41082023-nike-case

Nike, Inc. - 2009Case Notes Prepared by: Dr. Mernoush Banton

Case Author: Randy Harris

A. Case Abstract

Nike, Inc. (www.nike.com) is a comprehensive strategic management case that includes the company’s fiscal May 31st, 2009 financial statements, competitor information and more. The case time setting is the year 2009. Sufficient internal and external data are provided to enable students to evaluate current strategies and recommend a three-year strategic plan for the company. Headquartered in Beaverton, Oregon, Nike is traded on the New York Stock Exchange under ticker symbol NKE.

B. Vision Statement (Actual)

“Bring inspiration and innovation to every athlete in the world.”

C. Mission Statement (Actual)

“To be the leading sports brand in the world.”

Mission Statement (Proposed)

As the largest seller of athletic footwear and athletic apparel in the world (2, 3), we create products for consumers and athletics (1) who enjoy having quality products that are high performance and reliable such as shoes, apparel, and technologically advanced equipment) (4). Our dedicated employees (9) continuously work on developing new products, price, and product identity through marketing and promotion (7). The company aims to lead in corporate citizenship (8) through proactive programs that reflect caring for the world family of Nike (6) and by ensuring continuous growth and profitability to our investors and stakeholders (5).

1. Customer2. Products or services3. Markets4. Technology5. Concern for survival, profitability, growth6. Philosophy7. Self-concept8. Concern for public image9. Concern for employees

Copyright © 2011 Pearson Education, Inc. publishing as Prentice Hall.

D. External Audit

CPM – Competitive Profile Matrix

Nike Adidas Puma

Critical Success FactorsWeigh

tRatin

gWeighted Score

Rating

Weighted Score

Rating

Weighted Score

Price competitiveness 0.10 3 0.30 2 0.20 1 0.10

Global Expansion 0.07 4 0.28 3 0.21 2 0.14

Organizational Structure 0.04 3 0.12 1 0.04 1 0.04

Technology 0.09 3 0.27 1 0.09 2 0.18

Product Safety 0.15 2 0.30 3 0.45 4 0.60

Customer Loyalty 0.09 4 0.36 3 0.27 2 0.18

Market Share 0.09 4 0.36 3 0.27 2 0.18

Advertising 0.12 4 0.48 3 0.36 2 0.24

Product Quality 0.12 3 0.36 2 0.24 1 0.12

Product Image 0.07 4 0.28 3 0.21 2 0.14

Financial Position 0.06 4 0.24 3 0.18 2 0.12

Total 1.00 3.35 2.52 2.04

Opportunities

1. Younger consumers are less price sensitive and generally spend more on casual and athletic footwear than older consumers

2. Most footwear companies have outsourced their production abroad in order to maintain lower cost and R&D expenses

3. US footwear imports totaled 2.36 billion pairs in 2007, or roughly 7.9 pairs per capita which is was up 0.4 percent from 2006

4. North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), both helped eliminate quotas and tariff barriers for foreign footwear manufacturers to ship their goods

5. The Internet allows footwear companies to pursue a direct to consumer sales channel

6. Sales of apparel, accessories, and footwear on the Internet has been growing at a double digit pace, considerably faster than more traditional sales models such as retail stores

7. Internet sales of apparel, accessories, and footwear could reach 18 percent of category sales by 2012

8. Companies that added a Web-based sales strategy are able to customize footwear and other merchandise directly to the customer’s needs and


taste, are enable to achieve considerably better pricing as well as “deepening” the emotional bond consumers have with the brand

Threats

1. After the age of 40, the typical consumer is not willing to pay more than $35 to $40 per pair for athletic footwear

2. Competition is strong among athletic footwear and apparel from off brand companies

3. Fluctuation of foreign currency impacts the cost of importing goods to the U.S.

4. Increase in unemployment has impacted the household income which may result in spending less on brand name

5. Barrier to entry is low6. Level of inventory is increasing in many retail stores due weak economy

External Factor Evaluation (EFE) Matrix

Key External Factors Weight Rating Weighted Score

Opportunities


0.08 3 0.24


0.07 4 0.28


0.07 3 0.21


0.06 4 0.24


0.07 4 0.28


0.08 3 0.24


0.07 4 0.28

8. Companies that added a Web-based sales strategy are able to customize footwear and other merchandise directly to the customer's needs and

0.06 3 0.18


taste, are enable to achieve considerably better pricing as well as "deepening" the emotional bond consumers have with the brand

Threats


0.07 3 0.21


0.08 2 0.16


0.06 2 0.12


0.09 3 0.27

5. Barrier to entry is low 0.06 2 0.12

6. Level of inventory is increasing in many retail stores due weak economy

0.08 2 0.16

Total 1.00 2.99

Positioning Map


E. Internal Audit

Strengths

1. Nike is the dominant competitor for athletic footwear priced above $60 per pair, holding better than a 50 percent market share for athletic footwear priced $85 per pair or higher

2. Nike characterizes its organization as a collaborative matrix organization3. The Jordan brand has a 10.8 percent share of the overall U.S. shoe

market, which makes it the second biggest brand in the country and more than twice the size of Adidas’ share

4. Three out of every four pairs of basketball shoes sold in this country are Jordan, while 86.5 percent of all basketball shoes sold over $100 are Jordan

5. Nike’s 2009 revenues increased 2.9 percent to $19.1 billion6. Inside the United States, Nike has three significant distribution and

customer service facilities7. Nike estimates that they sell products to more than 25,000 retail accounts

in the United States and more than 27,000 retail accounts, including Nike-owned stores and a mix of independent distributors and licensees outside the United States

8. The company’s Internet Web site, www.nikebiz.com, allows customers to design and purchase Nike products directly from the company


Price (High)Price (low)

Customer Loyalty (High)

Customer Loyalty (Low)

Nike

Puma

Adidas

9. Nike has five wholly owned subsidiaries: Cole Haan, Converse, Hurley International, NIKE Golf, and Umbro Ltd

Weaknesses

1. Nike’s 2009 net income decreased 21 percent to $1.48 billion2. Almost all of Nike’s footwear is manufactured outside the United States by

independent contractors3. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and

Thailand manufactured 99 percent of Nike’s footwear worldwide4. Because Nike competes primarily in athletic footwear, apparel and related

sporting equipment, its sales are heavily concentrated in the youth and young adult market

5. Accounts payable has increased by almost $1.0 billion in 20096. Negative publicity and boycotting of the Nike products due to outsourcing

jobs overseas and the use of child labor in such factories

Financial Ratio Analysis (December 2009)Growth Rates % Nike Industry S&P 500

Sales (Qtr vs year ago qtr) -4.00 -2.10 -4.80Net Income (YTD vs YTD) -1.50 -2.00 -6.00Net Income (Qtr vs year ago qtr) -4.00 -1.60 26.80Sales (5-Year Annual Avg.) 9.37 14.53 12.99Net Income (5-Year Annual Avg.) 9.47 11.78 12.69Dividends (5-Year Annual Avg.) 21.51 14.72 11.83

Price Ratios Nike Industry S&P 500

Current P/E Ratio 22.0 25.7 26.7P/E Ratio 5-Year High 23.5 0.9 16.6P/E Ratio 5-Year Low 10.7 0.2 2.6Price/Sales Ratio 1.75 2.10 2.25Price/Book Value 3.49 3.96 3.48Price/Cash Flow Ratio 17.50 17.70 13.70

Profit Margins % Nike Industry S&P 500

Gross Margin 44.5 49.2 38.9Pre-Tax Margin 10.3 14.4 10.3Net Profit Margin 8.0 10.1 7.15Yr Gross Margin (5-Year Avg.) 44.5 51.7 38.65Yr PreTax Margin (5-Year Avg.) 12.9 18.2 16.65Yr Net Profit Margin (5-Year Avg.) 9.0 12.1 11.5

Financial Condition Nike Industry S&P 500


Debt/Equity Ratio 0.06 0.06 1.09Current Ratio 3.5 3.5 1.5Quick Ratio 2.7 2.6 1.3Interest Coverage 223.8 139.0 23.7Leverage Ratio 1.4 1.4 3.4Book Value/Share 18.94 15.21 21.63Adapted from www.moneycentral.msn.com

Avg P/E Price/ Sales Price/ BookNet Profit

Margin (%)

05/09 17.80 1.46 3.19 7.805/08 16.40 1.85 4.29 10.105/07 16.10 1.77 4.05 9.105/06 16.00 1.42 3.27 9.305/05 18.00 1.62 3.80 8.805/04 18.40 1.57 3.91 7.705/03 17.20 1.40 3.70 6.905/02 21.30 1.48 3.73 6.805/01 20.10 1.18 3.16 6.205/00 23.00 1.33 3.69 6.4

Book Value/

ShareDebt/ Equity

Return on Equity (%)

Return on Assets (%)

Interest Coverage

05/09 $17.91 0.09 17.1 11.2 NA05/08 $15.93 0.08 24.1 15.1 NA05/07 $14.00 0.08 21.2 14.0 NA05/06 $12.28 0.11 22.1 14.1 NA05/05 $10.81 0.14 21.5 13.8 NA05/04 $9.09 0.17 19.8 12.0 36.605/03 $7.57 0.21 18.5 10.9 26.805/02 $7.21 0.29 17.4 10.4 22.105/01 $6.51 0.37 16.9 10.1 15.705/00 $5.82 0.46 18.5 9.9 20.4

Adapted from www.moneycentral.msn.com

Internal Factor Evaluation (IFE) Matrix

Key Internal Factors Weight Rating Weighted Score

Strengths


http://www.moneycentral.msn.com/

http://www.moneycentral.msn.com/

1. Nike is the dominant competitor for athletic footwear priced above $60 per pair, holding better than a 50 percent market share for athletic footwear priced $85 per pair or higher

0.08 4 0.32

2. Nike characterizes its organization as a collaborative matrix organization

0.02 3 0.06

3. The Jordan brand has a 10.8 percent share of the overall U.S. shoe market, which makes it the second biggest brand in the country and more than twice the size of Adidas' share

0.06 4 0.24


0.08 4 0.32

5. Nike's 2009 revenues increased 2.9 percent to $19.1 billion

0.09 4 0.36

6. Inside the United States, Nike has three significant distribution and customer service facilities

0.05 3 0.15

7. Nike estimates that they sell products to more than 25,000 retail accounts in the United States and more than 27,000 retail accounts, including Nike-owned stores and a mix of independent distributors and licensees outside the United States

0.04 3 0.12

8. The company's Internet Web site, www.nikebiz.com, allows customers to design and purchase Nike products directly from the company

0.07 4 0.28


0.07 3 0.21

Weaknesses

1. Nike's 2009 net income decreased 21 percent to $1.48 billion

0.07 2 0.14

2. Almost all of Nike's footwear is manufactured outside the United States by independent contractors

0.08 1 0.08

3. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and Thailand manufactured 99 percent of Nike's footwear worldwide

0.06 1 0.06

4. Because Nike competes primarily in athletic footwear, apparel and related sporting equipment, its sales are heavily concentrated in the youth and young adult market.

0.08 1 0.08

5. Accounts payable has increased by almost $1.0 billion in 2009

0.08 2 0.16


6. Negative publicity and boycotting of the Nike products due to outsourcing jobs overseas and the use of child labor in such factories

0.07 1 0.07

Total 1.00 2.65

F. SWOT Strategies

Strengths Weaknesses1. Nike is the dominant

competitor for athletic footwear priced above $60 per pair, holding better than a 50 percent market share for athletic footwear priced $85 per pair or higher


3. The Jordan brand has a 10.8 percent share of the overall U.S. shoe market, which makes it the second biggest brand in the country and more than twice the size of Adidas’ share


5. Nike’s 2009 revenues increased 2.9 percent to $19.1 billion


7. Nike estimates that they

1. Nike’s 2009 net income decreased 21 percent to $1.48 billion

2. Almost all of Nike’s footwear is manufactured outside the United States by independent contractors

3. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and Thailand manufactured 99 percent of Nike’s footwear worldwide

4. Because Nike competes primarily in athletic footwear, apparel and related sporting equipment, its sales are heavily concentrated in the youth and young adult market


6. Negative publicity and boycotting of the Nike products due to outsourcing jobs overseas and the use of child labor in such factories


sell products to more than 25,000 retail accounts in the United States and more than 27,000 retail accounts, including Nike-owned stores and a mix of independent distributors and licensees outside the United States

8. The company’s Internet Web site, www.nikebiz.com, allows customers to design and purchase Nike products directly from the company


OpportunitiesS-O Strategies

W-O Strategies




4. North American Free Trade Agreement

1. Expand into international market more where the economy is stronger (S1, S3, S4, S7, O1)

2. Increase advertising and promotion through social networking such as Twitter and Facebook (S8, O1, O5, O7)

1. Develop new products for small kids based on cartoon characters (W4, O1, O3)

2. Sponsor more athletics programs, mostly for young generation (W1, W4, W6, O1, O2, O3)


(NAFTA) and the World Trade Organization (WTO), both helped eliminate quotas and tariff barriers for foreign footwear manufacturers to ship their goods




8. Companies that added a Web-based sales strategy are able to customize footwear and other merchandise directly to the customer’s needs and taste, are enable to achieve considerably better pricing as well as “deepening” the emotional bond consumers have with the brand

ThreatsS-T Strategies

W-T Strategies


1. Develop a new moderately priced product line (S1, S2, S3, S4, T2, T4, T6)

2. Expand distribution by

1. Make low priced footwear made in the US and promote it as “Made in America” (W2, W6, T2, T3, T4, T6)





5. Barrier to entry is low6. Level of inventory is

increasing in many retail stores due weak economy

selling to stores other than their own retailers (S7, T2)

2. Acquire a less expensive brand of accessories and sportswear and promote them as an off brand of Nike (W4, W6, T1, T4, T6)


G. SPACE Matrix

Financial Stability (FS) Environmental Stability (ES)Return on Investment 4 Unemployment -4Leverage 5 Technological Changes -4Liquidity 3 Price Elasticity of Demand -5Working Capital 3 Competitive Pressure -5Cash Flow 4 Barriers to Entry -5

Financial Stability (FS) Average Environmental Stability (ES) Average

Competitive Stability (CS) Industry Stability (IS)Market Share -1 Growth Potential 5Product Quality -2 Financial Stability 4Customer Loyalty -3 Ease of Market Entry 1Competition’s Capacity Utilization -1 Resource Utilization 3Technological Know-How -4 Profit Potential 4

Competitive Stability (CS) Average Industry Stability (IS) Average


FS

CS

ES

IS654321

Conservative Aggressive

CompetitiveDefensive

1

2

3

4

5

6

7-2-3-4-5-7 -1-6

7

-7

-6

-5

-4

-3

-2

-1

Y-axis: FS + ES = 3.8 + (-4.6) = - 0.8X-axis: CS + IS = (-2.2) + (3.4) = 1.2

H. Grand Strategy Matrix

1. Market development2. Market penetration3. Product development4. Forward integration5. Backward integration6. Horizontal integration7. Related diversification


Weak Competitive

Position

Quadrant II Quadrant I

Quadrant IVQuadrant III

StrongCompetitive

Position

Rapid Market Growth

Slow Market Growth

I. The Internal-External (IE) Matrix

The IFE Total Weighted Score

Strong3.0 to 4.0

Average2.0 to 2.99

Weak1.0 to 1.99

High3.0 to 3.99

I II III

Medium2.0 to 2.99

IV IV

Nike, Inc.

VI

Low1.0 to 1.99

VII VIII IX

J. QSPM

Increase advertising

and promotion through social

networking such as

Twitter and Facebook

Acquire a less expensive brand of

accessories and

sportswear and promote them as an off brand of

NikeKey Factors Weight AS TAS AS TAS

Opportunities


The EFE TotalWeighted

Score


0.08 1 0.08 4 0.32


0.07 --- --- --- ---


0.07 --- --- --- ---


0.06 2 0.12 3 0.18


0.07 --- --- --- ---


0.08 2 0.16 4 0.32


0.07 4 0.28 1 0.07

8. Companies that added a Web-based sales strategy are able to customize footwear and other merchandise directly to the customer's needs and taste, are enable to achieve considerably better pricing as well as "deepening" the emotional bond consumers have with the brand

0.06 4 0.24 1 0.06

Threats 1. After the age of 40, the typical consumer is

not willing to pay more than $35 to $40 per pair for athletic footwear

0.07 1 0.07 4 0.28


0.08 --- --- --- ---


0.06 --- --- --- ---


0.09 1 0.09 3 0.27

5. Barrier to entry is low 0.06 --- --- --- ---6. Level of inventory is increasing in many

retail stores due weak economy0.08 4 0.32 2 0.16

TOTAL 1.00 1.36 1.66Strengths 1. Nike is the dominant competitor for athletic

footwear priced above $60 per pair, holding 0.08 --- --- --- ---


better than a 50 percent market share for athletic footwear priced $85 per pair or higher


0.02 --- --- --- ---

3. The Jordan brand has a 10.8 percent share of the overall U.S. shoe market, which makes it the second biggest brand in the country and more than twice the size of Adidas' share

0.06 3 0.18 1 0.06


0.08 3 0.24 1 0.08

5. Nike's 2009 revenues increased 2.9 percent to $19.1 billion

0.09 --- --- --- ---


0.05 --- --- --- ---

7. Nike estimates that they sell products to more than 25,000 retail accounts in the United States and more than 27,000 retail accounts, including Nike-owned stores and a mix of independent distributors and licensees outside the United States

0.04 3 0.12 4 0.16

8. The company's Internet Web site, www.nikebiz.com, allows customers to design and purchase Nike products directly from the company

0.07 4 0.28 1 0.07


0.07 1 0.07 3 0.21

Weaknesses 1. Nike's 2009 net income decreased 21

percent to $1.48 billion0.07 1 0.07 3 0.21

2. Almost all of Nike's footwear is manufactured outside the United States by independent contractors

0.08 --- --- --- ---

3. In fiscal 2008, contract manufacturers in China, Vietnam, Indonesia, and Thailand manufactured 99 percent of Nike's footwear worldwide

0.06 --- --- --- ---

4. Because Nike competes primarily in athletic footwear, apparel and related sporting equipment, its sales are heavily concentrated in the youth and young adult market

0.08 1 0.08 3 0.24


0.08 --- --- --- ---

6. Negative publicity and boycotting of the 0.07 --- --- --- ---


Nike products due to outsourcing jobs overseas and the use of child labor in such factories

SUBTOTAL 1.00 1.04 1.03SUM TOTAL ATTRACTIVENESS SCORE 2.4 2.69

K. Recommendations

Acquire a company who manufactures and sells less expensive products than Nike. The company should have established distribution and retail shelf space with non-competing product lines. It would be ideal if the company is a U.S. based corporation with domestic manufacturing facilities.

EPS/EBIT Analysis

$ Amount Needed: $350 millionStock Price: $65.65Tax Rate: 24%Interest Rate: 4.75% (Estimated)# Shares Outstanding: 487 Million

Common Stock Financing Debt Financing Recession Normal Boom Recession Normal BoomEBIT $1,800,000,000 $2,500,000,000 $3,500,000,000 $1,800,000,000 $2,500,000,000 $3,500,000,000Interest 0 0 0 16,625,000 16,625,000 16,625,000EBT 1,800,000,000 2,500,000,000 3,500,000,000 1,783,375,000 2,483,375,000 3,483,375,000Taxes 432,000,000 600,000,000 840,000,000 428,010,000 596,010,000 836,010,000EAT 1,368,000,000 1,900,000,000 2,660,000,000 1,355,365,000 1,887,365,000 2,647,365,000# Shares 492,331,302 492,331,302 492,331,302 487,000,000 487,000,000 487,000,000EPS 2.78 3.86 5.40 2.78 3.88 5.44

70 Percent Stock - 30 Percent Debt 70 Percent Debt - 30 Percent Stock Recession Normal Boom Recession Normal BoomEBIT $1,800,000,000 $2,500,000,000 $3,500,000,000 $1,800,000,000 $2,500,000,000 $3,500,000,000Interest 13,300,000 13,300,000 13,300,000 3,325,000 3,325,000 3,325,000EBT 1,786,700,000 2,486,700,000 3,486,700,000 1,796,675,000 2,496,675,000 3,496,675,000Taxes 428,808,000 596,808,000 836,808,000 431,202,000 599,202,000 839,202,000EAT 1,357,892,000 1,889,892,000 2,649,892,000 1,365,473,000 1,897,473,000 2,657,473,000# Shares 490,731,912 490,731,912 490,731,912 488,599,391 488,599,391 488,599,391EPS 2.77 3.85 5.40 2.79 3.88 5.44

M. Epilogue


Analysts expect that Nike will be able to boast of its strong earnings, growing gross margins, lean inventories and all-important futures orders. The company has booming international business, especially its China expansion plans, as well as next month’s World Cup, where Nike is sponsoring nine teams. And investors may find out what management has planned for that $7 a share in net cash on the balance sheets. (CNBC.com)

Nike unveiled its supercharged Nike Elite Series football boots providing new levels of performance. Nike’s Mercurial Vapor SuperFly II, CTR360 Maestri, Total90 Laser III and Tiempo Legend III all feature new performance upper to improve on-field visibility and a reengineered outsole to deliver lightweight performance for every style of player. Nike designers have reduced the weight of each boot so players can perform at their best. Lightweight construction, intricate engineering, carbon-enforced strength and high contrast colors distinguish the boots. The high contrast colors (Metallic Mach Purple and Total Orange) are engineered together for enhanced visibility. For a footballer this unique combination is designed to increase visual performance enabling them to quickly spot their teammates and execute a game-changing pass. “At Nike, we have a relentless focus on product innovation to give athletes a real competitive edge and deliver the best products in the world,” said Andrew Caine, Nike Design Director for Football Footwear. “The Nike Elite Series delivers lightweight and highly engineered boots for the leading players in the world to perform on the biggest stage this summer.” (finance.yahoo.com)

Jordan Brand, a division of NIKE, Inc., announced that the top 10 ranked ESPNU 100 players – No. 1 Harrison Barnes (Ames, IA/North Carolina), No. 2 Jared Sullinger (Columbus, OH/Ohio State), No. 3 Brandon Knight (Coral Springs, FL/Undecided), No. 4 Kyrie Irving (West Orange, NJ/Duke), No. 5 Tobias Harris (Dix Hills, NY/Tennessee), No. 6 Will Barton (Baltimore, MD/Memphis), No. 7 Josh Selby (Baltimore, MD/Undecided), No. 8 C.J. Leslie (Holly Springs, NC/Undecided), No. 9 Perry Jones (Duncanville, TX/Baylor) and No. 10 Tristan Thompson (Brampton, ONT/Texas) – will headline the nation’s best high school senior basketball players at the 2010 Jordan Brand Classic, presented by Foot Locker, at Madison Square Garden in New York City on Saturday, April 17 at 8:00 p.m. EST. This year’s event will once again be televised nationally live on ESPN2. The Jordan Brand Classic will also continue to include a Regional Game, showcasing the top prep players from the New York City metropolitan area in a City vs. Suburbs showdown. In its third year of the event, an International Game will feature 16 of the top 17-and-under players from around the world.
