29785/p/3897
47
21
Nike, Inc. chooses to minimize their outsourcing when possible so that they can maintain
control of standards of the supply chain and value chain. Manufacturing is one significant area
they outsource. They utilize 900 factories worldwide that make over 500,000 different Nike
products. As a way to mitigate issues that arise from a lack of control of work environment
standards, Nike, Inc. developed a new approach. Their approach encourages continuous
improvement of factories rather than a focus on solely discouraging negative behavior.48
Strategically, finding a successful way to support worker rights through positive reinforcement
as opposed to monitoring for minimum compliance of a code of conduct illustrates a leadership
mentality instead of an effort to only “manage” behaviors. In time this strategy will strengthen
their reputation.
The support functions of a value chain describe the activities the company engages in to
successfully research, develop, produce, sell, distribute and service their products. Nike, Inc. has
four support functions; financial, human resources, technology, and management structure.
Figure 3: Nike, Inc. Support Functions
Financial-
Management of
financial
resources for all
phases of the
value chain.
Technology-
Provide
innovative
technology for
inbound and
outbound Management-
HR- logistics. Support staff at
Management of all levels to plan,
human capital, design, make,
training, and move, sell, use
retaining and reuse Nike,
workers Inc. products.
E. Strategic Intent
48
http://www.nikeresponsibility.com/report/content/chapter/manufacturing
22
The strategic intent of a company is the internal strategy unique to a company that drives
the company in every decision they make. Described in a Harvard Business Review article from
Hamel and Prahalad, “On the one hand, strategic intent envisions a desired leadership position
and establishes the criterion the organization will use to chart its progress…At the same time,
strategic intent is more than simply unfettered ambition.”49 Nike, Inc.’s [Proposed] strategic
intent is clear and direct; to control the largest market share of every market they choose to
penetrate. They will continue to move in the direction of this strategy by implementing strategic
goals:50
 Expand profit margins by reducing product costs through innovative design, globally-
integrated sourcing, manufacturing and distribution, and utmost efficiency.
 Minimize administrative expenses by leveraging existing infrastructure across all
brands and subsidiaries
 Improve efficiency in working capital
 Increase brand awareness
F. Strategic Mission
Solid and effective strategic management ultimately lead to a higher degree of

competitiveness and above average returns. A strategic mission is key in the realization of such
possibilities. For Nike, Inc., their clear, concise, and effective mission statement, “To bring
inspiration and innovation to every athlete in the world”51 sets the groundwork for developing a
strategic mission that is equally compelling and focused. The key components of Nike, Inc.’s
strategic mission are:
 Growth that is consumer-focused

 Growth through increased market place capacity and penetration52
 Growth through all six geographic areas (North America, Western Europe, Japan, Greater
China, Central & Eastern Europe, and Emerging Markets)53
 Focused partnerships with retail locations to differentiate consumer experiences
Ultimately, Nike, Inc.’s strategic mission is one centered on growth in nearly all aspects of
the business. Despite being the market leader and having realized almost unbelievable levels of
growth, Nike, Inc. is still positioning itself to achieve high growth rates through differentiation,
global/geographic operations, and market penetration. Most importantly for the company,
however, is for the growth to be long term and sustainable.
G. Key Result Areas
49
Strategic Intent, 1989 P. 64
50
51
“About Nike, Inc.” http://nikeinc.com/pages/about-nike-inc
52
“Nike, Inc. Introduces 2015 Global Growth Strategy.” http://nikeinc.com/news/nike-inc-introduces-2015-global-
growth-strategy#/inline/3560
53
Ibid.
23
Having equilibrium between financial and strategic controls is an essential function in

order to achieve a balanced outcome of performance. A balanced scorecard is a framework firms
can use to verify that they have established both strategic and financial controls to assess
performance.54 The framework provides the opportunity to select a balanced set of criteria for
both strategic and financial controls which will ultimately produce higher levels of performance.
Below is a balanced scorecard, based on the preliminary analysis, for Nike, Inc.:
Figure 4: Nike, Inc. Balanced Scorecard
•Positive Free Cash Flow

Financial •Growth in earnings per share
•Growth in returns on capital
•Develop consumer connections through

differentiation
Customer •Focus on Direct to Consumer program
•Provide a premium product at a price value
Internal Business •Improve employee envolvment and buy-in

Processes •Leverage competitive advantages
•Improvements in innovation/disruptive innovation

Learning and •Implementation of sustainable practices
Growth •Protect brand equity through innovation
H. Long Term Objectives
Nike, Inc. would not be the success story they are today without a strong emphasis on
strategy development and implementation. Along with the development of a structured strategy
comes the development of long term goals and objectives. Nike, Inc. has numerous long term
objectives that are developed based on past performance that they are currently working
towards.55 The framework below highlights the most crucial long term objectives for the
54
Hitt, M., Ireland, R. D., & Hoskisson, R. E. (2013). Competitiveness & globalization: Strategic management.
(10th ed.). Mason, OH: Cengage Learning.
55
“Targets and Performance.” http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance
24
company followed by more specific and centralized objectives all adapted from the “Targets and
Performance” section of the 2013 CR Report.56
Figure 5: Nike, Inc. Long Term Objectives
"Profitable growth decoupled from constrained natural resources"
•Moves to accomplish this objective: Push to move from incremental to disruptive innovation;
innovation and collaboration across government, industry, social influencers, and consumers;
placing sustainability at the heart of innovation
"Balance people, profit, and planet"
•Moves to accomplish this objective: in FY10 a new business unit called Sustainable Business and
Innovation, and a sub-unit called Sustainable Manufacturing and Sourcing were launched; FY11
Nike Better World was launched to engage consumers in the sustainability vision
"Build a sustainable business and create value for Nike and our stakeholders"
•Moves to accomplish this objective: Leverage competitive advantages (authentic, emotional

connections with consumers, innovative product and retail experiences that lead the industry,
strong Nike, Inc portfolio that gives tremendous opportunties for growth and profitability)
"Through other initiatives, we hope to go much further, helping our supply

chain become leaner, greener, more equitable, and empowered"
•Moves to accomplish this objective: In 2010 Nike, Inc designed jerseys for the World Cup made out
of recycled bottles; built tools like the Nike Materials Sustainability Index (Nike MSI) (helps
designers create products with lower environmental impacts

2013 CR Nike Report
During an investor meeting on May 5, 2010, Nike, Inc. unveiled the following long-term
objectives for the company to achieve by 2015:
 Realized growth in the Nike Brand to $23 billion by end of fiscal year 201557
 Open 250-300 Nike Brand stores worldwide over next five years58
 Mid-teen growth in Direct to Consumer Business (contribute an additional $2.2-2.6
billion by 2015)59
56
“Targets and Performance.” 2013 CR Report.
57
58
Ibid.
59
25
 Invest roughly $500-600 million in capital over the next five years60
 Return on Invested Capital of 25%61
 Increasing dividends within a target calendar year payout range of 25-35% of trailing
fourth quarter earnings per share62
Current Strategies:
Presently, for Nike, Inc. the existing recognized successes of the company allow for a
more specialized and articulate strategy. Nike, Inc. prides itself on being able to employ a
strategy where sustainability meets business model. Where business strategy and sustainability
meet as and function as one. For Nike, Inc. sustainability is not just another trending idea, it is,
and should be, a key driver of success for any forward-thinking company.63
A key component of Nike, Inc.’s sustainability strategy revolves around driving

disruptive innovation (through materials, sourcing and manufacturing, market transformation,
and digital services), optimize to deliver positive impact (through energy, labor, chemistry,
water, and waste), and deliver value (through new products and markets, operating leverage,
mitigating earnings risks, and protecting brand equity).63 It is also imperative that Nike, Inc.
employs its sustainable competitive advantages (innovative and compelling products, brands that
are distinct and relevant to their consumers, and the world’s greatest athletes and teams)64 and
leverage those above the competition. Interestingly enough, at the core of the strategy is the idea
that Nike, Inc. will play a role in transforming the way industry, government, and citizen’s work
together to improve transparency and accountability. The sustainability strategy itself is made up
of many of the long-term objectives from above. The push to unite sustainability with business
strategy becomes more evident when strategy and objectives are viewed simultaneously.
C. Strategic Synthesis
Strengths
Nike, Inc. has numerous strengths all working seamlessly to produce the high functioning
company Nike, Inc. is. Strengths like their ability to generate positive cash flow through the
efficient use of assets to their ability to acquire capital to aid cash flow. Strengths like a
determined, focused strategy encouraging innovation and driving disruptive outcomes. Strengths
like a cross-company culture that fosters development and not only sustainable business practices
but also sustainable lifestyles. Nike, Inc. has also been able to develop a positive global brand
reputation and brand value. The fact that they are an industry leader successfully globally-
integrating sourcing, manufacturing and distribution operations is just another item to add to
Nike, Inc. strengths portfolio.
60
Nike, Inc. Introduces 2015 Global Growth Strategy.” http://nikeinc.com/news/nike-inc-introduces-2015-global-
growth-strategy#/inline/3560.
61
Ibid.
62
Ibid.
63
“Our Sustainability Strategy.” http://www.nikeresponsibility.com/report/content/chapter/our-sustainability-
strategy
64
26
Weaknesses
It is difficult to pinpoint weaknesses within such a strong company. However, weaknesses exist
in nearly every organization across the planet. For Nike, Inc. one weakness is the reliance on an
extended global supply chain. The ability to integrate a global system like Nike, Inc. has been
able to do is impressive; however, the lack of a visible contingency plan is worrisome. Another
weakness revolves around employee buy-in to the sustainable ideas of business and resources.
That lack of buy-in can be directly relayed to consumers negatively affecting the vision Nike,
Inc. has for a unified world where government, consumers, and business all work seamlessly as
one.
Constraints
With the hope that Nike, Inc. will see e-commerce sales grow to $2 billion by year end 2015,
comes the constraint of inter-brand competition through various retail outlets. Nike Factory
competes with in-line stores while all compete with e-commerce opportunities. In order for Nike,
Inc. to overcome this, the company needs to determine how strategic growth in geographic
locations will impact e-commerce sales.
Uncertainties
Nike, Inc. faces many uncertainties. Will the strength of the portfolio continue? Can competitive
advantages be leverage to develop sustainable competitive advantages? What will the
competition do, will they out-innovate Nike? Can Nike align its strategic mission to perpetuate
the ideal of sustainability across boundaries? Nike, Inc. is no different in the sense that operating
in a global market lends itself to risk and being on top of a market lends itself to failure (at some
point). How long can Nike hold on?
27

Part 2: Quantitative/Financial Analysis
Abstract:
In order to conduct a complete review of Nike’s internal environment, DBA Consulting,

LLC will also complete an examination of Nike’s relevant financial performance. This analysis
will include a review of the company’s performance over the previous five years of operations.
In addition, a comparative analysis will be done against Nike’s competitors to determine the
company’s strengths, weaknesses, constraints, and uncertainties.
A. Financial Trends & Quick Financial Overlook
Table 5: Nike, Inc. Balance Sheet

Balance Sheet ($ in millions) 2009 2010 2011 2012 2013
Cash and cash equivalents $2,291 $3,079 $1,955 $2,317 $3,337
Total current assets 9,734 10,959 11,297 11,531 13,626
Total assets 13,250 14,419 14,998 15,465 17,584
Total current liabilities 3,277 3,364 3,958 3,865 3,926
Total liabilities 4,557 4,666 5,155 5,084 6,428
Total stockholders' equity 8,693 9,754 9,843 10,381 11,156
Total liabilities and stockholders'
equity 13,250 14,419 14,998 15,465 17,584
Source: http://financials.morningstar.com/balance-sheet/bs.html?t=NKE&region=USA&culture=en-US
Table 6: Nike, Inc. Income

Statement
Income Statement ($ in
millions) 2009 2010 2011 2012 2013
Revenue $19,176 $19,014 $20,862 $24,128 $25,313
Cost of revenue 10,572 10,214 11,354 13,657 14,279
Gross profit 8,604 8,800 9,508 10,471 11,034
Total operating expenses 6,746 6,326 6,693 7,431 7,780
Operating income 1,858 2,474 2,815 3,040 3,254
Net income 1,487 1,907 2,133 2,223 2,485
Source: http://financials.morningstar.com/income-statement/is.html?t=NKE&region=USA&culture=en-US
Sales / Revenue
 Nike’s sales for 2013 were $25.3B which is an increase of 5% from FY 2012. Nike’s
average annual revenue growth over the past 5 years has been 6.33%.
28
 2013 US Sales comprised 45% of total revenue compared to 42% in 2012; Non-US sales
comprised 55% of revenue. 65
 Revenue growth was driven by all Nike Brand categories (Footwear, Apparel, and
Equipment). In FY 2013, unit sales of Nike footwear increased by 7% and the average
selling price increased nearly 4%. Unit sales and price for apparel increased by 7% and
3%, respectively.66
Cost Structure / Profit Margins
 Gross Margin has decreased slowly over the past four years from 46.3% at FYE 2010 to
43.6% at FYE 2013. Nike has seen significant shifts in the mix of revenues from higher
to lower margin segments of its business. While growth in these lower gross margin
segments delivers incremental revenue and profits, it has a negative effect on its
consolidated gross margin.67 Nike’s gross margins did improve slightly in 2013 due to the
positive impact of higher average selling prices as mentioned above.
 Selling and administrative expenses increased from $7.4B to $7.8B between FY 2012 and
2013. Nike’s largest selling expense is marketing which increased 8% in order to support
key product initiatives, including Nike Fuel band and its NFL product launch.68 Even
though Nike has increased its administrative costs on a dollar basis, the company has
continued to shrink selling and administrative expenses, as a percentage of sales, over the
past 4 years.
 Earnings before interest, taxes, depreciation, and amortization (EBITDA) has grown
consistently over the past 5 years and reached its highest level in 2013 at $3.7B. This is a
direct result of Nike growing its revenue, controlling costs, and maintaining its profit
margins.
Stock Valuation
 Stock price has risen from $35.59 at May 31, 2010 to $61.66 at May 31, 2013.69
 Nike’s board has adopted a new $8B stock repurchase program that started this past fiscal
year. However, Nike has had a history of buying back its stock each year and has bought
back $1.7B, $1.8B, and $1.9B worth of stock during 2011, 2012, and 2013,
respectively.70 The stock repurchase program has been a major factor in Nike’s share
price increasing 73% from FYE 2010 to FYE 2013.
 With the combination of net income growth and share buybacks Nike has increased
earnings per share (EPS) from $1.94 at FYE 2010 to $2.77 at FYE 2013.
65
Nike 2013 Annual Report; retrieved from http://investors.nikeinc.com/Investors/Financial-Reports-and-Filings/Annual-
Reports/default.aspx
66
Ibid, pg. 68
67
Ibid, pg. 69
68
Ibid, pg. 69
69
Yahoo Finance, Retrieved from
http://finance.yahoo.com/echarts?s=NKE+Interactive#symbol=nke;range=20100429,20130531;compare=;indicator
=volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=off;source=undefined ;
70
Nike 2013 Annual Report, pg. 92; retrieved from http://investors.nikeinc.com/Investors/Financial-Reports-and-
Filings/Annual-Reports/default.aspx
29
B. Financial Ratios
Graph 1: Balance Sheet Ratios

4
3.5
2.5
Current Ratio
2 Quick Ratio
1.5 Financial Leverage
1 Debt/Equity
0.5
0
NIKE Adidas Under VF Corp Industry
Armour
Source: http://financials.morningstar.com/ratios/r.html?t=NKE&region=USA&culture=en-US
Current Ratio
Current ratio is very strong at 3.47:1, the highest it has been in 5 years. Essentially, Nike
has $3.47 in current assets for every dollar in current liabilities. Regardless of the industry this is
a very strong balance sheet position and one of the reasons that Nike has an A+ credit rating. 71
Nike’s current ratio is better than the industry average and only Under Armour has a better
current ratio at 3.58:1.
Quick Ratio
When taking out inventory and calculating quick ratio, Nike has the best in the industry at
2.31:1. Their next closest competitor is Under Armour with a quick ratio of 2.05:1.
Working Capital
Because Nike has such strong cash flow from operations it has been able to produce
working capital of $9.7B at FYE 2013, including $3.3B in cash72. Working capital has grown
year over year for the past 5 years and is at the highest point in Nike’s history. In addition, Nike
71
Nike raises $1 Billion; Retrieved from http://www.bloomberg.com/news/2013-04-23/nike-said-to-plan-1-billion-bond-
sale-in-first-issue-since-2003.html
72
30
has the strongest working capital in the industry, beating the industry average of $3.8B and their
next closest competitor, Adidas, which has working capital of $3.3B.
Leverage Ratio
Debt to Equity is favorable at 0.58:1 at FYE 2013, better than the industry average and
second best behind Under Armour. In 2013, Nike was able to procure $1.0B in debt facilities
with expiration dates of 2023 and 2043.73 Having a low leverage ratio, adequate working capital,
and strong cash flow, Nike was able to procure these debt instruments with very low interest
rates of 2.25% and 3.6%, respectively.
Graph 2: Income Statement Ratios

60.00%
50.00%
40.00%
Gross Margin %
30.00%
Operating Margin %
20.00% Net Margin %
10.00%
0.00%
Armour
Gross Margin
As previously mentioned, Nike’s gross margin had been slipping between 2009 and 2012,
but the Company was able to reverse this trend in 2013 and improved their gross margin slightly
to 43.6% of total sales. Nike is below the industry average for gross profit margin of 46.4% and
Nike has the lowest gross profit margin in the footwear and apparel industry. Adidas and Under
Armour have the best gross profit margin in the industry at 47.7%, and 47.9%, respectively.
Net Profit Margin
73
31
Nike’s net profit margin is one of the best in the footwear and apparel industry at 9.82%
of sales. Even though Nike was behind its competitors in regards to gross profit margin, it is
able to make up the difference by having less selling and administrative costs, as a percentage of
sales, than its competitors. Nike has been able to improve selling and administrative productivity
by focusing on investments that improve revenue and gross margin along with using existing
assets to eliminate duplicate costs.74
Graph 3: Turnover Ratios

140
120
100
80
Days Sales Outstanding
60 Days Inventory
40 Payables Period
20
0
Armour
Inventory Turnover Ratio
Inventory turnover days have increased over the past 4 years and have risen from 78 days
at FYE 2010 to 87 days at FYE 2013. Nike’s results in Greater China have been adversely
impacted by sluggish macroeconomic growth and slow product sell-through at retail, leading to
high levels of inventory in the marketplace.75
Accounts Receivable Turnover
A/R days have gone from 54 days in 2009 to 46 days in 2013. This means that Nike has
been able to collect payments from its customers 8 days faster since 2009. Faster collection of
receivables also reduces borrowing needs as Nike is able to collect its cash faster. According to
74
75
32
Nike, the reduction in accounts receivable days was primarily driven by the collection of
receivables related to discontinued operations.76
Graph 4: Management Ratios

25.00%
20.00%
15.00%
Return on Assets %
10.00%
Return on Equity %
5.00%
0.00%
Armour
Return on Assets (ROA)
Nike’s management team has done well to leverage its existing assets to improve sales
and decrease operating expenses. Nike’s ROA has steadily increased year over year for the past 5
years and ended FYE 2013 with a ROA of 15.4%. This is the highest return on assets in the
industry with the next closest competitor being Under Armour at 12.4%.
Return on Equity (ROE)
Just like its return on assets, Nike’s ROE has been steadily increasing over the past five
years and is at its highest point of 23.1%. Again, Nike is providing the best return on equity in
the industry and its next closest competitor in this category is VF Corp at 22.5%. For a stable,
mature company in a well-established industry, getting a 23.1% return is extraordinary. The
combination of revenue growth and well-managed margins with stock buybacks has provided a
tremendous return for Nike investors during 2013 to go with strong returns over the previous five
years.
C. Strategic Synthesis
Strengths
76
33
Overall, Nike is a very strong company with consistent revenue growth, consistent margins, and
return on equity. With their strong sales growth, Nike, Inc. has the best Net Profit Margin, Cash
Flow, ROA / ROE in the athletic footwear and apparel industry.
Weaknesses
Expanding gross margin by:

– Making our supply chain a competitive advantage;
– Reducing product costs through a continued focus on manufacturing
efficiency, product design and innovation; and
– Delivering innovative, premium products that command higher prices
while maintaining a strong consumer price-to-value proposition.
Constraints
The main constraint that Nike has at the moment is cash held in foreign currencies. At FYE
2013, Nike had $6.0B in cash and cash equivalents on its balance sheet. Of this $6.0B, 58% or
$3.5B was held in foreign currencies. While 55% of Nike’s sales come from outside of the
United States, the corporate sales tax environment in the U.S. constrains Nike’s ability to
repatriate its cash into its home currency.77
Uncertainties
The biggest uncertainty for Nike right now is the slowdown in the Chinese economy. Nike is
able to determine its future product growth and inventory needs based on futures orders by its
customers. The future orders from Chinese customers have dropped over the past year which has
led to decrease margins along with hurting demand and the overall Nike brand.78 In addition,
Nike has had to discount merchandise in China to clear inventory. China is the second largest
economy in the world and Nike has had the most market share in China for the past 5 years.79 In
its annual review for 2013 Nike commented on its struggles in China and stated that it is
increasing its efforts to improve the brand:
“Our results in Greater China have been adversely impacted by sluggish

macroeconomic growth and slow product sell-through at retail, leading to high
levels of inventory in the marketplace. Our strategy to return to sustained,
profitable growth in Greater China focuses on extending our brand leadership
position with consumers; expanding the offering of product styles and fits
77
New York Times, 10/3/2012; Retrieved from http://dealbook.nytimes.com/2012/10/03/overseas-cash-and-the-tax-games-
multinationals-play/
78
Bloomberg, 09/12/12; Retrieved from http://www.bloomberg.com/news/2012-09-27/nike-futures-orders-trail-estimates-
on-weak-china-demand.html
79
Wall Street Journal, 03/07/13; Retrieved from
http://online.wsj.com/news/articles/SB10001424127887324034804578345741263753994
34
designed for the Chinese consumer; and working with our retail partners to create
more differentiated, productive, and profitable retail stores.”80
In addition, Nike made remarks that its increased efforts in China are starting to take hold;
“Despite the challenges we have seen in China, there are indications that our
strategies are taking hold in the marketplace. Comparable store sales are growing
in our NIKE-owned Direct to Consumer doors and our wholesale customers are
reporting comparable store growth and declining inventory levels.”81
Further assessment of Nike, Inc. will be done with a focus on the External Factors
associated with development of Nike, Inc. Specific topics of interest are the general
environment, industry, and market. A competitive analysis is also presented to deepen
understanding.
80
81
35

Part 1: General Environmental Analysis
Abstract:
After an Internal Assessment of Nike, Inc., DBA Consulting LLC, has conducted a
thorough assessment of the External Environment. This section will address three main areas of
analysis, general environment, industry environment, and competitive environment. This
analysis will provide a better understanding of Nike, Inc.’s opportunities, threats and trends
associated within the industry. Through the process of scanning, monitoring, forecasting, and
assessing these environments Nike, Inc. will be able to create an action plan to achieve strategic
competitiveness.82 When combined with the assessment of the Internal Environment created in
Module 2, Nike, Inc. will be better equipped to implement a strategic plan based on the strengths,
weakness, opportunity and threats identify in the industry.
A. General Environment
The general environment is comprised of seven segments that influence an industry.

Listed below are descriptions of each segment’s trends, opportunities and threats that are relative
to Nike, Inc. The seven segments are geographic or natural environments, demographic
environments, economic environments, political or legal environments, socio-cultural
environments, global environments, and technology environments.83 The figure below illustrates
the seven segments that make up the external environment and how all seven environments
influence both the industry environment and the competitor environment.
82
83
Ibid
36
Figure 1: Nike, Inc. External
Environment
Source: DBA Consulting LLC
B. Geographic/Natural Environment
Trends
 Awareness of a lack of natural resources. By 2030 the world population will demand
twice as many resources as the planet can supply.84
 Concerns regarding business environmental impact has risen.
Opportunities
Nike, Inc.’s focus on sustainability and steps to decrease their environmental impact has a
positive effect on their reputation. Consumers are becoming more environmentally
conscious and tend to purchase from companies that try to support environmental
sustainability.
Threats
The concept of buying locally is a threat to large companies such as Nike, Inc. because
local markets may steer away from a multinational company and choose to purchase from
a “mom and pop” style store or local companies that create their own apparel.
84
http://www.economist.com/blogs/theworldin2013/2012/11/global-trends-2013
37
Growing concerns for sustainable practices could ask people to question the very validity
of technical apparel (i.e., Patagonia’s involvement in organic cotton).
Strategic implication
Nike, Inc. can utilize this data strategically by developing further awareness of
environmental issues to create stronger relationships with consumers that support
environmentally-conscious companies.
C. Demographic Environment
Trends
 The Baby Boomer generation (people born between 1946 and 1964) is considered the
largest group with the highest population in the workforce, making them an important
group target. In the UK, over-50s are currently 20 million strong, growing fast, and
hold 80% of the nation's wealth and the estimated annual spending power of baby
boomers is more than USD 2 trillion. Boomers spend approximately 12% more than
the average on apparel.85
 Women are continuing to have more purchasing power and currently make up 85% of
the consumer purchasing decisions.86
 Expanding U.S. Hispanic population has increase from 14.6 million in 1980, to nearly
52 million in 2011. Latinos now constitute the fastest-growing segment of the U.S.
population.87
 Fast rising global population
Opportunities
Considering the purchasing power of women Nike, Inc. would benefit from focusing the
majority of their marketing efforts toward women. Women purchase not only for
themselves but for the men and children in their lives so products made for men can also
be marketed toward women. In addition, due to a large part of the population being Baby
Boomers, Nike, Inc. can take the opportunity to create a product line for active, mature
consumers. The increase in Hispanic population can create growing opportunities in
soccer.
Threats
The aging population making up the baby boomer generation is a significant portion of
the American population. The threat to Nike, Inc. is that the activity level of this
85
http://www.trendwatching.com/trends/boomingbusiness.htm
86
http://www.gingerminneapolis.com/sites/www.gingerminneapolis.com
/files/SurveyResultsAlpha51913_FINAL.pdf
87
http://www.theatlanticcities.com/neighborhoods/2013/08/extraordinary-growth-americas-hispanic-
population/6733/
38
population will decrease and may not find the same amount of value in the sports apparel
industry.
Strategically, Nike, Inc. can maintain a competitive advantage by successfully adjusting

to the ever-changing trends of the environment. As a result of the strong purchase power
of the Baby Boomer generation, Nike, Inc. can Once aware of the significant impact the
baby boomer generation has on consumer purchases, Nike, Inc. can create a product line
geared to the needs of this market segment.
D. Economic Environment
Trends
 Unemployment rates have continued to stay high in the U.S.88

 Purchases of “American made” products are on the rise. Based on the 2012 survey by
Perception Research Service International, 76% of responders said they would be
more likely to buy something made in the U.S.89
 Continued lack of economic stability in the U.S. as well as many other countries.
 Fluctuating exchange rates have a continuing impact on global businesses.
 Inflation rates continue to drop from 3.5 in January 2012 to 1.2 in July 2013, affecting
the strength of the dollar.90
 Oil prices on the rise.
Opportunities
The negative impact of an unstable environment allows companies to flex their

innovation and efficiency muscles by creating new ways to minimize costs or create more
value in the face of stronger competition. Nike, Inc. has been successful at maintaining
increases in net income over the economic downturn over the past five years.91 The
opportunities available to Nike, Inc. are to further hone their skills of working efficiently
and creating new innovative ideas. The high value of the Euro has greatly contributed to
Nike’s profitability in recent years. As a global company, Nike is in a position to shift
cost and revenue centers wherever and whenever needed. 92
Threats
88
FSOC 2013 Annual Report http://www.centerforfinancialstability.org/fsr/us_fsr_201306.pdf
89
http://industryedge.nationalhardwareshow.com/2013/06/the-rising-demand-for-made-in-the-usa-products
90
http://www.tradingeconomics.com/united-states/inflation-cpi
91
92
Statement from Alain Gracianette D. Mgt.
39
Nike, Inc. has only 8% of their factories in the United States. Companies that contract
with factories in the U.S. will have a strategic advantage among consumers that choose to
purchase products made in the U.S. of products that are not. High unemployment rates
and a lack of stability in the economic environment affect purchasing power and tend to
hinder the consumption of more expensive brands. A study done by Pew Research shows
71% of their responders cut back on spending of more expensive brands.93 Exchange
rates create a significant threat to the profits incurred by Nike, Inc. in other countries.
This is a constant threat due to the volatility of exchange rates. As a global brand, with
global distribution and supply chain, Nike, Inc. is continually affected by global
economic fluctuations, rising oil prices and transportation costs. Inflation rates rising can
also create a threat to the strength of the dollar. The increase in the cost of labor in China
can also have significant negative consequences to Nike, Inc.’s profit margins.
In the midst of economic challenges companies show their strengths by creating strategic
solutions by successfully adjusting to the instability of the market. By maintaining
success, Nike, Inc. has proved their ability to “weather the storm” which further
strengthens their reputation to be a reliable and sustaining company. A strategy to
implement regarding exchange rate volatility is for Nike, Inc. to lock into an exchange
rate for a fixed period of time by setting up a forward contract on materials, also known
as hedging. If the exposure estimates are correct, this can be a beneficial approach to
controlling of the rate fluctuations.94
E. Political/Legal Environment
Trends
 Increase in government regulations

 Taxation policies have decreased in 2013 but are still considered the highest among
developed nations.95
 High priority set on upholding legal contracts in other countries including intellectual
property (IP) rights.96
 Tax minimization strategies
Opportunities
Corporate taxes are high for U.S. businesses but due to the foreign tax laws, Nike, Inc.
can continue to leverage the foreign tax laws of foreign profits. The ongoing struggle
regarding IP rights create challenges for Nike, Inc. The opportunity is created for Nike,
Inc. to help with the initiative to battle these challenges for the benefits of all U.S.
93
http://www.forbes.com/2010/07/08/recession-spending-pew-opinions-columnists-john-zogby.html
94
http://www.euroinvestor.com/ei-news/2012/07/17/how-exchange-rate-fluctuations-affect-companies/19796
95
http://www.forbes.com/sites/joeharpaz/2013/09/16/will-the-proposed-lower-corporate-tax-rate-really-be-lower/
96
http://www.uspto.gov/news/speeches/2009/2009Dec9.jsp
40
companies. This will help strengthen their reputation and commitment to support
innovation.
Threats
Regulations provide a standard for companies to adhere to but in many cases government
regulations hinder companies to exist in a truly competitive environment.97 A threat for
Nike, Inc. will be the limitations created by over regulations of their industry. Intellectual
property rights can be challenging in other countries due to the differences in laws and
ability to uphold legal repercussions of violating such laws. These challenges also include
copyright infringements and the threats associated with protection or brands and
patents98. Potential lawsuits against Nike, Inc. is an additional area of concern. Growing
indirect tax rates from governments as a way to raise revenue is a threat to any global
company, Nike, Inc. being no exception.
Nike, Inc.’s political strategy associated with the impact of government regulations will
offer additional insight into what effect certain regulations have on the company. Nike,
Inc.’s ability to be prepared for these tax and policy regulations will better prepare the
company. Taking an active role in the protection of IP rights will help further growth of
innovation and ultimately help Nike, Inc.’s global business practices. Nike, Inc. ability to
establish successful tax minimization strategies associated with foreign revenues will
further strengthen their overall profits. Development of secure copyright and practices
will also minimize future costs associated with protection of patents and copyright
infringement in foreign countries.
F. Socio-cultural Environment
Trends
 Consumers are shifting their perception about value added to include participation in
the value added aspect of purchasing through customization/personalization of
products
 Communication through social media has become the new and most impactful way
to engage with customers and potential customers.99
 Obesity concerns in the U.S. due to 68% of Americans being over-weight or
obese.100
 Changing trends toward a greater role in sustainability.
Opportunities
97
98
Ibid
99
100
http://fasinfat.org/obesity-rates-trends-overview/
41
The social expectations of consumers are helping recreate business as more agile
networks.101 As a result, the opportunities to engage with large groups of people through
social networks such as Facebook, Instagram and Twitter allow an increase in
connectedness and ultimately in customer relationships that create communities in their
industry. Increased concerns about obesity throughout the world, but particularly in the
U.S. Sports and active lifestyles represent strong opportunities for companies like Nike to
help reduce the national rate of obesity. Further development of the value chain for Nike,
Inc. will create more opportunities for customer engagement in sustainable practices.
Threats
There are limitations to customization of products is the increase in cost associated with
the individual product production instead of the mass production of a certain product.
These additional costs may not be as easy for a company as large as Nike, Inc. to incur
due to the value of purchases. In addition, threats associated with increase in social
networking with customers can be created with a decrease in control of user’s comments
and negative publicity coupled with the rate at which information can spread. Growing
concerns for social justice could resurrect the portraying of Nike as sweat shop
profiteer.102
As a response to the threats associated with bad publicity and lack of social media
controls, Nike, Inc. can develop additional transparency of their company. This allows
the company to embrace their strengths and weaknesses instead of fear what the negative
impact can do to their reputation. In addition, the trend toward customization of products
allows Nike, Inc. to have more engagement with customers through offering
customization of specific products. Nike, Inc.’s focus on customer relationships is a way
to stay competitive.
G. Global Environment
Trends
 Global population increase.

 Growing consumer affluence among Chinese and other Asian (e.g. South Korea)
consumers.
 Global market trends for performance apparel have increased each year. Global
market size is currently $6.4 billion, and is expected to increase another 18.75% to
US$ 7.6bn by 2014.103
 Global concerns related to increased populations struggling with obesity have created
a sense of urgency toward solutions. The rate of obesity has nearly doubled
worldwide since 1980.104
101
Ibid
102
Statement from Alain Gracianette D. Mgt.
103
http://www.teonline.com/knowledge-centre/performance-apparel-global-market.html
42
Opportunities
The increase in the performance apparel market allows Nike, Inc. to increase market
share in emerging markets. The concern regarding obesity offers Nike, Inc. the
opportunity to satisfy a continuing need of sports and fitness apparel for the populations
that are addressing the fitness and exercise goals related to obesity. Rising affluence of
Chinese consumers creates a increase in market size.
Threats
The threats presented to Nike, Inc. in the global environment come from uncertainty in
the emerging markets. Learning what customers want in these emerging markets may
come with challenges. New competitors of other economies can enter emerging markets
and impact Nike, Inc.’s success.105 New powerful Asian competitors could enter the
market, with similar (or better) technical shoes, apparel and accessories produced at a
lower cost.
Further development of initiatives to fight the increase in obesity will be a strategic

position for Nike, Inc. To apply their mission, “To bring inspiration and innovation to
every athlete in the world, and if you have a body, you are an athlete,” Nike, Inc. can
leverage the epidemic of obesity by applying their strength of innovation and
commitment to health and fitness to create worldwide solutions.
H. Technology Environment
Trends
 Increase in development of smart technology and robotics.106

 Desire for companies to continue to innovate and find new materials to use in
manufacturing.
 Data mining as a new resource.
 An increase in mobile devices that utilize applications has created a new market of
health and fitness capabilities. Estimated users of mobile health and fitness devices
will increase from 15 million to 96 million in 2018.107
Opportunities
Nike, Inc.’s ability to capture data through technology such as website data collecting can
create a more efficient way to optimize their marketing efforts online and through
104
http://www.hsph.harvard.edu/obesity-prevention-source/?page_id=111350557003
105
106
107
http://netcaststudio.com/current-sports-tech-news-and-trends/
43
traditional marketing channels. To better understand the buying behaviors of their

customers Nike, Inc. can create more customized targeting of specific market segments.
As an example, A-B testing helps capitalize on the differences in online marketing
endeavors. Smart technology and robotics can decrease labor costs in algorithmic tasks
such as production. Trends toward a mobile world will allow Nike, Inc. to create value at
every moment of a mobile device user’s day. Continued focus on research and
development to bring innovative products to the market, and maintain technological
leadership in targeted categories. In addition, an increased co-operation with key (and
new) vendors will provide Nike, Inc. with opportunities to further develop strong
relationships.
Threats
Threats created by the current technology trends are an increase in competition of

innovation. Technology impacts consumer trends and keeps the business world in a state
of constant change. For example, if one of Nike, Inc.’s competitors discovered an
innovative way to utilize a new technology consumers will naturally gravitate to the new
product. The discovery of better technical fabrics at a lower cost by Asian competitors
can also present a threat.
Nike, Inc. can strategically leverage the behaviors of consumers by increasing their
presences on mobile devices. As an example, Nike, Inc. could create additional running
applications, health and fitness education and training, and further develop their mobile
application of their store for purchases.
Strategic Synthesis
Nike, Inc. can utilize data presented from the seven segments of the general environment to
create a strategically successful approach. By developing further awareness of environmental
issues and trends Nike, Inc. can create stronger relationships with consumers, maintain a
competitive advantage by successfully adjusting to the ever-changing trends of the environment,
and express their strengths by creating solutions to the challenges presented in the markets they
exist in. Listed below are the specific strategic actions and areas of focus that Nike, Inc. can
implement to effectively address the opportunity and threats of the general environment:
 Prepare reports of environmental concerns that Nike, Inc. can impact through their
business practices.
 Practice flexibility on ever-changing environments by making company policy to
encourage resiliency by embracing change.
 Expand product lines to reach growing demands of specific segmented markets.
 Create constant improvements to exchange rate volatility challenges through continuous
solution exploration.
 Focus on transparency, environmental impact and social concern of justice.
44
 Create additional engagement of customers and users through social media channels.
 Become a strong voice of solutions for worldwide issues such as obesity.
 Be aware of challenges associated with rates of inflation in global markets
 Focus on changing demands of consumers in different demographic segments
 Develop protective measures to address copyright infringements, imposters and
intellectual property rights in foreign countries.
 Awareness of the impact of significant global population growth and increases in rising
income level of populations in emerging markets.
 Impact of mobile devices on consumer trends, especially addressing direct to consumer
sales and customer engagement.
 Technological advancements and competition in new materials from low labor cost
countries such as China.
45

Part 2: Industry, Market, and Competitive Analysis
Abstract:
Part 2 is a continuation of the external assessment for Nike, Inc. Items that are
specifically addressed include the market size, growth rate, scope of rivalries, and economies of
scale. Each item addressed directly relates to the current market that Nike, Inc. operates within;
sports apparel. Porter’s Five Forces and the competitive environment are also dissected. The
facts presented within this section will prove to be valuable as a new strategic plan is drafted for
Nike, Inc. moving forward.
A. Industry/Market Analysis
1. Market Size: Nike, Inc. operates within the consumer goods sector and the textile
(apparel footwear and accessories) industry (as listed on the stock exchange). The market
itself is more precisely known as “technical sports apparel.” Within this global market,
Nike, Inc. has seen a steady increase in market share.
The article “Why Nike Will Outpace the Sports Apparel Market’s Growth” explains, “its
market share in the global sports apparel market has historically increased from 3.9% in
2007 to 4.9% in 2012 as its apparel sales grew at a pace above industry average during
the period.”108 Estimates also put Nike, Inc.’s market share in the global sports apparel
industry as high as 6.5% by 2019. 109 In 2012, the overall global sports apparel market
was worth roughly $135 billion and very well may be worth as much as $178 billion by
2019.110
Since Nike, Inc. operates Nike Golf the market size of the sporting goods industry is
worth noting (especially since it serves as a potential opportunity for Nike, Inc. to
penetrate). The worldwide sporting goods industry is doing very well and seeing steady
growth. According to the article “Sporting Goods Industry: Market Research Reports,
Statistics and Analysis,” the industry is “forecast to reach $303 billion by 2015.”111
2. Stage of Life Cycle: The sports apparel industry is very much in a growth stage. With
seasoned global competitors like Adidas, Reebok, Puma, and Asics, and new comers to
the market like Under Armour and Lululemon Athletica continued growth is inevitable.
Some of the factors driving growth in the market include; increased fitness
consciousness, rising income levels in developing countries, the growing popularity of
sportswear for women, the trend of stylish and comfortable sportswear, and rising
108
“Why Nike Will Outpace The Sports Apparel Market’s Growth.”
http://www.forbes.com/sites/greatspeculations/2013/05/13/why-nikes-growth-will-outpace-the-sports-apparel-
markets/
109
Ibid.
110
Ibid.
111
“Sporting Goods Industry: Market Research Reports, Statistics and Analysis.”
http://www.reportlinker.com/ci02221/Sporting-Goods.html
46
demand in Asia and Latin America.112 The sports apparel industry will also see continued
growth because of the growing global population: 7 billion people in the world equals 7
billion potential consumers. On a smaller scale, the 222,459,737 youth in China are also
all going to contribute to the growth in the sports apparel industry as youth, especially in
Asian countries, becomes more affluent and focused on “western” fashion and ideas. 113
3. Growth Rate: The sports apparel industry, like nearly every other global industry, was
negatively affected by the global recession of 2008. The market had noticeable declines
in the period 2008-2009, yet began to see improvements in 2010.114 For the period 2012-
2019 the global sports apparel market is expected to grow at a CAGR (compound annual
growth rate) of 4%.115 Speaking in terms of dollar amounts, the article “Sport Clothing
and Accessories Industry: Market Research Reports, Statistics and Analysis” suggests
“the world sports apparel industry is expected to exceed $126 billion by 2015.”116
4. Scope of Rivalry: The rivalry in the industry is extremely intense, yet insulated, with a
strong market presence from both local and global brands. A high level of competition
results as all companies vie for increased market share. Adding to the intensity of
rivalries is the fact that consumers in this segment tend to be “loyal” purchasers which
means consumer’s price sensitivity is decreased. This is where the insulted competitive
rivalries result. The most significant rivalry is one between Nike and Adidas. Both
companies are essentially in a struggle to capture the industry leader position, capture
new sales, and increase market share. Currently, between Nike and Adidas, the two
companies represent 11% of the global sports apparel market.117 The following figure,
adapted from “Why Nike Will Outpace the Sports Apparel Market’s Growth,” shows the
sales of some of the industry leaders and demonstrates how tight the race is. Notice that
Adidas is winning the sales race yet Nike has a better estimated growth rate (CAGR).
112
markets/
113
“China vs. India, the Population Numbers.” http://blogs.wsj.com/indiarealtime/2011/04/30/china-vs-india-the-
population-numbers/
114
“Sports and Fitness Clothing-Global Strategic Business Report.”
http://www.researchandmarkets.com/research/p9zn6f/sports_and
115
markets/
116
“Sport Clothing and Accessories Industry: Market Research Reports, Statistics and Analysis.”
http://www.reportlinker.com/ci02121/Sport-Clothing-and-Accessories.html
117
markets/
47
Table 7: Apparel Sales of Some of the Leading Players in the Market (in
118
millions)
CAGR (2010-
Company Fiscal 2010 Fiscal 2011 Fiscal 2012 2012)
Adidas (includes $7,023 (€5,380) 8.1%

$7,484 (€5,733) $8,211 (€6,290)
Reebok)
Nike $5,026 $5,513 $6,333 12.3%
Puma $1,229 (€941.3) $1,352 $1,504 10.6%

(€1,035.6) (€1,151.9)
Under Armour $853 $1,122 $1,385 27.4%
Lululemon $712 38.7%

$1,001 $1,370
athletica
Asics $427 (¥42,576) $439 (¥43,685) $470 (¥46,838) 4.9%
Source: “Why Nike Will Outpace the Sports Apparel Market’s Growth.”
5. Rival Concentration: The sports apparel industry is fragmented. With numerous
brands, both local and global and high end and discount, all competing within the same
industry leads to a highly fragmented industry. Despite the fragmentation, the industry is
dominated by a few powerful global players such as Nike, Inc., Adidas, Puma, and Asics.
Newcomers such as Under Armour and Lululemon Athletica are also beginning to
become dominant players.
6. Vertical Integration: Vertical integration is important for companies within the
industry. It allows companies to integrate processes like global supply chain and
distribution. Even manufacturing can be integrated. For the sports apparel industry where
operations are being outsourced, vertical integration results from the ownership of the
plants.
7. Pace of Change: The pace of change for the sports apparel industry has remained fairly
constant. The drivers of change now revolve around technology, innovation, and brand
loyalty. The standard cycle market functions with competitors who “seek large market
shares, to gain loyalty through brand names, and to carefully control a firm’s operations
in order to consistently provide the same positive experience for customers.”119
8. Product/Service Differentiation: Because the industry itself is so centered around
innovation, innovation and product differentiation strategy are a natural fit for the market.
Each company within the market is producing nonstandardized products in an attempt to
appeal to each consumer. Historically, the market would be using a focused
differentiation strategy as each company was attempting to appeal to an athletic audience.
However, given changing trends and tastes, the market has become broader and now
revolves around numerous target markets.
118
Ibid.
119
Strategic Management. Hitt, Ireland, Hoskisson. Pg 153.
48
9. Economy of Scale: Since the market is fragmented with local and global competitors,
economies of scale are crucial in the sports apparel market, especially for the companies
in a mature phase of the life cycle. Economies of scale from effective supply chain
management to manufacturing large volumes all end up being a barrier to entry for a new
entrant because of the lack of experience and costs associated with replicating the
processes. The economies of scale are what are going to keep the industry leaders in the
leadership position.
10. Barriers to Entry: Many companies compete, earning high returns, in the sports
apparel industry. This leads to economies of scale that make market entry difficult.
Effective and efficient Supply Chain management can lead to decreased costs and
ultimately increased margins. This is difficult to duplicate, resulting in an economy of
scale and a barrier to entry. For Nike, Inc., the economies of scale that result from supply
chain, manufacturing quantities/capabilities, and ability to acquire capital, all protect
Nike, Inc. from new entrants. Nike, Inc. is very protected within the market.
Strategic Synthesis
Trends
A growing trend within the industry is to target countries with growing income levels.
Nike, Inc. has found success in the Asian markets and now other companies are following
suite.
Opportunities
Significant opportunities exist within the sports apparel market to innovate and be first to
market with the next big product. Adidas and Nike, Inc. are essentially in an ongoing race
to do just that. For any company that is able to innovate, especially in a disruptive
manner, they will see significant gains in market share and an increased level of brand
loyalty among consumers. Opportunities also exist for companies to increase and add
value through economies of scale. Market experience and operations management
provide measurable opportunity for companies themselves and in the market as a whole.
The fragmented sports apparel market also poses an opportunity for new entrants to
easily penetrate the local markets.
Threats
One potentially devastating threat that exists to all competitors in the sports apparel
market is the threat of imposters. Counterfeit items that look authentic yet sell for
significantly less than authentic items have the possibility to drastically impact the
market. Sales decreasing, the market size decreasing, and the loss of consumers are all
potential ramifications of the counterfeit industry. Companies need to be especially
cautious when expanding sales and operations to countries like China where legal rules
and regulations vary greatly from that of the US. The import/export market in China is
also very risky and the prevalence of an unregulated, underground, “gray market” is high.
As Nike, Inc. expands sales regions and targets Asian markets, significant attention will
have to be paid to make sure products are protected. Another threat to retail stores in the
49
market is the growing success of online retail sites. Many companies within the sports
apparel market may find that the negative effect of online retail for sports apparel is a
decrease in customer satisfaction and difficulty meeting sales forecasts at retail locations
to sustain operations.
B. Porter’s Five Forces
The leading expert in competitive dynamics, Michael Porter originally brought forth the
idea that there are five forces that affect how company’s behave and react in regards to
competition. Porter’s five forces govern the profit structure of an industry by determining how
the economic value it creates is disseminated. That value may be drained away through the
rivalry among existing competitors, of course, but it can also be bargained away through the
power of suppliers or the power of customers or be constrained by the threat of new entrants or
the threat of substitutes. Strategy can be viewed as building defenses against the competitive
forces or as finding a position in an industry where the forces are weaker. Changes in the
strength of the forces signal changes in the competitive landscape critical to ongoing strategy
formulation.120
Figure 7: Porters Five Forces
Source: http://hbr.org/2008/01/the-five-competitive-forces-that-shape-strategy/ar/1
11. Buyer Power:

Threat: Low
120
(Porter, 1998)
50
 Buyer power is relatively weak. There are no major buyers who purchase a large
portion of the industry’s total output.121
 No customer accounted for more than 10% of Nike’s sales in 2013.122
 Large companies in the athletic footwear and apparel industry set price points for
their products.
 The power and attractiveness of the brand ensure that demand is great than supply,
which preserves Nike’s vending power.
 Few retailers control large market shares, making it difficult for small vendors to
enter the market.123
 On a global basis, Nike’s sales were diverse: 45% U.S. and 55% Non-US124
 Worldwide futures orders for Nike footwear and apparel scheduled for delivery
between June and November 2013 were $12.1B.125
12. Suppliers:
Threat: Low
 Supplier power is really low in this industry. Any supplier that meets quality
standards for the company will be able to supply these commodity goods.
 Major firms can switch suppliers quickly without worry of a significant decrease in
quality.
 The largest single footwear factory with which Nike has contracted accounted for
approximately 6% of total fiscal 2013 Nike brand footwear production.126
 In fiscal 2013, Nike has contract factories in multiple countries including Vietnam,
China and Indonesia. In addition, Nike also has manufacturing agreements with
independent factories in Argentina, Brazil, India, and Mexico to manufacture
footwear for sale primarily within those countries.127
 This being said, a handful of manufacturers like Gore, Milliken (research technical
textiles industry) can produce technical textiles.
13. Competitive Rivalry:

Threat: High
 There is intense competition and rapid changes in technology and consumer

preferences in the markets for athletic and leisure footwear and apparel, and athletic
equipment.128
 Tremendous amount of capital and resources are used in sales and marketing efforts:
Following are the selling and marketing expenses for the top three competitors in the
athletic footwear and apparel industry in 2012;
121
(Hitt, Ireland, & Hoskisson, 2013)
122
(Nike, Inc., 2013)
123
(Gracianette, 2013)
124
(Nike, Inc., 2013)
125
(Nike, Inc., 2013)
126
(Nike, Inc., 2013)
127
(Nike, Inc., 2013)
128
(Nike, Inc., 2013)
51
o Nike = $2.7B129
o Adidas = $2.0B130
o Under Armour = $0.3B131
 High strategic stakes132 – Competitors in this industry are constantly looking for
strategic advantages on geographic and category basis. Currently, Nike is going after
Adidas’ dominant market share in the soccer category and subsequently, Adidas has
launched a counterattack on Nike’s dominance in the basketball category.
 Brand image and customer loyalty is huge in this industry, which leads to the brands
competing not only to protect their turf, but also leads to huge marketing campaigns
to steal market share aware from rivals.
14. Substitute products:

Threat: Low
 Substitutes can include boots, flip-flops, sandals, dress shoes and other non-athletic
footwear.
 Not perfectly substituted by any other type of footwear. Would be hard to replace.
 Innovative technology and specific use of athletic footwear and apparel reduce the
threat of substitute products.
15. Threat of new entrants:

Threat: Low/Moderate
 Large capital costs are required for branding, advertising and creating product
demand, and this limits the entry of newer players in the athletic footwear and apparel
market.
 High entry barriers exist due to strong brand loyalty and economies of scale and
scope.133
 Easy to get the material but hard to gain popularity in an industry where consumers
are conscious about image.
 Access to distribution opportunities is limited because the top brands have already
signed agreements with teams, athletes, and retailers.
 Indirect competitors such as VF Corp could use its existing capital, supply chain, and
manufacturing capabilities to compete directly in the athletic footwear and apparel
industry. However, it would require a large investment in R&D in order to compete
with Nike and Adidas in terms of brand recognition and marketing.
16. Forces of change: There are many microeconomic and macroeconomic factors that
can impact Nike and the athletic footwear and apparel industry. Below we have
129
(Nike, Inc., 2013)
130
(Adidas Group, 2012)
131
(Under Armour, Inc., 2012)
132
133
52
identified the top three factors that will likely cause change or have the possibility of
transforming the athletic footwear and apparel industry.
Table 8: Forces of Change
Opportunities Threats
Obesity  Nearly 2 billion people world-  If government education
134
wide are obese or overweight. programs take hold and there is
 National governments are a marked shift to health
creating tasks forces and conscience of overweight
providing grants to fight growing population this will induce
obesity epidemic.135 competitive pressure and new
 Best way to fight obesity is market entrants.
physical activity and healthy
eating, which directly benefits
Nike and the athletic footwear
and apparel industry.
Globalization  Global population is expected to  Growing population, income,
grow to 9 billion people by and market size will likely
2050.136 attract capital and new market
 Rising real incomes and growing entrants.
middle class in emerging  Uncertain global and regional
markets economic conditions can affect
 New markets are opening on a international trade and can result
regular basis with the elimination in protectionist actions by
of legislative and regulatory government agencies.
barriers.137  Rising economic power of
 All of these factors will lead to China
an increase in sports  Potential market entrance of
participation and global Chinese or other Asian brands,
consumer base. with high quality and lower
 Rising affluence of Chinese and prices
other Asian customers
Consumer  Strong growth is anticipated in  Consumer demand can be
Demand the Direct to Consumer segment sudden and unexpected,
whereby end users will be using particularly in fashion-related
Nike’s website and retail stores industries which includes
to purchase footwear and apparel athletic apparel.
134
135
136
137
53
directly from Nike.  Product procurement cycles

 Improved profit margins from average 12-18 months and can
Direct to Consumer result in short-term loss if Nike
operations.138 is unable to respond quickly to
consumer preferences.139
17. Key Success/Survival factors:
Innovation
Nike’s success depends on its ability to identify, originate, and define consumer demands
as well as anticipate changing consumer demands in a timely manner.140 As a result,
research and development efforts are key success factors in the athletic footwear and
apparel industry. Innovation in design and manufacturing process of footwear, apparel,
and equipment are the number one focus at Nike. To that extent, Nike has hired top level
talent in the areas of biomechanics, chemistry, exercise physiology, engineering, and
industrial design to create the most dynamic footwear and apparel that will enhance
athletic performance, maximize comfort, and reduce injury.141
Brand Identity and Recognition
Nike uses trademarks on nearly all of its products including distinctive marks that are
readily identifiable. This is an important factor in marketing and brand recognition and
helps Nike to distinguish itself from competitors’ offerings. The Nike and “Swoosh”
logos are among Nike’s most valuable assets and Nike has registered these trademarks in
nearly 170 different countries and jurisdictions.142
Consumer connection and affinity for brands and products is crucial in the athletic
footwear and apparel industry. To that end, Nike spends over $2.7B annually on
endorsements, marketing, and advertising to create this connection and affinity. Nike has
been able to sign some of the world’s famous athletes including Michael Jordan, Tiger
Woods, and LeBron James. In the case of Michael Jordan and Tiger Woods, Nike has
created all new brands including Air Jordan and Nike Golf, respectively.
These efforts have been successful as Nike has been able to increase sales 5% over the
most recent quarter compared to a 5% decrease in sales by Adidas.143
138
(Nike, Inc., 2013)
139
140
(Nike, Inc., 2013)
141
(Nike, Inc., 2013)
142
(Nike, Inc., 2013)
143
(Seeking Alpha, 2013)
54
Globally-Integrated Supply Chain & Distribution
As of FYE 2011, Nike had over 900 contract factories across 50 different countries.144 In
addition, Nike has 3 distribution centers in the United States and 16 distribution centers
internationally.145
Effective distribution of products, with attractive merchandising and presentation at

retail, in store and online is critical to Nike’s success. Nike’s ability to meet customer
expectations, manage inventory along with achieving objectives for operating efficiencies
and growth will be key success factors for Nike going forward.146 The company’s
effective management and growth of its supply chain in emerging markets will be a key
success factor in controlling market share in this growing geographical segment.147
Marketing/Endorsements
In order to stay competitive in the athletic footwear, apparel, and equipment industry a
company has to spend a tremendous amount of capital on marketing to develop brand
recognition. In 2012, Nike and Adidas spent over $4B combined on sales and marketing
efforts to deepen its brand recognition and attract new customers.148 149
A large part of Nike’s marketing campaign is the use of professional athletes as endorsers
of Nike products. Oftentimes, Nike will build specific products (i.e. shoes) or brands (i.e.
Jordan) around a particular athlete. Nike has done an excellent job of acquiring and
retaining some of the top names in the world of sports including Michael Jordan, LeBron
James, and Tiger Woods to name a few. These athletes are extremely high profile and
influential in the world of sport. In order for Nike to remain the top athletic footwear and
apparel company in the world, they will need to recruit and obtain the next generation of
high profile athletes.
18. Industry attractiveness:
Overall, the athletic shoe industry is very profitable and also an attractive industry. Both
buyer power and supplier power are relatively weak, which makes it easier for the
companies to succeed and be profitable. Also, the substitutes that exist are not directly
comparable to athletic footwear, which is another plus for the companies in the industry.
However, consumers are very conscious about image and brand loyalty is relatively high.
This makes it difficult for new entrants to try and enter the industry.
Global appeal for sports has increased significantly over the past 25 years with the advent
of globalization, television, and the internet. The NBA and NFL are putting tremendous
144
(Nike, Inc., 2013)
145
(Nike, Inc., 2013)
146
(Nike, Inc., 2013)
147
(Nike, Inc., 2013)
148
(Nike, Inc., 2013)
149
55
amounts of effort and capital into marketing their brand globally and it has paid off with
the increase in sports participation.150
In addition, the players at the highest level of professional sports are superstars and
oftentimes considered national heroes; i.e. Michael Jordan, Kobe Bryant, and Yao Ming.
Nike’s Air Jordan brand had $100 million in sales in 1985. For FY 2012, the Jordan
brand sold $2.5 billion worth of shoes and Air Jordan’s made up 58% of all basketball
shoes bought in the U.S. and 77% of all kids’ basketball shoes.151
Strategic Implication:
As Nike is the leading innovator and driver of technology in the athletic footwear and
apparel industry, it is best positioned to stay in this industry and leverage its resources,
capabilities, and core competencies to maintain above average returns.152
By staying in the athletic footwear and apparel industry, Nike will be able to capture
market share in the fastest growing geography called emerging markets. By leveraging
its core competencies in innovation, supply chain, and marketing, Nike is well positioned
to build brand awareness in developing countries and maintain customer loyalty in
existing markets.
C. Competitive Environment
The athletic footwear, apparel, and equipment industry is highly competitive in the
United States and on a worldwide basis. Nike competes internationally with a significant number
of athletic and leisure footwear companies, athletic and leisure apparel companies, sports
equipment companies, and large companies having diversified lines of athletic and leisure
footwear, apparel, and equipment. It also competes with other companies for the production
capacity of independent manufacturers that produce its products and for import quota capacity.153
Current strategies:
Adidas
Adidas is the 2nd largest athletic footwear and apparel manufacturer in the world behind
Nike. In addition to the Adidas brand, the Company acquired the then 3rd largest athletic
manufacturing company, Reebok, in 2005. Together, Adidas uses their brands to
compete on a global basis in multiple categories and geographies.
Adidas’ primary category and strategy revolves around soccer and being the dominate
brand in soccer worldwide. Being the most popular sport worldwide, soccer is one
150
(Riches, 2013)
151
(Rovell, 2013)
152
153
(Nike, Inc., 2013)
56
Adidas’ key strategic priorities. Adidas has been one of the leading innovators in regards
to shoe, ball, and apparel technologies focused on soccer.154 Adidas will be looking to
increase its strong market position in soccer by leveraging its existing technologies along
with using its portfolio of sports marketing partners.
Some prominent Adidas partners include;
 Soccer Federations (FIFA, UEFA)

 Events (FIFA World Cup, EURO Championship)
 National Federations (Spain, Germany, France (Rugby, Basketball), Russia, Mexico,
China, Japan)
 Leagues (Major League Soccer)
 Clubs (Real Madrid, AC Milan, Chelsea FC, FC Bayern Munich)
Under Armour
Under Armour is the 3rd leading manufacturer of athletic apparel and footwear in the
United States behind Nike and Adidas. Under Armour’s marketing and promotion
strategy has focused on providing and selling its products to athletes and teams on the
high school, college, and professional level.155 To this degree, Under Armour has focused
its strategic efforts predominately on popular American sporting categories such as
football, basketball, and baseball. Currently, Under Armour is the official supplier of
footwear and gloves to the National Football League (“NFL”).156 In addition, in 2011
Under Armour became the official footwear supplier of Major League Baseball (“MLB”)
and a partner with the National Basketball Association (“NBA”).157
Capabilities:
Adidas
Adidas has very similar capabilities as Nike including research & development, supply
chain, and marketing. However, Adidas has not executed as well on its capabilities as
Nike and has started to lose ground in certain categories including soccer. In addition,
since 2012, Nike has initiated 300 product patents to Adidas’ 35 patents.158
Under Armour
Under Armour does not have the same capabilities as Nike and Adidas in terms of supply
chain and manufacturing. However, Under Armour has used significant resources to
154
155
156
157
158
(Parker, 2013)
57
create new athletic technologies and have used innovation in compression and sweat-
wicking products to drive its growth.159
Future objectives:
Adidas
Based on Adidas’ current actions and tone of their annual reports their future objectives
and strategies lie in three different areas; basketball, emerging markets, and lifestyle
fitness activities.
Basketball
Due to Nike’s aggression in pursuing the soccer category, Adidas has put into motion a
full phased counterattack in the basketball category. Basketball has historically been the
strongest category for Nike and soccer has been the strongest category for Adidas.
Adidas has been very aggressive in signing top-flight talent including superstars Derrick
Rose and Dwight Howard to endorse its basketball shoes.160 Like Nike, Adidas has
created specific shoe designs for these athletes to further raise brand awareness.
Emerging Markets
In the athletic footwear and apparel industry, emerging markets is considered to be any
country, region, or continent outside of North America, Europe, China, or Japan. These
countries and regions are the fastest growing in the world and represent the best place to
gain market share. Consequently, this has been a large strategic focus for both Nike and
Adidas.
Adidas is using its strong soccer branding as a strategy to gain market share in these
emerging markets as soccer is the most prominent sport.
Lifestyle and Fitness Activities
According to the International Obesity Task Force, more than 600 million adults are
currently considered obese. An additional one billion adults are considered to be
overweight. Furthermore, up to 200 million school-aged children are considered to be
overweight or obese.161 Because of these staggering numbers of overweight populations,
national governments such as the United States and United Kingdom have launched
efforts to promote fitness and healthy living.
159
(Chang, 2013)
160
161
58
Adidas believes these actions taken by these governments regarding education could lead
increases in sports participation, in particular in categories considered suitable for weight
loss such as training, running, and walking.162
In response to this expanding marketplace, Adidas has put in motion a strategy to market
to these individuals and has been working with governments on their fitness education
efforts. In addition, Adidas is repositioning its Reebok brand solely as a fitness and
activity brand.163
Under Armour
With its most recent agreement and partnership with the NBA, Under Armour is looking
to take market share in the basketball category and will likely pursue athletes to sign
sponsorship deals. The dominate marketing strategy in basketball in America is signing a
key or top level talent as a product endorser. Nike did this with Michael Jordan and
currently with LeBron James. Adidas has signed Derek Rose as its top-level athlete.
LeBron James and Derek Rose are the only winners the Most Valuable Player (“MVP”)
award in the NBA for the past 5 years. Under Armour is likely to seek a top-level talent
to endorse a shoe or apparel in order to gain exposure and market share in the basketball
category.
In addition to pursuing market share in the basketball category, Under Armour is also
pursuing a strategy of gaining market share internationally by providing its products to
European soccer and rugby teams.164 Beginning in 2012, Under Armour became the
official sponsor of an English Premier League soccer team, Tottenham Hotspurs and will
provide them with official game kits and training wear. In addition, Under Armour
became the official supplier of the Welsh Rugby Union and has exclusive rights on the
league’s replica products.165
Strategic Implication:
Nike’s competitors’ product offerings, technologies, marketing expenditures (including

expenditures for advertising and endorsements), pricing, costs of production, and
customer service are areas of intense competition. This, in addition to rapid changes in
technology and consumer preferences in the markets for athletic and leisure footwear and
apparel, and athletic equipment, constitute significant risk factors to Nike’s operations.166
If the company does not adequately and timely anticipate and respond to its competitors,
its costs may increase or the consumer demand for its products may decline
significantly.167
162
163
164
165
166
(Nike, Inc., 2013)
167
(Nike, Inc., 2013)
59
Strategic Synthesis
Trends
 Soccer category is growing especially in emerging markets. Nike and Adidas are
spending over $100 million for the rights to endorse certain soccer teams and
associations.168 As of 2012, Nike’s efforts to gain market share in soccer have been
effective as they now have 36% market share compared to Adidas’ 38%. The World Cup
in 2014 will be Nike’s opportunity to overtake Adidas’ in the soccer category.
 Emerging Markets is where the industry players are focusing because the income growth
and population growth will be the largest in these markets. Both Nike and Adidas are
expecting double digit revenue growth in emerging markets and are spending
considerable amount of capital and resources to build market shares and efficient supply
chains.169 170
Opportunities
 Direct to consumer channel is expanding and Nike plans to grow this segment to $5
billion by 2015 and $8 billion in 2017.171 This is highly profitable as it cuts out retailers
and increases gross margins.
 Obesity has become an epidemic across the world as nearly one-third of the world’s
population is considered overweight or obese.172 Because of this, many national
governments are taking steps to educate its citizens about the dangers of obesity. There is
effectively two ways to reduce obesity; healthy eating and exercise. This is a huge
market and Nike should be involved with these education programs including holding
clinics that educate people on exercising. These clinics are a win-win as consumers get
education on exercise and healthy lifestyle and Nike can build brand awareness and
customers for life.
 Soccer is the largest sport in the world and the World Cup in 2014 is expected to draw
over a billion viewers across the world.173 Nike has been very aggressive in targeting
Adidas’ position as the leader in the soccer category and should use the World Cup as
venue to further expand its brand.
 Basketball is expanding rapidly around the world especially in China. According to the
Chinese Basketball Association, approximately 300 million people play basketball in
China.174 In addition, basketball is the second fastest growing sport in India, behind
soccer.175
168
(Bhattacharjee, 2013)
169
(Nike, Inc., 2013)
170
171
(Nike, Inc., 2013)
172
173
174
(Riches, 2013)
175
(Riches, 2013)
60
Threats
 The athletic footwear and apparel industry is an extremely competitive industry and the
big players spend billions of dollars to protect their territory. Nike needs to use its core
competencies of innovation and marketing to hold its ground and gain market share in
emerging markets.
 Adidas is attacking Nike’s stronghold in the basketball category including signing high
profile athlete Derrick Rose to an endorsement and shoe contract.176 Basketball is one of
Nike’s top categories and the second largest sport in the world with 1.2 billion fans.177
Nike will need to focus marketing efforts into this category including building
relationships with up and coming athletes to build its stable of athlete endorsers.
To summarize Module 3, the external assessment indicates that Nike, Inc. is operating
within a highly competitive market and faces a direct rivalry with Adidas. This section also
looks at the strategies of the competition. The next phase of our strategic assessment will
aggregate all identified factors into a SWOTT analysis which leads to a situational analysis.
Then, all of the components are narrowed down into a general problem statement, followed
by a presentation of meaningful strategic alternatives to be proposed to Nike, Inc.’s Senior
Management.
176
177
61
Module 4: Situational Analysis
Abstract
This section is a culmination of the data gathered and presented in the Internal Assessment and
the External Assessment. The information is reanalyzed in an attempt to clearly identify how the
strengths, weaknesses, opportunities, and threats associated with Nike, Inc. affect the strategic
plan of the company. The following, provided by DBA Consulting, LLC, is a clear summary of
the strategic approach that will best suit Nike, Inc. moving forward. Included herein is a SWOTT
Analysis, Situational Analysis, and General Problem Statement as a means to eventually propose
the best Strategic Alternatives for Nike, Inc.
A. SWOTT Analysis
The Internal Assessment in the earlier section addressed the strengths and weakness present for
Nike, Inc. based on their resources and capabilities. As a result, core competencies were
identified and Sustainable Competitive Advantages were determined based on their ability to be
inimitable and non-substitutable by their competition.178 The External Assessment in the last
section addressed the opportunities and threats presented to Nike, Inc. through their general
environment, their market environment and their competitive environment based on their
industry. Listed below is a detailed table illustrating the five components of the SWOTT
analysis.
Figure 8: Nike, Inc. SWOTT
178 Analysis
Strategic Management 2013
62
Strengths Weaknesses
-Efficient use of assets to aid cash flow
-Innovation - Implement disruptive
innovation initiatives
-Global brand recognition due to $2.5B -Lowest gross profit margin in the industry
annual marketing campaign.
-Lack of control of all factories and their
-Strong diverse company culture workplace standards
-Supply Chain - Strong company owned -Lack of complete vertical integration
logistics dept for multiple distribution
channels -Majority of products manufacured overseas
-Consistent revenue growth -Lack of visible contingency plans
-Industry leading net profit margins due to
efficient management of SG&A costs
-Minimal A/R days (46 days)
-Size of company-Advantage due to economy
of scale
-Value chain that incorporates customer
value in 7 phases
-Strong reputation for superior performance
SWOTT Threats
Opportunities
-Increase in direct to consumer channels can -Exchange rate of profits in foreign currencies
increase gross margins -Uncertainty of the Chinese economy
-Increase in Soccer interest worldwide -Trend toward American made products can
creates more valuable market to expand in hinder U.S. sales
-Further develop a strong position on -Highly competitive industry, rapid changes
minimizing Nike, Inc. environmental impact in technology and consumer preferences
-Market toward baby boomer generation that -Threat of imposters/unregulated "gray
is comprised of 15%of U.S. pop. markets"
-Market men and women products toward -Competition in Basketball Market is
women (make up 85% of purchase decisions) threatening Nike, Inc postion - strong
-Leverage the strengths in efficiency and endorsers are contracting with competitors
innovation to out perform the competition in -Economic instability affects consumer
economic challenging time purchasing power, especially more expensive
-Maximze social media channels to better brands
develop customer relationships worldwide -Government regulations and high corporate
-Capitalize on the 20% increase in emerging tax rates in the U.S. and other countries
markets worldwide -Advancement in technology had increase the
Utilize increase in mobile device uses to rate that information can spread such asd
create possible value at every moment negative publicity
-Threat of new entrants in emerging markets
63
Trends
 Environmental impact concern  Unemployment continues to be
(i.e. shift toward sustainability) high and effecting purchases
 Concern regarding  Challenges regarding exchange
environmental resources rates affect global businesses
 Women control the majority of  Interest in purchasing American
the purchasing power made products
 Corporate taxes in U.S. are some  Increase in government
of the highest of the developed regulations
nations  Mobile device use has increased
 Priority to address intellectual  Social media has become the most
property rights worldwide has impactful way to reach audiences
increased  Global market trends for
 Concern regarding obesity has performance apparel have
increased increased 20% in the past four
 Popularity of robotics and smart years
technology has changed  Use of health and fitness
business operations applications are on the rise
 Rising middle class worldwide  Increase in emerging markets
 Soccer & Basketball categories  Rise in affluent Chinese population
are growing worldwide  Significant population growth
worldwide
Situational Analysis & Discussion
Strengths
Nike has numerous strengths including innovation, highly recognized global brand, industry best
cash flow, and a world class supply chain. All of these strengths have allowed Nike to separate
itself from lesser competitors and, in recent months from its largest competitor, Adidas. During
the most recent quarter, Nike had a sales increase of 5% and Adidas saw sales decrease by 5%.179
Innovation
 Innovative ideas and patented technology allows for Nike, Inc. to stay on top of the
competition. Nike, Inc. has chosen to move from incremental innovation to disruptive
innovation in hopes to create better solutions.
179
(Seeking Alpha, 2013)
64
 Nike, Inc. initiated the formation of Business for Innovation Climate and Energy Policy
(BICEP) and SB&I “Lab” for sustainable innovation through external partnerships in
2009 thus creating an atmosphere and presence of being truly innovative.180
 Nike, Inc. was created on a foundation of innovation starting with the waffle iron inspired
sole. This allowed traction with less material, resulting in a lighter weight shoe.
Branding/Marketing
 Nike, Inc. has created a highly successful brand recognition approach by sponsoring
successful athletes. In addition, Nike, Inc. has more than 700 stores worldwide.181
 Their branding success is also due to their ability to market towards everyone by stating,
“If you have a body you are an athlete.”
 Spent over $2.5B in sales and marketing to support and increase its global brand
awareness.
Net Profit & Cash Flow Growth

 Nike’s sales for 2013 were $25.3B which is an increase of 5% from FY 2012. Nike’s
average annual revenue growth over the past 5 years has been 6.33%.
 Earnings before interest, taxes, depreciation, and amortization (EBITDA) has grown
consistently over the past 5 years and reached its highest level in 2013 at $3.7B. This is a
direct result of Nike growing its revenue, controlling costs, and maintaining its profit
margins.
 Nike’s net profit margin is one of the best in the footwear and apparel industry at 9.82%
of sales. Even though Nike was behind its competitors in regards to gross profit margin,
it is able to make up the difference by having less selling and administrative costs, as a
percentage of sales, than its competitors.
 Because Nike has such strong cash flow from operations it has been able to produce
working capital of $9.7B at FYE 2013, including $3.3B in cash182. Working capital has
grown year over year for the past 5 years and is at the highest point in Nike’s history. In
addition, Nike has the strongest working capital in the industry, beating the industry
average of $3.8B and their next closest competitor, Adidas, which has working capital of
$3.3B.
Supply Chain
 Nike, Inc. has a commitment to transparency with regarding to manufacturing which
allows the disclosure of more than 800 factories worldwide that produce Nike, Inc.
products.
 Effective distribution channels including 3 product categories (footwear, apparel, and
equipment) shipped to 143 different locations worldwide. Nike, Inc. manages their own
logistics by creating an efficiently run logistics department.
180
http://nikeinc.com/news/nike-bicep-partner-to-work-on-climate-change-and-energy-issues-call-for-congressional-
action
181
http://nikebrandanalysis.blogspot.com/2013/05/brand-awareness.html
182
65
Weaknesses
Nike’s primary weakness has been a deterioration of its gross profit margin. Nike’s gross margin
has decreased slowly over the past four years from 46.3% at FYE 2010 to 43.6% at FYE 2013.
Nike has seen significant shifts in the mix of revenues from higher to lower margin segments of
its business. While growth in these lower gross margin segments delivers incremental revenue
and profits, it has a negative effect on its consolidated gross margin.183
Nike has taken steps, including raising prices, to improve its gross margins and saw a slight
improvement between FYE 2012 and 2013, but margins are still down compared to 2009.
However, Nike is below the industry average for gross profit margin of 46.4% and Nike has the
lowest gross profit margin in the footwear and apparel industry. Adidas and Under Armour have
the best gross profit margin in the industry at 47.7%, and 47.9%, respectively.
Opportunities
There are multiple attractive opportunities that Nike could pursue. However, we feel that the
following areas take advantage of Nike’s core competencies and will allow the company to
create a sustainable competitive advantage.
Direct to consumer market

 Strong growth is anticipated in the Direct to Consumer segment whereby end users will
be using Nike’s website and retail stores to purchase footwear and apparel directly from
Nike. By selling directly to consumers, Nike can cut out its wholesale buyers and
increase the company’s profit margins.
 The social expectations of consumers are helping recreate business as more agile
networks.184 As a result, the opportunities to engage with large groups of people through
social networks and e-commerce allow an increase in connectedness and ultimately brand
awareness.
Emerging markets
 China has an $84 billion apparel market, which is the third largest in the world.185
Chinese young adults between the ages of 18 and 25 place a premium on international
brands.
 Brazil is the 5th largest apparel market in the world. Brazilians are very fashion
conscious and passionate about their clothing and spend more of their income on clothing
the any other staple.186
 Both Nike and Adidas are expecting double digit revenue growth in emerging markets
and are spending considerable amount of capital and resources to build market shares and
efficient supply chains.187 188
183
Ibid, pg. 69
184
Ibid
185
(Wai-Chan, Cheung, & Tse, 2007)
186
(Sheth & Vittal, 2007)
187
(Nike, Inc., 2013)
66
Soccer and Basketball categories

 Soccer is the largest sport in the world and the World Cup in 2014 is expected to draw
over a billion viewers across the world.189 Nike has been very aggressive in targeting
Adidas’ position as the leader in the soccer category and should use the World Cup as
venue to further expand its brand.
 As of 2007, over 11% of the world’s population played basketball. In addition, basketball
has surpassed soccer in popularity in Asia and Australia.190
 Basketball is the most popular sport among 14-18 year olds.191
Women
 Women are continuing to have more purchasing power and currently make up 85% of the
consumer purchasing decisions.192
 Women in emerging markets are the primary decision makers regarding apparel
purchases.193
Threats
There are many threats that Nike faces from the general environment, industry environment, and
competitive environment. Based on our in-depth analysis of our external assessment, the biggest
threats that Nike faces include operating in a highly competitive industry and uncertainty in the
macroeconomic environment.
Highly competitive environment

 There is intense competition and rapid changes in technology and consumer preferences
in the markets for athletic and leisure footwear and apparel, and athletic equipment.194
 Brand image and customer loyalty is huge in this industry, which leads to the brands
competing not only to protect their turf, but also leads to huge marketing campaigns to
steal market share away from rivals.
 High strategic stakes195 – Competitors in this industry are constantly looking for strategic
advantages on geographic and category basis. Currently, Nike is going after Adidas’
dominant market share in the soccer category and subsequently, Adidas has launched a
counterattack on Nike’s dominance in the basketball category.
188
189
190
(The Sports Archive Blog, 2013)
191
(The Sports Archive Blog, 2013)
192
http://www.gingerminneapolis.com/sites/www.gingerminneapolis.com
/files/SurveyResultsAlpha51913_FINAL.pdf
193
(Wai-Chan, Cheung, & Tse, 2007)
194
(Nike, Inc., 2013)
195
67
Macroeconomic Conditions
 High unemployment rates and a lack of stability in the economic environment affect
purchasing power and tend to hinder the consumption of more expensive brands. A 2010
study done by Pew Research shows 71% of their responders cut back on spending of
more expensive brands.196
 Nike has been impacted by the sluggish macroeconomic conditions in China in the form
of slow product sell-through which has led to high levels of inventory.197
Trends
Of the multiple trends we observed from our external analysis, the following trends were the
most prevalent and pressing trends that Nike needs to address and take advantage of.
Growing Middle Class

 Globally, the size of the middle class will increase from 1.8 billion people to 3.2 billion
by 2020 and to 4.9 billion by 2030. Most of this growth (85%) will come from Asia.198
 In dollar terms global demand from the middle class will grow from $21 trillion to $56
trillion by 2030.199
Shift towards sustainability

 Awareness of a lack of natural resources. By 2030 the world population will demand
twice as many resources as the planet can supply.200
 Consumers are becoming more environmentally conscious and tend to purchase from
companies that try to support environmental sustainability.
Growing obesity epidemic

 Nearly 2 billion people worldwide are obese or overweight.201
 National governments are creating tasks forces and providing grants to fight growing
obesity epidemic.202
 Best way to fight obesity is physical activity and healthy eating, which directly benefits
Nike and the athletic footwear and apparel industry.
Synthesis
The external and internal assessments solidify the ideas that DBA Consulting, LLC hold. Nike,
Inc. is attempting to out-compete on an international level while leveraging competitive
advantages. Nike, Inc. is also attempting to produce a greater gross profit margin while focusing
on sustainable product differentiation. When looking at aspects of Nike, Inc.’s strategic vision,
intent, and goals it becomes obvious that Nike executives have a superior working knowledge of
196
http://www.forbes.com/2010/07/08/recession-spending-pew-opinions-columnists-john-zogby.html
197
(Nike, Inc., 2013)
198
(Kharas, 2010)
199
(Kharas, 2010)
200
201
202
68
both the sports apparel market and where Nike, Inc. sees itself in the future. The quality of
working knowledge is not unreasonable for a company with such longevity and experience
within one market. The following framework takes some key components of the SWOTT
analysis and situation analysis and shows weather there is a connection to the current strategic
vision, mission, intent, or goals of Nike, Inc. The following framework was developed by DBA
Consulting LLC.
Figure 9: Strategy Synthesis
Current Nike, Inc. Objective Synthesis

Focus on disruptive innovation “Profitable growth decopled from
and development of patented constrained natural resources.”203
technology
Branding based on the vision, “If
you have a body you are an
athlete”
Increased and more efficient use “Return on Invested Capial of 25%.”204
of working capital
Transparency in “Through other initatives, we hope to go
manufacturing/supply chain much further, helping our supply chain
management become leaner, greener, more equitable,
and empowered.”205
Focus on growth in the Direct to “Mid-teen growth in Direct to Consumer
Consumer segment Business.”206
Expansion and growth into “Open 250-300 Nike Brand stores
Asian markets and other worldwide over next five years.”207
emerging markets
Focus on sustainability in all “Balance people, profit, and planet.”208
forms of operations and
business practices
The framework shows that multiple aspects of the SWOTT and situational analysis are directly
in-line with the current strategies in place at Nike, Inc. There is one item that we, as a team, feel
does not coincide with the strategic objectives of Nike, Inc. That item is branding based on
203
“Targets and Performance.” 2013 CR Report.
http://www.nikeresponsibility.com/report/content/chapter/targets-and-performance
204
Ibid
205
Ibid
206
Ibid
207
Ibid
208
Ibid
69
vision. Another item that is not accounted for whatsoever within the current strategy of Nike,
Inc. is an action plan for dealing with the threat of patent infringement, imposters, or knock-offs
(especially in the Asian markets). Decrease in sales, damage to brand, and increased competition
are just a few of the negative repercussions that could result from the lack of a strategy to deal
with such issues.
General Problem Statement
Nike, Inc. operates within a highly competitive and attractive industry with above average
returns. As a result, we at DBA Consulting, LLC feel Nike, Inc.'s general problem statement is:
maintain and increase global dominance of the technical apparel, footwear, equipment and
accessories industry, in seven targeted categories, by keeping Adidas and other existing or
potential competitors at bay.
Strategic Alternatives
Current Strategy
At the core of the current strategy Nike, Inc. is employing is the idea of sustainability.
Sustainability in terms of operations, sourcing, manufacturing, regulations, innovation, and
people. Nike, Inc. has been able to successfully integrate a strategy focused on sustainability into
their business model. The current strategy is one where business model and sustainability collide
effectively and efficiently.
Because of the uniquely focused strategy, Nike, Inc. is able to place emphasis on innovation that
is disruptive which is a key objective for the company. The strategy also enables Nike, Inc. to
leverage competitive advantages over the competition. Competitive advantages then become
sustainable competitive advantages because of the ability to take advantage of economies of
scale and highlight the successes of the manufacturing and supply chain process. Nike, Inc.’s
current strategy of sustainability is part of the culture of the company which is reflected in the
positive growth over recent years. The strategy is effective.
Following are the advantages and disadvantages of the current strategy:
Pros
 Proven effective track record
 Develops sustainable competitive advantages
 Drives disruptive innovation
 Distinguishes Nike, Inc. from new entrants
 Is a long term strategy with the potential for longevity in terms of use
Cons
 Sustainable practices can be expensive to create
 Strategy does not account for increased competition
 Doesn’t necessarily address the need to acquire additional market share
70
Alternative Strategy #1: Acquisition of Under Armour
Based on Nike’s core competencies of innovation, global supply chain, and branding and
acquisition of its direct competitor Under Armour would be a good strategy to protect its
market share in North America. Since 2003, Under Armour has gone from 0.6% of the
North American apparel market to 2.6% as of 2010. Meanwhile, Nike has lost market
share going from 7.4% in 2003 to 7% in 2010.209
Under Armour started in 1995 and grew to $1 billion in sales by 2010.210 The company
has a similar history as Nike in that it was started by an individual who was looking for
better gear in order to perform sports at a higher level. Innovation is one of Under
Armour’s core competencies as they were one of the first companies to patent
compression fitting shirts and shorts that wick away sweat and kept athletes cool.
Following are the advantages and disadvantages of Nike acquiring Under Armour:
Pros
 Similar business model – Nike and Under Armour have similar business models in
regards to innovation, manufacturing, and selling of their products. Both outsource
the manufacturing of their products and use 3rd part retailers to sell their products.
 Similar core competencies – Both companies were founded on innovative products
that changed the footwear and apparel industry. Both have used their innovative
competency to gain market share within a highly competitive footwear and apparel
industry.211
 Increased market Power212 - By acquiring Under Armour, Nike can gain access to
Under Armour’s patents for performance apparel which will provide a sustainable
competitive advantage over its largest rival, Adidas.
 Nike would gain access to another 100 high school, collegiate, and professional teams
that Under Armour currently provides athletic apparel for.213
Cons
 Redundancy
 Expensive
 Return on equity for shareholders are typically low.214
Ultimately, acquiring Under Armour would provide a sustainable competitive advantage

for Nike over larger competitors like Adidas and create further barriers to entry for new
competitors. However, the acquisition will likely be extremely costly and Nike may not
see a return on equity for many years.
209
(Roberts, 2011)
210
(Roberts, 2011)
211
(Parker, 2013)
212
213
(Roberts, 2011)
214
71
Alternative Strategy #2: Focused Differentiation: International
A strategy focused on further development into the Chinese market will offer Nike, Inc. a
competitive advantage in the athletic apparel and equipment industry. Our
recommendation for Nike in China would be a focused differentiated approach targeting
the urban Chinese population.
The Chinese middle class is growing rapidly and consequently average income is rising
nearly 10% per year.215 Currently, the average annual income in urban areas is nearly 2.5
times higher than rural areas.216 It is estimated that by 2022 54% of urban households in
China will be upper-middle class with more purchasing power.217
China is the second largest athletic footwear and apparel market in the world behind the
United States. In addition, the sportswear market in China is expected to grow by 17%
annually for the next four years, reaching $32 billion in 2017.218
Nike can leverage its existing relationships with contract factories across China and Asia
as a key success factor in executing this strategy. Having these factories close to the end
user will cut down on transportation and distribution costs and ultimately the overall
price of its footwear and apparel.
In addition, Nike will need to use its innovation and technical core competencies to
further develop its direct to consumer channels in China. This will not only improve
margins, but allow Nike the freedom to reduce the price point of its footwear and apparel
in order to gain market share.
In order for Nike to successfully reach its long-term objective of growing the Nike brand
to $23 billion and obtain $37 million in revenue by 2015, the company needs to execute
this focused strategy in China in order to gain market share.
Pros
 Chinese growing middle and upper-middle classes will have greater purchasing
power.
 2nd largest economy in the world.
 Distribution Centers located throughout Asia create an advantage of proximity
 Chinese young adults aged 18-25 favor international brands over domestic brands.219
 Supply chain advantage due to already established locations in China
Cons
215
(Wong, 2013)
216
(Wong, 2013)
217
http://www.mckinsey.com/insights/consumer_and_retail/mapping_chinas_middle_class
218
(De, 2013)
219
http://www.chinadaily.com.cn/bizchina/2008-02/21/content_6472265.htm
72
 Underdeveloped infrastructure in China will create challenges for distribution

 Threats of imitation or “knock-offs.”
 Economic disadvantages associated with exchange rate fluctuations can affect profits
 Rules and regulations in China are vastly different then the US
 Political relationships between the US and China can affect the operations of US
companies in China
In the next module, Module 5: Strategic Plan, DBA Consulting, LLC takes the significant
amount knowledge and insight gained in the previous modules and presents a strategic
plan for Nike, Inc. to utilize going forward. The idea is to build upon the successful strategy
already in place at Nike, Inc. and present an alternative for the company in order to help in
the achievement of desired goals and objectives.
73
Module 5: Strategic Plan
Table 9: Strategic Scorecard
Key Performance Strategy 1 – Current Strategy 2 – Acquire Strategy 3 –

Indicators Strategy Under Armour International/China
Financial 4 2 4
Customer 4 3 4
Internal Business 3 1 4
Processes
Learning & Growth 4 3 5
TOTAL 15 9 17
5 = Superior Advantage, 4 = Advantage, 3 = Neutral, 2 = Disadvantage, 1 = Inferior
We used a balanced scorecard to review the key performance indicators for each of the three
strategies and assessed the viability of each indicator to come up with an aggregate score for
each strategy. For each of the key performance indicators we ranked each strategy on a level of
1 to 5, with 1 being inferior and 5 being a superior advantage.
The rankings for each category were based on our research of the internal and external
environments at Nike including a situational analysis along with the advantages and
disadvantages of each strategy.
Based on our findings using the balanced scorecard, DBA Consulting, LLC is recommending
that Nike move forward with a blended strategy of sustainability along with a focused expansion
of differentiation into international markets, with a specific focus on China.
DBA Consulting, LLC ultimately came to the conclusion that an international strategy focused
on China will allow Nike to gain market share which will undoubtedly lead to increased revenue
and shareholder value. Nike can use its core competencies as follows to gain and uphold a
sustainable competitive advantage in China:
 Innovation: Create new and exciting products that appeal to Chinese consumers.
 Supply Chain: Nike’s existing network of manufacturers and warehouse facilities in
China and Asia allow the company to adjust to market conditions in real time.
 Branding/Marketing: By attracting and recruiting high profile athletes, and appealing to
the “western” trend in advertising in China, Nike can use its branding and marketing
prowess to gain a competitive advantage.
We are also recommending an integration of the current sustainability strategy in order to

maintain its current position as the preeminent athletic footwear and apparel manufacturer in the
world. By using its core competencies as follows, Nike can maintain a sustainable competitive
advantage over its rivals:
74
 Innovation: Increase direct-to-consumer distribution channel in order to improve

margins.
 Supply Chain: Use existing manufacturers to maintain quality and sustainable products.
Use global logistic capabilities to move product as efficiently as possible.
 Branding/Marketing: Leverage high profile athletes such as LeBron James, Tiger Woods,
and Michael Jordan to maintain market share.
75
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Appendices
Appendix A: A Special Thank You
DBA Consulting, LLC would like to thank Dr. Alain Gracianette for his significant contribution
as both an advisor and mentor to the team. His sincere guidance, advice, and leadership is greatly
appreciated.
DBA Consulting, LLC would also like to thank Buel’s Impressions Printing for the beautiful
assembly of the project. Their level of professionalism and dedication is appreciated.
Appendix B: About the Authors
Dawn Ackerman is currently an Administrative Assistant for Grants Pass School District 7.She is
responsible for benefits coordination for roughly 650 employees, accounts receivable for the
entire district, and various functions of payroll. Dawn is also the lead assistant to the Business
Director and has various responsibilities balancing GL accounts. Previously Dawn was a Car
Deal Account Manager for a new car dealership where her responsibilities included reconciling
bank statements, reserve statements, inventory, and assisting with payroll. Dawn also processed
all car deals to ensure prompt and timely funding of contracts from numerous financial
institutions as well as accurately submitting required Department of Motor Vehicle documents.
Dawn presently holds a bachelor’s degree in Management and Operations from Washington
State University and is continuing her education with a Master of Business Administration with a
focus on International Business from Concordia University. Dawn will graduate from Concordia
University in January 2014.
Brian Claar is currently a financial analyst with Providence Health and Services and is
responsible for managing the budget and ongoing operations for Providence’s revenue cycle.
The revenue cycle department consists of 3,000 employees across 5 states and has an annual
operating budget of $200 million. Brian is also a key member of the Providence capital budget
and long range financial planning committee. Prior to working at Providence, Brian worked in
commercial banking for 10 years as a financial analyst and relationship manager. As a
relationship manager, Brian was responsible for sales and marketing to small and medium size
business owners and has managed a portfolio of $100 million in commercial loans. Brian has
been a trusted advisor for many business owners in financial planning and capital budgeting
including large real estate projects in excess of $5 million. Brian also has experience in process
improvement and was able to save a Northwest bank $1 million in operational costs through
implementation of procedures and processes that improved efficiency. Brian holds a Bachelor’s
degree in Finance from Linfield College and is currently pursuing a Master’s degree in Business
Administration from Concordia University. Brian will graduate from Concordia University in
January 2014.
Angelica Jackson currently works as a Program Manager for La D’Paw LLC where she manages
five new business ventures and manages eCommerce marketing strategies for multiple clients.
She has a background in the field of law and has worked as a Legal Assistant for 10 years. Most
80
of her experience has been working in small successful companies where her management roles
have required an assortment of tasks from different field of business including Accounting,
Human Resource Management, Training and Development, Project Management, and Research
and Marketing. She received a Bachelor of Science in Psychology from the University of Oregon
and is currently completing a Master of Business Administration at Concordia University. She
intends to graduate in January, 2014.
81
Appendix C: Financial Statement
NIKE, INC.
BALANCE SHEET
USD in millions except per share data.
2009 2010 2011 2012 2013

ASSETS
Cash and cash equivalents $ 2,291 $ 3,079 $ 1,955 $ 2,317 $ 3,337
Short-term investments 1,164 2,067 2,583 1,440 2,628
Total cash 3,455 5,146 4,538 3,757 5,965
Receivables 2,884 2,650 3,138 3,280 3,117
Inventories 2,357 2,041 2,715 3,350 3,434
Deferred income taxes 272 249 312 274 308
Prepaid expenses 766 874 594 870 802
Total current assets 9,734 10,959 11,297 11,531 13,626
Non-current assets
Gross property, plant and equipment 4,256 4,390 4,906 5,244 5,500
Accumulated Depreciation (2,298) (2,458) (2,791) (2,965) (3,048)
Net property, plant and equipment 1,958 1,932 2,115 2,279 2,452
Goodwill 194 188 205 201 131
Intangible assets 467 467 487 535 382
Deferred income taxes 897 874 894 919 993
Total non-current assets 3,516 3,460 3,701 3,934 3,958
Total assets $ 13,250 $ 14,419 $ 14,998 $ 15,465 $ 17,584
Liabilities and stockholders' equity
Short-term debt $ 375 $ 146 $ 387 $ 157 $ 178
Accounts payable 1,032 1,254 1,469 1,588 1,646
Taxes payable 86 59 117 246 290
Accrued liabilities 1,784 1,774 1,985 1,654 1,572
Other current liabilities 131 220 240
Total current liabilities 3,277 3,364 3,958 3,865 3,926
Non-current liabilities
Long-term debt 437 446 276 228 1,210
Deferred taxes liabilities 842 855 921 991 1,292
Other long-term liabilities 1 0
Total non-current liabilities 1,280 1,301 1,197 1,219 2,502
Total liabilities 4,557 4,666 5,155 5,084 6,428
Stockholders' equity
Common stock 3 3 3 3 3
Additional paid-in capital 2,871 3,441 3,944 4,641 5,184
Retained earnings 5,451 6,096 5,801 5,588 5,695
Accumulated other comprehensive income 367 215 95 149 274
Total stockholders' equity 8,693 9,754 9,843 10,381 11,156
Total liabilities and stockholders' equity $ 13,250 $ 14,419 $ 14,998 $ 15,465 $ 17,584
82
NIKE, INC.
INCOME STATEMENT
2009 2010 2011 2012 2013
Revenue $ 19,176 $ 19,014 $ 20,862 $ 24,128 $ 25,313
Cost of revenue 10,572 10,214 11,354 13,657 14,279
Gross profit 8,604 8,800 9,508 10,471 11,034
Operating expenses
Sales, General and administrative 6,150 6,326 6,693 7,431 7,780
Restructuring, merger and acquisition 195
Other operating expenses 401
Total operating expenses 6,746 6,326 6,693 7,431 7,780
Operating income 1,858 2,474 2,815 3,040 3,254
Interest Expense 4
Other income (expense) 98 43 33 (57) 18
Income before taxes 1,956 2,517 2,844 2,983 3,272
Provision for income taxes 470 610 711 760 808
Net income from continuing operations 1,487 1,907 2,133 2,223 2,464
Net income from discontinuing ops 21
Net income $ 1,487 $ 1,907 $ 2,133 $ 2,223 $ 2,485
Net income available to common shareholders 1,487 1,907 2,133 2,223 2,485
Earnings per share
Basic 1.54 1.97 2.24 2.42 2.77
Diluted 1.52 1.93 2.20 2.37 2.71
Weighted average shares outstanding
Basic 970 971 951 920 897
Diluted 981 988 971 940 916
EBITDA $ 2,242 $ 2,870 $ 3,206 $ 3,445 $ 3,767
83
NIKE, INC.
STATEMENT OF CASH FLOWS
2009 2010 2011 2012 2013
Cash Flows From Operating Activities
Net income 1,487 1,907 2,133 2,223 2,485
Depreciation & amortization 383 396 358 405 513
Investment/asset impairment charges 401
Deferred income taxes (294) 8 (76) (60) 21
Stock based compensation 171 159 105 130 174
Accounts receivable (238) 182 (273) (323) 142
Inventory 32 285 (551) (805) (197)
Prepaid expenses 14 (70) (35) (141) (28)
Accounts payable 151 470 41
Other working capital (220) 298
Other non-cash items (124)
Net cash provided by operating activities 1,736 3,164 1,812 1,899 3,027
Cash Flows From Investing Activities
Investments in property, plant, and equipment (456) (335) (432) (597) (636)
Property, plant, and equipment reductions 32 10 1 2 14
Acquisitions, net 786
Purchases of investments (2,909) (3,724) (7,616) (2,705) (3,702)
Sales/Maturities of investments 2,581 2,788 7,079 3,829 2,499
Other investing activities (47) (6) (53) (15) (28)
Net cash provided by (used for) investing activities (798) (1,268) (1,021) 514 (1,067)
Cash Flows From Financing Activities
Debt issued 177 986
Debt repayment (7) (32) (8) (203) (49)
Common stock repurchased (649) (741) (1,859) (1,814) (1,674)
Dividend paid (467) (505) (555) (619) (703)
Other financing activities 212 218 450 518 400
Net cash provided by (used for) financing activities (734) (1,061) (1,972) (2,118) (1,040)
Effect of exchange rate changes (47) (48) 57 67 100
Net change in cash 157 788 (1,124) 362 1,020
Cash at beginning of period 2,134 2,291 3,079 1,955 2,317
Cash at end of period 2,291 3,079 1,955 2,317 3,337
Free Cash Flow
Operating cash flow 1,736 3,164 1,812 1,899 3,027
Capital expenditure (456) (335) (432) (597) (636)
Free cash flow 1,280 2,829 1,380 1,302 2,391
84
NIKE, INC.
KEY RATIOS
2009 2010 2011 2012 2013
Revenue USD Mil 19,176 19,014 20,862 24,128 25,313
Gross Margin % 44.9 46.3 45.6 43.4 43.6
Operating Income USD Mil 1,859 2,474 2,815 3,040 3,254
Operating Margin % 9.7 13 13.5 12.6 12.9
Net Income USD Mil 1,487 1,907 2,133 2,223 2,485
Earnings Per Share USD 1.52 1.93 2.2 2.37 2.71
Dividends USD 0.49 0.53 0.6 0.7 0.81
Payout Ratio % 32.4 27.5 27.3 29.4 30.1
Shares Mil 981 988 971 940 916
Book Value Per Share USD 9.93 11.11 11.63 12.57 12.48
Operating Cash Flow USD Mil 1,736 3,164 1,812 1,899 3,027
Cap Spending USD Mil -456 -335 -432 -597 -636
Free Cash Flow USD Mil 1,280 2,829 1,380 1,302 2,391
Free Cash Flow Per Share USD 1.3 2.86 1.42 1.39 2.61
Working Capital USD Mil 6,457 7,595 7,339 7,666 9,700
Key Ratios -> Profitability

Margins % of Sales
Revenue 100 100 100 100 100
COGS % 55.13 53.72 54.42 56.6 56.41
Gross Margin % 44.87 46.28 45.58 43.4 43.59
SG&A % 32.07 33.27 32.08 30.8 30.74
R&D
Other 3.11
Operating Margin % 9.69 13.01 13.49 12.6 12.86
Net Int Inc & Other 0.51 0.23 0.14 -0.24 0.07
EBT Margin 10.2 13.24 13.63 12.36 12.93
Profitability
Tax Rate % 24.01 24.24 25 25.48 24.69
Net Margin % 7.75 10.03 10.22 9.21 9.82
Asset Turnover (Average) 1.49 1.37 1.42 1.58 1.53
Return on Assets % 11.57 13.78 14.5 14.59 15.04
Financial Leverage (Average) 1.52 1.48 1.52 1.49 1.58
Return on Equity % 18 20.67 21.77 21.98 23.08
Return on Invested Capital % 16.56 19.21 20.43 20.9 21.32
Interest Coverage 712
Key Ratios -> Growth
85
Revenue %
Year over Year 2.95 -0.85 9.72 15.66 4.91
3-Year Average 8.64 5.21 3.85 7.96 10.01
5-Year Average 9.37 6.71 6.88 8.13 6.33
10-Year Average 8.13 7.77 8.2 9.33 9
Operating Income %
Year over Year -23.63 33.12 13.78 7.99 7.04
3-Year Average -4.13 5.09 4.97 17.82 9.57
5-Year Average 3.7 5.49 5.94 7.36 5.98
10-Year Average 8.05 9.65 10.75 11.03 10.08
Net Income %
Year over Year -21.06 28.25 11.87 4.22 11.79
3-Year Average 2.22 8.53 4.24 14.35 9.23
5-Year Average 9.47 9.49 8.91 8.31 5.7
10-Year Average 12.66 12.66 13.72 12.86 18.02
EPS %
Year over Year -18.98 27.39 13.73 7.74 14.59
3-Year Average 4.7 9.62 5.49 16 11.98
5-Year Average 11.54 11.5 10.71 10.05 7.7
10-Year Average 14.46 14.07 15.05 14.51 19.87
Key Ratios -> Cash Flow

Cash Flow Ratios
Operating Cash Flow Growth % YOY -10.34 82.26 -42.73 4.8 59.4
Free Cash Flow Growth % YOY -13.9 120.95 -51.22 -5.65 83.64
Cap Ex as a % of Sales 2.38 1.76 2.07 2.47 2.51
Free Cash Flow/Sales % 6.68 14.88 6.61 5.4 9.45
Free Cash Flow/Net Income 0.86 1.48 0.65 0.59 0.96
Key Ratios -> Financial Health

Balance Sheet Items (in %)
Cash & Short-Term Investments 26.08 35.69 30.26 24.29 33.92
Accounts Receivable 21.77 18.38 20.92 21.21 17.73
Inventory 17.79 14.15 18.1 21.66 19.53
Other Current Assets 7.83 7.79 6.04 7.4 6.31
Total Current Assets 73.47 76 75.32 74.56 77.49
Net PP&E 14.78 13.4 14.1 14.74 13.94
Intangibles 4.99 4.54 4.61 4.76 2.92
Other Long-Term Assets 6.77 6.06 5.96 5.94 5.65
Total Assets 100 100 100 100 100
Accounts Payable 7.79 8.7 9.79 10.27 9.36
Short-Term Debt 2.83 1.01 2.58 1.02 1.01
86
Taxes Payable 0.65 0.41 0.78 1.59 1.65

Accrued Liabilities 13.46 12.3 13.24 10.7 8.94
Other Short-Term Liabilities 0.91 1.42 1.36
Total Current Liabilities 24.73 23.33 26.39 24.99 22.33
Long-Term Debt 3.3 3.09 1.84 1.47 6.88
Other Long-Term Liabilities 6.36 5.93 6.14 6.41 7.35
Total Liabilities 34.39 32.36 34.37 32.87 36.56
Total Stockholders' Equity 65.61 67.64 65.63 67.13 63.44
Total Liabilities & Equity 100 100 100 100 100
Liquidity/Financial Health
Current Ratio 2.97 3.26 2.85 2.98 3.47
Quick Ratio 1.93 2.32 1.94 1.82 2.31
Financial Leverage 1.52 1.48 1.52 1.49 1.58
Debt/Equity 0.52 0.48 0.52 0.49 0.58
Key Ratios -> Efficiency Ratios

Efficiency
Days Sales Outstanding 54.05 53.11 50.63 48.54 46.12
Days Inventory 82.78 78.58 76.44 81.05 86.71
Payables Period 40.04 40.85 43.78 40.85 41.33
Cash Conversion Cycle 96.79 90.84 83.3 88.74 91.49
Receivables Turnover 6.75 6.87 7.21 7.52 7.91
Inventory Turnover 4.41 4.64 4.77 4.5 4.21
Fixed Assets Turnover 9.96 9.78 10.31 10.98 10.7
Asset Turnover 1.49 1.37 1.42 1.58 1.53
Under
Financials NIKE Adidas Armour VF Corp Industry
12/31/201 12/31/201 12/31/201 12/31/201
5/31/2013 2 2 2 2
$ $ $ $ $
Revenue USD Mil 25,313 19,668 1,835 10,880 14,424
Gross Margin % 43.60% 47.70% 47.90% 46.50% 46.43%
Operating Margin % 12.90% 6.20% 11.40% 13.50% 11.00%
Earnings Per Share USD 2.71 3.33 1.21 9.7 4
Shares Mil 916 209 106 112 336
87
Book Value Per Share USD 12.48 44.2 7.8 46.51 28

Operating Cash Flow USD Mil 3,027 1245 200 1,275 1437
Cap Spending USD Mil -636 -574 -51 -283 -386
Free Cash Flow USD Mil 2,391 671 149 992 1051
Free Cash Flow Per Share USD 2.61 3.21 1.4 8.87 4
Working Capital USD Mil 9,700 3,308 651 1,717 3,844

Margins % of Sales
Revenue 100.00% 100.00% 100.00% 100.00% 100.00%
COGS 56.41% 52.27% 52.08% 53.47% 53.56%
Gross Margin 43.59% 47.73% 47.92% 46.53% 46.44%
Operating Margin 12.86% 6.18% 11.37% 13.47% 10.97%
Net Int Inc & Other 0.07% -0.46% -0.29% -0.40% -0.27%
EBT Margin 12.93% 5.72% 11.09% 13.07% 10.70%
Profitability
Tax Rate % 24.69% 38.43% 36.70% 23.61% 30.86%
Net Margin % 9.82% 3.53% 7.02% 9.98% 7.59%
Asset Turnover (Average) 1.53 1.29 1.77 1.15 1.435
Return on Assets % 15.04% 4.57% 12.40% 11.46% 10.87%
Financial Leverage (Average) 1.58 2.2 1.42 1.88 1.77
Return on Equity % 23.08% 9.90% 17.72% 22.50% 18.30%
Return on Invested Capital % 21.32% 9.90% 16.17% 14.91% 15.58%
Interest Coverage 16.19 4.0475
Revenue %
Year over Year 4.91% 11.53% 24.60% 15.02% 14.02%
3-Year Average 10.01% 12.76% 28.92% 14.65% 16.59%
5-Year Average 6.33% 7.64% 24.78% 8.55% 11.83%
10-Year Average 9.00% 8.60% 43.50% 7.91% 17.25%
Operating Income % 0
Year over Year 7.04% -9.00% 28.22% 17.71% 10.99%
3-Year Average 9.57% 21.89% 34.76% 25.75% 22.99%
5-Year Average 5.98% -0.62% 19.33% 8.70% 8.35%
10-Year Average 10.08% 6.80% 47.39% 8.95% 18.31%
Net Income % 0.00%
Year over Year 11.79% -21.49% 32.87% 22.28% 11.36%
3-Year Average 9.23% 29.01% 40.15% 33.03% 27.86%
5-Year Average 5.70% -1.07% 19.63% 12.92% 9.30%
10-Year Average 18.02% 8.69% 46.82% 18.38%
88
EPS % 0.00%
Year over Year 14.59% -21.25% 30.81% 21.55% 11.43%
3-Year Average 11.98% 27.35% 38.04% 32.93% 27.58%
5-Year Average 7.70% -0.39% 18.17% 13.19% 9.67%
10-Year Average 19.87% 7.18% 40.63% 16.92%

Cash Flow Ratios
Operating Cash Flow Growth %
YOY 59.40% 18.94% 1212.66% 17.91% 327.23%
Free Cash Flow Growth % YOY 83.64% 22.12% 19.22% 31.25%
Cap Ex as a % of Sales 2.51% 2.92% 2.76% 2.60% 2.70%
Free Cash Flow/Sales % 9.45% 3.41% 8.13% 9.12% 7.53%
Free Cash Flow/Net Income 0.96 0.97 1.16 0.91 1

Balance Sheet Items (in %)
Cash & Short-Term Investments 33.92% 18.26% 29.54% 6.20% 21.98%
Accounts Receivable 17.73% 14.49% 15.17% 12.69% 15.02%
Inventory 19.53% 21.34% 27.59% 14.06% 20.63%
Other Current Assets 6.31% 4.94% 5.79% 2.86% 4.98%
Total Current Assets 77.49% 59.02% 78.09% 35.81% 62.60%
Net PP&E 13.94% 9.40% 15.63% 8.60% 11.89%
Intangibles 2.92% 25.17% 0.39% 51.15% 19.91%
Other Long-Term Assets 5.65% 6.41% 5.89% 4.45% 5.60%
Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%
Accounts Payable 9.36% 15.36% 12.42% 5.84% 10.75%
Short-Term Debt 1.01% 0.79% 4.31% 1.53%
Taxes Payable 1.65% 2.36% 1.61% 1.41%
Accrued Liabilities 8.94% 7.35% 5.86% 5.54%
Other Short-Term Liabilities 1.36% 19.82% 1.24% 0.36% 5.70%
Total Current Liabilities 22.33% 37.54% 21.80% 17.98% 24.91%
Long-Term Debt 6.88% 4.56% 14.84% 6.57%
Other Long-Term Liabilities 7.35% 17.05% 3.04% 13.97% 10.35%
Total Liabilities 36.56% 54.59% 29.40% 46.79% 41.84%
Total Stockholders' Equity 63.44% 45.41% 70.60% 53.21% 58.17%
Total Liabilities & Equity 100.00% 100.00% 100.00% 100.00% 100.00%
Liquidity/Financial Health
Current Ratio 3.47 1.57 3.58 1.99 2.65
Quick Ratio 2.31 0.77 2.05 1.05 1.55
Financial Leverage 1.58 2.2 1.42 1.88 1.77
Debt/Equity 0.58 1.20 0.42 0.88 0.77
89
Key Ratios -> Efficiency Ratios

Efficiency
Days Sales Outstanding 46.12 41.63 30.79 39.29 39.46
Days Inventory 86.71 116.54 122.93 88.08 103.57
Payables Period 41.33 86.23 46.64 37.63 52.96
Cash Conversion Cycle 91.49 71.94 107.08 89.74 90.06
Receivables Turnover 7.91 8.77 11.85 9.29 9.46
Inventory Turnover 4.21 3.13 2.97 4.14 3.61
Fixed Assets Turnover 10.7 14.46 10.79 13.9 12.46
Asset Turnover 1.53 1.29 1.77 1.15 1.44
* Industry values are derived from an average of Nike, Inc., Adidas, Under Armour, and VF Corp.
90
Growth Profitability and Financial Ratios for Adidas AG

Financials
2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue EUR Mil 14,883 19,668 13,344 11,990 10,381 10,799 10,299 10,084 6,636 6,478 6,267
Gross Margin % 47.7 47.7 47.5 47.8 45.4 48.7 47.4 44.6 48.2 47.2 44.9
Operating Income EUR Mil 920 1215 1,011 894 508 1,070 949 881 707 580 490
Operating Margin % 6.2 6.2 7.6 7.5 4.9 9.9 9.2 8.7 10.7 9 7.8
Net Income EUR Mil 526 695 670 568 245 644 555 496 390 323 271
Earnings Per Share EUR 2.52 3.33 3.2 2.71 1.22 3.07 2.57 4.5 4.08 1.64 1.43
Dividends EUR
Payout Ratio %
Shares Mil 209 209 209 209 209 213 219 219 203 183 182
Book Value Per Share EUR 33.45 44.2 31.75
Operating Cash Flow EUR Mil 942 1245 792 894 1,198 497 780 762 352 573 651
Cap Spending EUR Mil -434 -574 -376 -269 -241 -376 -285 -277 -208 -160 -145
Free Cash Flow EUR Mil 508 671 416 625 957 121 495 485 144 413 506
Free Cash Flow Per Share EUR 3.21 3.21 2.58
Working Capital EUR Mil 2,503 3,308 2,154 1,972 1,649 1,289 1,709 1,733 2,576 1,348 1,433

Margins % of Sales 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue 100 100 100 100 100 100 100 100 100 100
COGS 52.27 52.46 52.21 54.61 51.33 52.6 55.42 51.82 52.79 55.1
Gross Margin 47.73 47.54 47.79 45.39 48.67 47.4 44.58 48.18 47.21 44.9
SG&A 40.54 41.23 41.46 39.79 38.36 35.76 36.55 36.68 35.55
R&D 0.86 0.85 0.83 0.75 0.82 0.97
Other 43.1 1.68 1.57 1.52
Operating Margin 6.18 7.58 7.46 4.89 9.91 9.21 8.74 10.66 8.96 7.82
Net Int Inc & Other -0.46 -0.63 -0.73 -1.44 -1.54 -1.3 -1.57 -0.79 -0.93 -0.83
EBT Margin 5.72 6.95 6.72 3.45 8.37 7.91 7.17 9.88 8.03 6.99
Profitability 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Tax Rate % 38.43 27.72 29.53 31.56 28.76 31.9 31.4 33.71 37.81 38.05
Net Margin % 3.53 5.03 4.73 2.36 5.95 5.35 4.79 5.77 4.85 4.15
Asset Turnover (Average) 1.29 1.21 1.23 1.13 1.21 1.23 1.43 1.3 1.5 1.48
Return on Assets % 4.57 6.1 5.82 2.66 7.19 6.6 6.84 7.52 7.3 6.16
Financial Leverage (Average) 2.2 2.13 2.3 2.35 2.8 2.74 2.95 2.14 2.72 3.09
Return on Equity % 9.9 13.48 13.5 6.83 19.96 18.77 17.5 17.75 21.06 21.34
Return on Invested Capital % 9.9 9.57 8.62 2.46 9.61 8.22 7.62 10.33 11 8.77
Interest Coverage 9.06 8.13 3.12 5.45 5.79 4.67 7.99 10.15 9.91

2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue %
Year over Year 11.53 11.29 15.5 -3.87 4.85 2.13 51.97 2.43 3.37 -3.93
3-Year Average 12.76 7.31 5.2 0.97 17.63 16.71 17.18 0.57
5-Year Average 7.64 5.76 12.56 9.89 11.5 9.56
10-Year Average 8.6
Operating Income %
Year over Year -9 13.09 75.98 -52.52 12.75 7.72 24.53 21.94 18.4 2.81
3-Year Average 21.89 -1.87 -1.97 -16.77 14.79 17.82 21.6 14.07
5-Year Average -0.62 2.79 4.79 -2.62 16.91 14.77
10-Year Average 6.8
Net Income %
Year over Year -21.49 17.96 131.84 -61.96 16.04 11.9 27.03 20.71 19.15 18.77
3-Year Average 29.01 1.33 0.77 -20.95 18.15 19.72 22.25 19.54
5-Year Average -1.07 6.2 7.78 -5.41 18.86 19.41
10-Year Average 8.69
EPS %
Year over Year -21.25 18.08 122.13 -60.26 19.46 -42.89 10.23 149.69 14.34 13.49
3-Year Average 27.35 1.39 1.78 -35.28 -9.06 16.27 46.54 47.97
5-Year Average -0.39 -6.59 -7.87 -5.69 16.51 15.32
10-Year Average 7.18

Cash Flow Ratios 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Operating Cash Flow Growth % YOY 18.94 -11.41 -25.38 141.05 -36.28 2.36 116.44 -38.59 -11.94 21.89
Free Cash Flow Growth % YOY 22.12 -33.44 -34.69 690.91 -75.56 2.06 236.86 -65.17 -18.35 88
Cap Ex as a % of Sales 2.92 2.82 2.24 2.32 3.48 2.77 2.75 3.14 2.47 2.31
Free Cash Flow/Sales % 3.41 3.12 5.21 9.22 1.12 4.81 4.81 2.17 6.38 8.08
Free Cash Flow/Net Income 0.97 0.62 1.1 3.91 0.19 0.89 0.98 0.37 1.28 1.86

Balance Sheet Items (in %) 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Cash & Short-Term Investments 18.26 14.72 14.94 11.38 4.04 4.58 4.14 27.58 10.28 6.66
Accounts Receivable 14.49 15 15.7 16.1 17.04 17.53 16.89 16.78 23.63 25.67
Inventory 21.34 21.81 19.96 16.57 20.93 19.57 19.18 21.39 26.1 27.78
Other Current Assets 4.94 5.02 4.78 6.48 9.76 8.04 6.64 10.19 8.54 6.19
Total Current Assets 59.02 56.55 55.38 50.54 51.76 49.71 46.84 75.94 68.55 66.31
Net PP&E 9.4 8.46 8.05 8.15 9.29 8.43 8.22 7.38 8.31 8.23
Intangibles 25.17 28.5 29.46 33.58 32.45 35.09 20.75 9.17 15.1 16.59
Other Long-Term Assets 6.41 6.49 7.11 7.74 6.5 6.77 24.18 7.51 8.04 8.87
Total Assets 100 100 100 100 100 100 100 100 100 100
Accounts Payable 15.36 16.57 15.95 13.14 12.78 10.2 8.97 11.96 13.45 14.34
Short-Term Debt 2.54 2.57 2.23 8.36 4.22
Taxes Payable 2.36 2.21 2.5 2.19 3.37 3.42 3.38 4.94 3.8 3.82
Accrued Liabilities
Other Short-Term Liabilities 19.82 16.29 15.78 91 14.4 13.73 15.56 13.81 14.39 16.88 14.37
Total Current Liabilities 37.54 37.62 36.81 31.95 38.24 29.18 26.16 31.29 38.36 32.53
Long-Term Debt 8.71 12.59 17.68 18.63 25.78 30.77 18.09 19.62 29.66
Other Long-Term Liabilities 17.05 6.83 7.06 7.82 7.47 8.6 9.23 3.71 5 4.99
Total Liabilities 54.59 53.15 56.46 57.45 64.33 63.56 66.15 53.09 62.98 67.18
Total Stockholders' Equity 45.41 46.85 43.54 42.55 35.67 36.44 33.85 46.91 37.02 32.82
Total Liabilities & Equity 100 100 100 100 100 100 100 100 100 100
Growth Profitability and Financial Ratios for Under Armour, Inc. Class A
Financials
2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue USD Mil 1,835 1,473 1,064 856 725 607 431 281 205 115
Gross Margin % 47.9 48.4 49.9 48.2 48.9 50.3 50.1 48.3 46.5 43.9
Operating Income USD Mil 209 163 112 85 77 86 57 36 25 10
Operating Margin % 11.4 11.1 10.6 10 10.6 14.2 13.3 12.8 12.4 8.6
Net Income USD Mil 129 97 68 47 38 53 39 20 16 6
Earnings Per Share USD 1.21 0.93 0.67 0.46 0.39 0.53 0.4 0.18 0.2 0.08
Dividends USD
Payout Ratio %
Shares Mil 106 105 103 101 100 100 99 79 74 68
Book Value Per Share USD 7.8 6.9 5.53 4.55 3.36 2.88 2.25 1.61
Operating Cash Flow USD Mil 200 15 50 119 70 -15 11 16 -9 -10
Cap Spending USD Mil -51 -79 -30 -20 -39 -34 -15 -11 -9 -2
Free Cash Flow USD Mil 149 -64 20 99 30 -49 -4 5 -18 -12
Free Cash Flow Per Share USD 1.4 -0.61 0.19 0.98 0.3 -0.49 -0.05 0.07
Working Capital USD Mil 651 506 407 328 263 227 173 134 17 14

Margins % of Sales 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue 100 100 100 100 100 100 100 100 100 100
COGS 52.08 51.6 50.14 51.77 51.06 49.71 49.94 51.66 53.49 56.11
Gross Margin 47.92 48.4 49.86 48.23 48.94 50.29 50.06 48.34 46.51 43.89
SG&A 36.55 37.35 39.3 38.27 38.34 36.07 36.76 35.57 34.14 35.27
R&D
Other
Net Int Inc & Other -0.29 -0.4 -0.32 -0.33 -0.97 0.46 0.42 -1.04 -0.63 -1.92
EBT Margin 11.09 10.65 10.24 9.62 9.64 14.68 13.72 11.73 11.74 6.71
Profitability 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Tax Rate % 36.7 38.21 37.13 43.23 45.31 40.97 34.03 40.2 32.26 25.73
Net Margin % 7.02 6.58 6.44 5.46 5.27 8.66 9.05 5.13 6.98 4.57
Return on Assets % 12.4 12.16 11.22 9.06 8.71 15.46 15.81 9.16 17.29 12.52
Return on Equity % 17.72 17.1 15.27 12.8 12.5 21.24 21.35 16.75 86.57 71.78
Return on Invested Capital % 16.17 15.41 14.37 11.36 11.39 20.39 20.52 11.1 26.85 17.96
Interest Coverage 41.84 49.24 36.16

2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue %
Year over Year 24.6 38.42 24.23 18.09 19.57 40.84 53.24 36.98 77.77 132.93
3-Year Average 28.92 26.63 20.6 25.75 37.16 43.52 55.11 78.34 118.27
5-Year Average 24.78 27.88 30.5 33.08 44.42 65.03 85.27
10-Year Average 43.5 53.92
Operating Income %
Year over Year 28.22 44.87 31.76 10.85 -10.83 50.61 59.59 41.41 155 130.77
3-Year Average 34.76 28.38 9.21 14.19 28.93 50.35 79.2 102.64 96.42
5-Year Average 19.33 23.23 25.64 27.43 50.53 82.06 76.45
Net Income %
Year over Year 32.87 41.54 46.37 22.38 -27.26 34.84 97.67 20.81 183.96 107.81
3-Year Average 40.15 36.36 9.22 6.27 24.69 47.67 89.28 92.46 75.72
5-Year Average 19.63 19.98 28.27 23.44 46.07 80.2 66.92
EPS %
Year over Year 30.81 38.06 45.65 19.48 -26.67 32.91 119.44 -7.69 160 87.5
3-Year Average 38.04 33.93 8.47 5.21 28.84 39.12 73.99 65.1 48.12
5-Year Average 18.17 18.55 30.07 18.73 38.7 67.35 45.78

Cash Flow Ratios 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Operating Cash Flow Growth % YOY1212.66 -69.63 -57.9 71.24 -32.25
Free Cash Flow Growth % YOY -79.91 227.14
Free Cash Flow/Sales % 8.13 -4.36 1.87 11.58 4.18 -8.03 -1.02 1.75 -8.57 -10.39
Free Cash Flow/Net Income 1.16 -0.66 0.29 2.12 0.79 -0.93 -0.11 0.25 -1.08 -2.09

Accounts Receivable 15.17 14.58 15.11 14.55 16.68 23.94 26.33 26.09 36.1 45.16
Inventory 27.59 35.29 31.89 27.22 37.38 42.52 28 26.32 43.3 39.93
Net PP&E 15.63 17.31 11.27 13.37 15.09 13.4 10.34 10.24 12.81 7.54
Intangibles 0.39 0.6 0.58 1.04 1.12 1.66 2.72
Total Assets 100 100 100 100 100 100 100 100 100 100
Short-Term Debt 0.79 0.75 1.02 1.68 6.58 1.17 1.19 1.87 38.16 35.97
Taxes Payable 1.92
Accrued Liabilities 7.35 7.54 8.16 7.49 5.31 9.24 8.78 5.62 13.09 7.71
Other Short-Term Liabilities 1.24 0.75 0.36 0.25 0.55 0.35 2.06 1.33
Total Current Liabilities 21.8 19.97 22.08 22.02 27.3 9224.5 24.73 23.4 71.88 66.81
Long-Term Debt 4.56 7.71 1.34 2.01 2.68 2.5 0.65 1.41 0.09 0.78
Other Long-Term Liabilities 3.04 3.08 2.99 2.65 2.11 1.2 0.53 1.14 8.89 10.73
Liquidity/Financial Health 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Growth Profitability and Financial Ratios for VF Corporation

Financials
2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue USD Mil 10,880 9,459 7,703 7,220 7,643 7,219 6,216 6,429 6,055 5,207
Gross Margin % 46.5 45.8 46.7 44.3 43.9 43.5 43.4 41.1 39.8 38
Operating Income USD Mil 1,465 1,245 821 737 939 965 826 828 778 645
Operating Margin % 13.5 13.2 10.7 10.2 12.3 13.4 13.3 12.9 12.8 12.4
Net Income USD Mil 1,086 888 571 461 603 592 534 507 475 398
Earnings Per Share USD 9.7 7.98 5.18 4.13 5.42 5.22 4.72 4.44 4.21 3.61
Dividends USD 3.03 2.61 2.43 2.37 2.33 2.23 1.94 1.1 1.05 1.01
Payout Ratio % 31.2 32.7 46.9 57.4 43 41.2 41 24.2 24.9 28
Shares Mil 112 111 110 112 111 113 113 114 112 110
Book Value Per Share USD 46.51 40.94 35.6 34.59 32.3 32.62 29.21 25.26 22.63 18.06
Operating Cash Flow USD Mil 1,275 1,081 1,001 973 678 821 491 561 727 542
Cap Spending USD Mil -283 -249 -125 -96 -135 -120 -136 -110 -81 -87
Free Cash Flow USD Mil 992 832 876 878 544 700 355 451 646 456
Free Cash Flow Per Share USD 8.87 7.48 7.94 7.87 4.89 6.18 3.14 3.97 5.75 4.16
Working Capital USD Mil 1,717 1,522 1,717 1,537 1,641 1,511 1,563 1,213 1,006 1,337

Margins % of Sales 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue 100 100 100 100 100 100 100 100 100 100
COGS 53.47 54.22 53.3 55.75 56.05 56.52 56.56 58.88 60.19 62.04
Gross Margin 46.53 45.78 46.7 44.25 43.95 43.48 43.44 41.12 39.81 37.96
SG&A 33.06 32.62 33.43 32.36 31.66 30.11 30.15 29.38 27.69 25.58
R&D
Other 2.62 1.69 -1.15 -0.73
Net Int Inc & Other -0.4 -0.85 -0.92 -1.14 -1.19 -0.83 -0.79 -0.89 -1.08 -0.89
EBT Margin 13.07 12.31 9.74 9.07 11.1 12.54 12.5 11.99 11.76 11.49
Profitability 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Tax Rate % 23.61 23.55 23.55 29.97 28.92 32.28 31.16 32.73 33.34 33.51
Net Margin % 9.98 9.39 7.42 6.39 7.89 8.19 8.57 7.86 7.81 7.6
Return on Assets % 11.46 11.26 8.84 7.15 9.36 9.93 10.02 9.93 10.22 10.21
Return on Equity % 22.5 21.18 14.89 12.52 16.9 17.29 17.55 18.98 21.18 21.93
Return on Invested Capital % 14.91 14.44 10.41 8.22 11.15 12.18 12.84 12.81 13.08 13.48
Interest Coverage 16.19 16.01 10.65 8.62

2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Revenue %
Year over Year 15.02 22.81 6.68 -5.53 5.86 16.15 -3.31 6.18 16.27 2.44
3-Year Average 14.65 7.37 2.18 5.12 5.94 6.04 6.08 8.14 3.14 -3.24
5-Year Average 8.55 8.76 3.68 3.58 7.98 7.27 2.41 2.26 1.75 -1.01
10-Year Average 7.91 5.54 2.97 2.66 3.38 3.29 1.92 2.42 1.99 1.89
Operating Income %
Year over Year 17.71 51.64 11.41 -21.53 -2.74 16.86 -0.25 6.48 20.61 3.69
3-Year Average 25.75 9.85 -5.26 -3.74 4.28 7.47 8.61 10.02 30.84 8.14
5-Year Average 8.7 8.54 -0.18 -1.08 7.8 9.19 18.93 10.18 3.57 -1.43
10-Year Average 8.95 13.62 4.87 1.22 3.08 4.77 4.02 8.89 3.74 4.09
Net Income %
Year over Year 22.28 55.43 23.87 -23.47 1.88 10.89 5.29 6.74 19.29
3-Year Average 33.03 13.79 -1.15 -4.73 5.96 7.62 10.27 51.02 15.19
5-Year Average 12.92 10.73 2.43 -0.57 8.66 31.09 14.25 5.33 0.49
10-Year Average 20.48 8.18 2.33 4.5 5.36 5.94 12.41 5.63 4.91
EPS %
Year over Year 21.55 54.05 25.42 -23.8 3.83 10.59 6.31 5.46 16.62
3-Year Average 32.93 13.76 -0.26 -4.35 6.87 7.43 9.35 52.37 17.77
5-Year Average 13.19 11.07 3.13 -0.38 8.47 31.73 14.97 7.08 3.09
10-Year Average 20.96 8.89 3.28 5.75 6.81 7.59 14.12 7.46 6.91

Cash Flow Ratios 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12
Operating Cash Flow Growth % YOY 17.91 8 2.86 43.5 -17.33 67.21 -12.58 -22.78 34.05 -16
Free Cash Flow Growth % YOY 19.22 -5 -0.21 61.5 -22.38 97.49 -21.38 -30.13 41.67 -21.58
Free Cash Flow/Sales % 9.12 8.8 11.37 12.16 7.11 9.7 5.71 7.02 10.66 8.75
Free Cash Flow/Net Income 0.91 0.94 1.53 1.9 0.9 1.18 0.66 0.89 1.36 1.15

Accounts Receivable 12.69 12.03 11.97 11.99 13.23 15.06 14.81 14.78 15.02 14.93
Inventory 14.06 15.61 16.58 14.82 17.9 17.66 17.53 20.91 19.45 21.98
Net PP&E 8.6 7.92 9.34 9.49 9.99 10.11 10.85 10.91 11.44 13.94
Intangibles 51.15 53.49 41.83 45.5 41.65 42.91 33.84 35.61 33.39 24.02
Total Assets 100 100 100 100 100 100 100 100 100 100
Short-Term Debt 4.31 3.05 0.61 3.84 0.88 2.1 2.88 3.34 8.87 0.83
Taxes Payable 1.61 1.2 1.28 1.47
Accrued Liabilities 5.86 3.61 4.87 5.44 5.9 7.57 7.09 10.2 11.15 12.15
Other Short-Term Liabilities 0.36 3.18 2.52 0.37 2.18 0.02 1.54 0.14
Total Current Liabilities 17.98 17.89 17.18 16.89 93
15.73 17.6 18.57 22.28 27.42 20.54
Long-Term Debt 14.84 19.67 14.49 14.5 17.74 17.76 11.62 12.53 11.12 22.53
Other Long-Term Liabilities 13.97 13.84 8.53 9.65 11.26 9.16 10.07 10.89 11.23 10.98
Liquidity/Financial Health 2012-12 2011-12 2010-12 2009-12 2008-12 2007-12 2006-12 2005-12 2004-12 2003-12

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Concordia University Nike, Inc.

Nike, Inc.: Strategic Assessment

Prepared by Learning Team 3: Dawn Ackerman, Brian Claar, Angelica Jackson

Presented to: Dr. Alain Gracianette, MBA 507

November 15, 2013

Source: Nike, Inc. http://nikeinc.com/pages/contact-nike-inc

Module 1: Overview of Company’s Fundamentals……………………………………………7

Module 2: Internal Assessment

Part 1: Qualitative Analysis……………………………………………………………14

Part 2: Quantitative/Financial Analysis……………………………………………….28

Module 3: External Assessment

Part 1: General Environment Analysis………………………………………………..36

Part 2: Industry, Market, and Competitive Analysis………………………………...46

Module 4: Situational Analysis………………………………………………………………...62

Module 5: Strategic Plan……………………………………………………………………….74

Module 1: Overview of Company’s Fundamentals

Brief History and Years In Business

Ø It is our nature to innovate

Ø Remember the man (The late Bill Bowerman, Nike co-founder)

Equipment & Accessories

Year Fiscal Year Revenue (in millions)

Source: Yahoo! Finance. (2013). Nike, Inc. Key Statistics.

Table 2 - Financial Brief for Nike, Inc. (NKE-

Number of Employees (Full Time) 48,000

Number of Facilities 645 DTC Stores (Direct to Consumers,

Revenue (Fiscal Year Ends: May 31) 25.31 Billion

Profit Margin 9.82%

Return on Assets 12.31%

Gross Profit 11.03 Billion

EBITDA 3.71 Billion

Net Income 2.46 Billion

Total Cash 5.96 Billion

Total Debt 1.39 Billion

Total Debt/Equity 12.44

Current Ratio 3.47

United States Facilities

Module 2: Internal Assessment

 Nike, Inc. employs 40,000+ people

 Executive Structure includes: CEO, EVP of Global Human Resources, Chief

-Physical: Property, Plant and Equipment

 Nike, Inc. owns locations worldwide including, World Headquarters in Beaverton,

 World-class R&D department committed to constant innovation in shoe, apparel, and

Strategic implications of technological resources are Nike, Inc.’s ability to develop,

 Globally recognized brand worth $16+ billion.33

Leadership & Management

Research and Development

Global Marketing & Branding

Globally-integrated Manufacturing & Supply Chain

Table 3: Nike, Inc. Core Competencies

Capabilities Rare Costly to Valuable Non- Sustainable

Table 4: Nike, Inc. Comparison, Capabilities and Core Competence

Functional Areas Capabilities Core Competence

Leadership & Strong and experienced Yes

Marketing Global Brand Yes

Figure 1: Nike, Inc. Value Chain

Source: DBA Consulting, LLC

Figure 2: Nike, Inc. Customer Value

Source: DBA Consulting, LLC

Figure 3: Nike, Inc. Support Functions