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Profile of the Footwear Industry
a. Industry Size and Growth
The history of footwear goes back may thousands of years. It grew out of necessity to provide protection. Initially, footwear was made of plaited grass or rawide held to food with thongs. Soon the rich and influential began distinguishing themselves by the craftmanship aand decoration, which characterized their shoes. Today the footwear industry manufactures a wide range of footwear ranging from leather, rubber and other synthetic materials, and styles ranging from casual, formal, work, and athletic shoes.On average, every man, every woman, and child in the United States purchases more than four pairs of shoes each year, a level of consumption that establishes the U.S. as the world's largest importer of footwear. The U.S. accounts for about 40 percent of footwear imports. In 00, Americans spent approximately $8 billion to purchase more than 1.1 billion pairs of shoes.
In these four styles of footweaar, athletic shoes make up about 5 percent of the U.S. footwear market. The exercise boom sent athletic shoemakers Nike(#1), Reebok, and adidas-Salomon to the front of the pack. Athletic footwear includes aeorobic dance, baseball/softball, basketball, cross training, hiking, running, sport sandals, tennis, walking, "athleisure" (athletically styled casula shoes, canvas, suede and alternative sports) and "other," such as golf, football, and voleyball.
From the 180s through most of the 10s, athletic footwear saw rapid growth. However, in 18, sales suffered their first annual decline in five years. The market for athletic footwear remained difficult in the first half of 000. Consumers spent $6.514 billion for athletic shoes in the first six months, versus $ 6.50 billion during the same period in 1, according to research conducted by SGMA. Consumers purchased 180 million pair of shoes, up % from 177 million pair in the same period a year earlier. The second half of athletic shoe sales, a trend that remains under way. Athletic footwear sales rose 4.4% in 000 to $14. billion.
b. Industry Profitability
The athletic footwear industry is a challenging and saturated market. Intense competition, fashion ternds, and price conccious consumers have slowed groth in this industry. Manufacturers are combating sluggish sales with radical new styles, along with offering more stles at lower price points. Companies are looking for new ways to boost sales by capitalizing in direct internet sales to consumers. Many companies are also increaing profitability by transferring production to cheaper offshore facilities.
This segment has reached a point of maturity in the domestic market and can look forward to only modest sales growth for long term. However, sales are improving slightly, especially in the areas of running shoes, cross trainers and basketball shoes. Therfore, companies with strong brands will increasingly turn to international markets for growth.
c. Industy Enty and Exit Barriers
Entry Barriers
The athletic footwear industry is a very competitive and mature market. The leaders of this industry are very well established. Leaders like Nike, Reebok have made the industry what it is today. Consequently, long time competitors like Saucony and K-Swiss have been struggling for years just to keep their brands alive. This cutthroat environment has hindered the entry of new competitors. Economies of scale also contribute the lack of newcomers into this market. In order to have an edge over the leaders, companies must be able to compete at all levels such as reasonable pricing, efficient poduction, and high product quality. These things are difficult to achieve without the resources of an established maufacturer.
Another key barrier to entry is the access of traditional distribution channels. When combining the shelves at stores like Sports Authority and Footlocker, it is evident that leaders dominate the shelves. Lesser known brands are viewed by retailers as being too risky to replace an established brand like Nike or Reebok on the shelf.
These walls seems to be breaking down with the help of internet. The costs of overhead that come along with traditional brick and mortar retail distributors are being significantly diminished. New entrants are now able to slide into markets without these high startup costs, making it more profitable to begin production.
Exit Barriers
When a company decides to exit form this industry it must be aware of things such as indebtedness and its ability to meet those obligations. A company must also be cognizat of lawsuits filled by its stakeholders and claimms made on any residual assets.
History of Nike
The Nike Corporation began as nothing more than a friendship between college track coach and a student athlete. Bill Bowerman was the University of Oregon's tarck coach in 157 when he and runner Phil Knight met for the first time. Knight, an MBA student, was working on thesis speculating on ways to penetrate the German donimated U.S. athletic shoe market. At the same time, Boweman tinkerd with various athletic shoe desigb for which he used his wife's waffle iron to develop Nike's famous tread. In 164 Bowerman and Knight partnered and formed Blue Ribbon Shoes, a company with one employeee that specialized in designing shoes for track and field athlets. During their first year, Boweman and Knight slod 1,00 pairs of shoes and generated revenues of $8000. Over the next few years, Bowerman and Knight invested their money into Blue Ribbon Shoes and by 16, the company had grown to include 0 empployess and produced annual revenues of over $00,000.
Blue Ribbon Shoes' big break came in 17 when it introduced the Nike brand at the summer Olypmic games Steve Prefontaine, a world class track star was signed to endorse the Nike brand, and eventually, Blue Ribbon Shoes became officially known as the Nike Corpaoration. Nike suffered a blow in 175 when Prefontaine was killed in an automobile accident at the age of 4. Despite losing its key endorser, Nike continued to exceeed everyones's expectations in growth and revenues.
Over the next decade, Nike's revenue grew into millions as new products and product lines were introduced alongside celebrity athlete endorsers like John McEnroe and Micheal Jordan. In 186 Nike reached the billion-dollar mark revenues and contunied to grow in leaps and bounds. Although in an economic downturn, the company's 10 revenues reached nearly $ billion, ans Nike continues to sign big name endorsers like golf phenomenon Tiger Woods.
On cristmas Eve , 1, Bill Bowerman passed away. Although no longer an active member of Nike's board of directors, Bowerman's ideas and philosopies continued to have an impact on Phil Knight and the company as a whole. As the one remaining co-founder of Nike, Knight recently instituted a restructing of upper and excutive level management. Knight recruited executives from some of the top Fortune 500 companies including Microsoft, General Motors, and Disney. In addition, Knight shifted many of the existing managers into different positions and divisons throughout the company. By doing so, Knight hopes to keep the ideas fresh and the energy level high amon the managers.
Mission Statement of Nike
"To be the world's leading sports and fitness company"
Mission at Nike is to be a company that surpassess all other s in athletic industry. They maintain their position by providing quality footwear, apparel, and equipment to institutions and individual consumers of all ages and lifestyles. They pledge to make their products easy available worldwide through the use of retail outlets, mail order and company's web site. Nike's management belives that their success lies in the hands of its teammmates, customers, shareholders and the communities in which they operate. They wov to keep this in mind with the excution of every decision within the company.
Profile of the CEO
Philip H. Knight, chairman and Chief Executive Officer, is the co-founder of Nike, Inc. He has been the driving force behind Nike company's success snce its inception in 164 under the name of Blue Ribbon sports. Knight is 65 years old and holds an undergraduate degree from the University of Oregon and MBA from Stanford University. Knight practiced as a CPA and thouht at Portland State University prior to founding the company known today as Nike. He has been an innovative visionary in the industry of athletic footwear and apparel. His efforts have helped to established Nike as an Industry leader in both national and international markets. Knight's managerial mode is one that characterized by strategic planning. This mode is representative of an open-minded CEO, one willing to take calculated risks and make convervative decisions based on careful analysis of external and internal environments. Knight's decision-making style favors th participative approach. He is not hesiatant to make unilateral decisions, but prefers to look to his trusted management taem for their insight and ideas before choosing a course of action.
Recent Challenges
Recetly Nike has received negative publicity from the media regardoing sweatshop-type factories in foreign nations, predominantly Asian countries. Because a large amount of Nike's products are made in overseas factories, allegations of child endargerment, low wages, and overall poor working conditions surfaced against Nike. Knight and Nike quickly responded by instituing minumum age requirements in all factories, as well as wage increases and regular inspections. Although these improvements help to quash some of the negative publicity, many workers' roghts groups still argue that Nike is not doing enough to remedy these conditions.
Nike has also been affeted by the recent retire of basketball superstar Micheal Jordan. It is estimated that since his drafting into the NBA in 184, Jordan 's impact on the U.S. econmy has been over $ 10 billion, of which, $,6 billion can be traced back to Jordan related products sold by Nike. Jordan retierment prompted Nike to seek out another celebrity athlete endorse to help fill the void. As a result , golf progidy Tiger woods was signed to endorse Nike's line of golf shoes, apparel, and equiment. Last year Nike's golf division revenues were in the $00 million dollar range and expectations are high for the future.
Organizational Culture at Nike
Nike has created a corporate culture rich with employee loyalty and team spirit. Red "Swoshshes" float across everything form screen savers to coffee cups at the ompany's headquarters in Beverton, Oregon. The company chooses to call its headquarters a " campus" instead of an office. Employees are called "players", supervisers are "coaches" and meetings are "huddles". These terms go a long way to make the daily work experience less than dull for the lucky employees in Beaverton.
In 185, thirteen years after the company founded, Nike was blindsided when Reebok developed its multicolored aerobic shoes. It was then that Nike decided to reinvent the busineess and culture, becoming highly motivated about selling sports and "Nike way-of life" With this decision the company also restructured its marketing campaign, focusing more on an image rather than just product advertising, a strategy which led to the "Just Do It" mantra.
Since then, Nike has beeen striving towords an inner culture that reflects mantra. Employees are given an hour and half for lunch to play sports or simply workout. The new Nike is not just about shoes and slam-dunks, but about promoting life styles. All new employees view a video of sports highlights accompanied by a soundtrack that discusses the soul of athlete and competitive spirit. In addition mangement sends weekly emails to update employees on the recent succeess of Nike-sponsored athletes, and often hosts spokespeople to motivate and thank its staff for contributions to the sport world. It is not suprising that athletic background helps a prospective employee. In keeeping with its sports approach Nike asks its players to work by two principals above all others. "Honesty first, and competition second. Compete with yourself not your colleagues".
SWOT ANALYSIS OF NIKE
Strenghts
Nike's strenghts comprise their brand reognition, innovation, revenue, and size. One of its key competencies is the capability to extend its brand name coverage to a broad range of products. Nike has been at the leading edge of innovation and continues to illustrate that with thae introduction of the Nike Shox Shoe. The shock absorbing system in the shoe has never seen in a shoe before. The reputation of the shoe demonstrates that Nike not only has what it takes to invent cutting edge products, but also shows that they can create products that consumers will purchase. However, much of Nike's strenght is drawn from a considerable change in the lifestyle behaviour of its major consumers the young adults.
Weaknessess
Nike's weaknesses consists of shrinking market share, poor brand image, falling out of touch with what consumers want, and being slow to respond to changing consumers preferences. While Nike's market share is more than twice the close competitior, Nike's shrinking market share has become a weakness for them. In recent years, Nike has not been successful with manufacturing shoes that are worn for fashion versus function. The young adult consumer is for the most part concerned with the look and style of the shoe as opposed to its usage. This generation also seeks and thrives on being original and havig their own unique style. Young adults outlook on fashion is a downfall for Nike, because they connect Nike with their older siblings and parents thus creating a brand image tat some of them would prefer not to wear. Within the past year Nike has recognized this shift toward fashion with all of their consumers. One direct answer over the past year was Nike's introduction of its Air Presto athletic shoe, which is made of "strech mesh" to achive sizing more similar socks and will be available in 17 colors. The launch campaign for the Air Presto and will features south Park and Poekman animation caharacters with names based on the color of the shoes. These efforts symbolize Nike's commitment too a changing market, but whether Nike has addressed this shift in fashion too late is unknown. Any return to a more formal dress code than that now found in the young adult population could threaten Nike's position in the marketplace.
Nike's failure to foresee problems in relation to labor and factory conditions at production locations has resulted in bad publicity and decclining sales as society and consumers call for more "socially responsible" companies.
The average of Nike's board director is 6, the youngest meber being 4 and oldest being 7. This constitutes a possible weakness in that there is a lack of younger members of the board who could serve to bring a new perspective to the company And assist in achieving Nike's goals.
Opportunities
Nike's opportunities are cutting edge technology and forecasted great expectations for the coming years in the industry. Nike has always been one of the first organizations to announce technological breakthroughs in the shoe industry, as proven by the waffle design, Air Jordan, and now Nixe Shox. After a downturn in the footwear industry, the athletic shoe businesss is expected to grow in the coming years, which will be beneficial to all of the businesss in the athletic footwear industry.
Threats
The key threat for Nike is market saturation. The problem is that the athletic shoe market is already full of different brands and companies, Now there is very little room for new companies. There is also very little room for new product innovation and growth of markket share for companies like Nike. Since Nike is currently holding the lead in the market as far as market share, there is little room for them to expand. Nike is now competing with other athletic companies as well as companies that just sell clothing or other types of shoes. If all of these other coompanies merely gain a small percentage of the market, Nike will be one of the main companies to start losing market share. In response to this threat, Nike should focus its efforts on a broader market in order to keep its market share and make sure that competitiors like Old Navy do not steal away its market share.
Nike's threats are include the increase of competition, the down year the industry occurrence in 000 and 001, products like cell phones taking the place of shoes as a social status indicator, and the overall slowing economy. Competitiors like New Balance who gained 5% out of 10% of the footwear market share, have adone tremendous jobwith meeting customer style and comfort preferences. Nike understands that they must be more successful with repliying to changing consumer taste if they hope to regain past year market share loss and preserve their current markert share. Another major threat to Nike is the weakening of Nike's high social status connection. Ten years ago owning a pair of Nikes infleunced how cool you were. Today being cool is established by society as owning several possessions like pagers and cll phones. This overall shift in what society deems as important and fashionable requires constant versatility and adptability on business part.
STRENGTHS WEAKNESSES
OPPORTUNITIES Brand RecognitionInnovationRevenueSize Shrinking market shareSlow to respond to changing environmentNot responding to customer needs
THREATS Cutting Edge TechnologyEconmy on the Rise Increasing CompetitionSubstitution for Social status Indicator
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