FY18/19 Strategic Investment Report Alexis Newkirk Angele Cherbonnier Anteneh Lisan Brogan Brasseaux Emily Fisher ANike Women: Casey. Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation Appendix INTRODUCTION 3 Executive Summary EXTERNAL ASSESSMENT 5 Porter’s Five Forces 6 Opportunities and Threats 7 Macro Forces 8 Key Success Factors 10 Bounce Back Factor INTERNAL ASSESSMENT 13 Competitive Advantages 15 The New Retail 16 Strengths and Weaknesses FINANCIAL ANALYSIS 18 Revenue 20 Income Statement 22 Balance Sheet FINAL RECOMMENDATION 26 Why You Should Invest APPENDIX 28 Porter’s Five Forces Cont. 29 Macro Forces Cont. 31 Works Cited 33 Photography Credits FY18/19 Strategic Investment Report 1 Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation Appendix INTRODUCTION BRed Sweats. FY18/19 Strategic Investment Report 2 Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation Appendix EXECUTIVE SUMMARY NIKE, INC. DESIGNS, DEVELOPS, COMPANY PORTFOLIO MARKETS AND SELLS ATHLETIC FOOTWEAR, APPAREL, EQUIPMENT, NIKE, Inc. portfolio brands include the NIKE brand, Jordan Brand, Hurley, ACCESSORIES AND SERVICES and Converse, each with a powerful WORLDWIDE. connection to consumers.iii Since its establishment in 1964, Nike has grown from its start as Blue Ribbon Sports into the market leader for NIKE Brand is focused on performance global athletic wear and equipment.i athletic footwear, apparel, equipment, Rising to the top doesn’t come without accessories and services across a wide challenges or criticisms, and Nike has range of sport categories, amplified persisted using strong public relations with sport-inspired sportswear products and research and development teams carrying the Swoosh trademark, as well to develop it into a performance and as other NIKE Brand trademarks.iii pop culture trend maker. A culture of innovation has been prevalent from its start, when founder and former University of Portland track coach, Bill Bowerman, borrowed his family’s waffle iron one morning to create the prototype for what is now the famous Nike Waffle Jordan Brand designs, distributes, and Outsole, which can be found on shoes licenses athletic and casual footwear, like the Nike Air Force One and Air Max. apparel, and accessories perdominantly ii Throughout this report, we will explore focused on basketball, using the the internal environment, external Jumpman trademark.iii environment and financial health of Nike, as well as how their roots have guided them into the global phenomenon they are today. These guiding factors Hurley will paint a vivid picture of why Nike designs and distributes a line of is in a good position to enhance their action sports and youth lifestyle apparel and accessories under the Hurley shareholder’s wealth and why they are a iii good investment. trademark. Converse designs, distributes, and licenses casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks.iii FY18/19 Strategic Investment Report 3 Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation EXTERNAL ASSESSMENT CNike Women: Gilda. FY18/19 Strategic Investment Report 4 Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation Appendix PORTER’S FIVE FORCES For Nike to have achieved their unmatched success throughout the years, it requires an understanding of the dominant industry they compete in, which is the athletic footwear industry. This can be done by an analysis of the Porter’s Five Forces, where a complete summary can be found in the appendix. Two of the Porter’s Five Forces are key to understanding how Nike and other players in the industry operate. THREAT OF COMPETITIVE RIVALRY The threat of competitive rivalry is the strongest of the five forces.iv The biggest players in the industry include Nike, Adidas, ASICS, and Puma, and all of these companies compete in product development and related diversification to provide new options for consumers, customer service and quality, and aggressive sports marketing through advertising campaigns and v endorsements. The small number of entrants may not have the resources to in more personal ways through new large players leads to the taking of invest on a similarly large-scale. initiatives, but they also utilize their market share from one another, and can Economies of scale also serve as own retail stores as well as third-party lead to process being driven down to a barrier to entry as these existing retailers, such as Foot Locker and Dick’s maintain a more competitive edge. companies produce on a larger scale Sporting Goods.vii They also have been to reduce their costs per item. They are able to sponsor individual athletes, THREAT OF NEW ENTRANTS dedicated to newer technology for R&D, as well as collegiate and professional and access to various suppliers help athletic teams. For instance, both Nike The threat of new entrants is one of the them achieve this. Newer entrants may and Reebok (owned by Adidas) have weakest forces due to the high barriers not have the resources to produce on been official NFL uniform sponsors, and to entry. The brands in this industry this scale, and if they do, they may not able to sell official licensed NFL apparel. are highly differentiated amongst one have the customer base to purchase viii This robust analysis of the industry another and therefore have significant the products.v On the demand-side of helps Nike to navigate their role as a brand recognition. The existing economies of scale, consumers in the global leader in the industry. companies have managed to make athletic footwear industry seek to be customers perceive their products as a part of a larger community so as to unique, which has, in turn, increased stay connected with other patrons and customer loyalty and switching costs. enthusiasts through digital spaces, such These costs are measured by money, as mobile fitness apps and blogs. Newer time and uncertainty, so while newer entrants will not have these established entrants may have cheaper options, communities which consumers may consumers may be more hesitant to perceive as being a less reputable brand. try their products in terms of quality, customer service, availability and The extensive distributions channels customization.vi These firms also have that recognized brands have are also large capital investments, namely in not readily available to entrants. The top operations, research and development, competitors are not only able to bring and marketing/advertising. Newer their products directly to the consumer DNike Running ‘14 - ‘18. FY18/19 Strategic Investment Report 5 Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation Appendix OPPORTUNITIES AND THREATS LARGE WOMEN’S MARKET COUNTERFEIT GOODS Looking externally at Nike’s environment, While Nike seeks many opportunities, there are plenty of opportunities that the external environment is also home Nike can, and is in the process to, take to threats that the company is subject advantage of. Improving Nike’s product to. A downside to Nike being the most mix to focus more heavily on women’s valuable sports brand in the world is apparel is where the company looks the threat of Nike counterfeit goods. for new pockets of growth. Although This can affect the overall brand image women’s apparel only represents less and dilute brand equity while leading to than 25% of Nike’s total sales, the US reduced revenue generation and lower women’s market for shoes and clothing profits.xi is larger than men’s. The company’s investment is not just recognized on RAPIDLY CHANGING CONSUMER the income statement, however. Nike PREFERENCES has established an outreach program where female athletes are sent to middle and high schools to speak to young Other threats include the inability girls about, and encouraging, their to anticipate consumer preferences involvement in sports.ix and develop products based on the constantly changing consumer demand. SUSTAINABILITY INNOVATION This threat hinders revenues and profits as well. More opportunities come in the form FOREIGN EXCHANGE LOSSES of utilizing their ability to foster creative and innovative ideas to increase sustainability efforts. This opportunity As Nike operates globally, the company could prove Nike to be a leader within is subject to the threat currency and and across industries during a time foreign exchange risk. This translates where it is imperative for companies into potential loss that could result from to incorporate corporate social fluctuating foreign exchange rates due responsibility into their strategy.x to the company’s exposure to foreign currency. While this is a major threat EMERGING MARKETS for most global companies, Nike does take action to mitigate the threat by operating a foreign currency adjustment A third opportunity arises in emerging program. The program manages this risk markets. Increasing presence in Asian by paying overseas factories in a basket and South American countries has of currencies that are adjusted for rate potential to offset saturation in North fluctuations.xii America and build upon its strong global brand recognition. EGym, FWorldwide, GBars, HTheater Masks, IBrainstorm, JExchange. FY18/19 Strategic Investment Report 6 Introduction External Assessment Internal Assessment Financial Analysis Final Recommendation Appendix POLITICAL MACRO