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This report examines NIKE Inc., one of the world's leading sports brands, and analyzes its business environment and performance using various business analysis techniques, including SWOT, PESTEL, Porter's five forces, and Ratio analysis. NIKE Inc. is headquartered in Oregon, USA, and is the largest designer, marketer, and seller of athletic footwear, sports equipment, apparel, accessories, and services globally. In 2012,
the company generated sales revenue of $21.5 billion (NIKE , 2013). With a workforce of 48,000 employees,
NIKE operates in various regions such as Canada , Asia , Latin America , Europe , and Africa .
In the fiscal year ending May 2013,
the company recorded revenue of $25 ,313 million. The company has experienced consistent revenue growth since 2010
and expects this trend to continue by leveraging top sporting events to enhance its brand image (Tefris 2013).
The subsequent paragraphs present a PESTEL analysis of NIKE, concentrating on the Political, Economic, Social, Technological Environment, and Legal factors. PESTEL analysis is an approach utilized in business analysis to assist companies in recognizing their operational surroundings and foreseeing forthcoming situations by utilizing information and data (Yüksel, 2012).
The political environment has a significant impact on businesses' micro and macro environments and can greatly influence various business decisions (Leslie and Phillip, 2012).
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This includes the political system, government policies, and trade regulations. NIKE may be affected by specific political factors, such as the relationship between the United States (Nike's country of origin) and other host countries where the company operates, like China. For example, increased tension between the US and China could result in aggressive policies that affect the company's operations in China.
Moreover, recent pressure on US firms to retain jobs within the country could impact NIKE's future factory location plans.
NIKE's overall strategy and decision-making heavily rely on the economic environment, which includes factors like the global economy, economic incentives from countries hosting NIKE factories, general economic condition of these countries, inflation rates, and fluctuating oil prices. These factors can potentially impact the company's revenue. Although NIKE has witnessed significant revenue opportunities in emerging markets such as Brazil and China due to their increased economic growth, the recent downturn in China's economy will adversely affect NIKE's revenue projections.
NIKE's business decisions are influenced by various social factors, including tradition, customs, beliefs, education level, corruption, customer consciousness, changing lifestyle, and income distribution (Singla, 2007). These factors can have a significant impact on the company. For instance, an increasing awareness of maintaining a healthy lifestyle could lead to a higher demand for fitness centers and gyms. Consequently, NIKE may experience increased sales revenues.
In addition to addressing market demands related to healthy living trends, NIKE also faces social issues such as demands for better welfare in clothing factories located in China, Indonesia, and Bangladesh. Civil society groups like the Worker's Right Consortium exert pressure on NIKE to ensure that their suppliers meet health and safety standards.
Technological advancements
NIKE's success is attributed to their commitment to technical innovation and quality control in the design and manufacturing of footwear, athletic equipment, and apparel (Nike, 2014). This means that changes in technology can significantly impact the company's operations. New technology can lead to the development of new products, enhance manufacturing processes, and improve distribution networks. Consequently, improved technology could increase NIKE's revenue or reduce manufacturing costs. To remain competitive, it is crucial for the company to constantly monitor and understand technological factors that affect them.
NIKE acknowledges the significant environmental impact of its business operations, which include climate change, waste management, water management, and the use of hazardous chemicals. The company is committed to reducing this impact by recognizing the interconnectedness of these factors and implementing a coordinated approach to product design and processes. NIKE understands the importance of mitigating the environmental impact on both the environment and their business.
NIKE is affected by various legal factors such as the judicial system, consumer rights, trade treaties, and ethical codes. It is crucial for the company to have a constant understanding of laws and regulations to prevent any serious legal implications. According to Gotham (2013), one major legal issue that NIKE must consistently address is the presence of counterfeit products. It is essential to ensure that fake NIKE products do not become widely available in order to maintain the company's reputation and avoid potential lawsuits that could lead to increased legal costs. Additionally, upholding ethical standards is of utmost importance in safeguarding the NIKE brand. SWOT ANALYSIS
The SWOT analysis is a popular management tool for creating strategic business plans (Amin et al, 2011). It is widely utilized in the business world because of its simple four factors: Strength, Weakness, Opportunity, and Threats, as well as its adaptable nature (Al-Araki, 2013). The following paragraphs will present the SWOT analysis of NIKE. Strength
NIKE's dominant position in the market and strong brand portfolio are among its main strengths. In 2012, NIKE held 18.6% of the global footwear market share, which is expected to increase to 27% in the long term (Forbes, 2014a). The majority of NIKE's overall value comes from its footwear and apparel products sold under the NIKE brand, accounting for approximately 70% (Trefis, 2014). These factors, along with the company's competitive brand portfolio and industry dominance, contribute to its ability to outperform competitors.
According to Watts (2009), NIKE has a weakness in addressing labour and factory condition issues. The company consistently faces criticism for relying on contractors and manufacturers who do not meet labour standards or provide safe factory conditions in Pakistan, Bangladesh, Indonesia, and China. This has led to negative publicity and calls for product boycotts. Furthermore, NIKE's emphasis on quality may pose a potential weakness as they expand into emerging markets such as Brazil where their prices may be higher and some customers may not have the income to afford their products.
NIKE recognizes the considerable growth opportunities in emerging economies such as China and Brazil. The company believes that its products hold great potential in these markets, which also contribute to the expansion of the global footwear market. This presents an excellent opportunity for NIKE to tap into. Furthermore, with the rising popularity of online and mobile shopping platforms, NIKE can now reach a wider customer base globally.
The main challenge for NIKE is the increasing competition and the unpredictable technology and consumer preferences in the industry. These risks can harm NIKE's operations (NIKE, 2013). The company remains concerned about key competitors like Adidas, Puma, and Under Armour. Moreover, due to its strong brand value, NIKE faces a constant threat of counterfeit products. It is crucial for the company to tackle this issue in order to preserve its brand value and revenue. This analysis aligns with Porter's Five Forces analysis.
Porter’s five forces analysis is a valuable instrument for companies to understand the level of competition and profitability in an industry. This framework consists of five elements: potential entrants, industrial competitors, suppliers, buyers, and substitutes. By comprehending these competitive forces and their root causes, companies can determine the factors behind the current profitability in their industry. Moreover, this framework offers a structure that assists in predicting and influencing competition over time. The following paragraphs will examine the impact of these five forces on Nike's competition.
Potential new entrants pose a threat to NIKE's market share, but the risk is currently low due to the difficulty of entering the established global sportswear industry. However, there is still a possibility that new competitors could affect NIKE's existing product line and result in decreased sales and revenue. To maintain their competitive edge, NIKE should concentrate on enhancing current products and introducing innovative ones to expand their market share. The level of competition must be carefully considered.
The sport footwear and clothing industry is fiercely competitive, with NIKE facing strong competition from brands like Adidas and Puma. Forbes (2014b) states that the company encounters tough competition in emerging markets and Western Europe. Competing brands such as Adidas are introducing new products and engaging in related activities to regain market share. In addition, NIKE faces competition from local brands like Li Ning as they expand into emerging markets such as China. To maintain their dominant position, NIKE must make efforts to safeguard and enhance their brand.
Bode et al (2011) argue that the success of companies in selling products is often influenced by their suppliers. However, NIKE has an advantage over its suppliers because it has access to commodity items like rubber and cotton, which are used in its production process, and there is a large number of suppliers in the industry. This advantage allows NIKE to easily switch to any supplier at any time with minimal cost and low risk of disruption to its supplies due to its strong brand reputation. Furthermore, NIKE's significant manufacturing ability makes every supplier eager to do business with the company, further strengthening NIKE's control over its suppliers and ensuring a consistent supply. Additionally, it is important to consider the bargaining power of customers.
The loyalty of customers towards the NIKE brand gives the company an advantage over its customers, allowing them to set higher prices knowing that customers are willing to pay in order to be associated with the brand. As long as NIKE continues offering innovative and appealing products, they will maintain their strong position and foster more customer loyalty (Lussier and Kimball, 2014). This power over customers also provides NIKE with considerable pricing flexibility. However, there is a potential risk of substitutes.
During economic downturns, customers frequently choose to buy products from other brands instead of purchasing NIKE items. This is due to the perception that NIKE products are expensive and even luxurious, particularly for middle-class families with limited disposable income. Competitors can capitalize on this by providing cheaper alternatives that are more attractive to these customers during times of economic slowdown. As a result, it is crucial for NIKE to consistently evaluate the financial situation of its customers prior to introducing new products.
An examination of NIKE's financial ratio.
Extracted data
Ratios Formula 2013 2012 2011 Asset Turnover Ratio Revenue/Total Assets 1.44 1.51 1.39 Return on Assets(ROA) Net Income/Total Assets 14.13% 14.37% 14.22% Return on Equity(ROE) Net Income/Equity 22.28% 21.41% 21.67% Gross Profit Margin (Revenue-COGS)/Revenue 43.59% 43.50% 45.58% Quick Ratio (CA – Inv.) / CL 2.60 2.22 2.19 Current Ratio CA/CL 3.47 3.05 2.85 Debt Ratio Total Debt/Total Asset 7.89% 2.49% 4.42% Debt to Equity Total Debt/Total Equity 12.44% 3.71% 6.74% Inventory Turnover COGS/ Inventory 4.16 4.09 4.35 Receivables Turnover Revenue/Receivables 8.12 7.45 6.65" *P/E Ratio*
22.90 22.40 18.90 *EPS
2.71 2.37 2.20
In 2013, Nike's revenue increased by approximately 8% compared to the previous year. The company's profit margin decreased from 45.89% in 2012 to 43.50%, but slightly improved to 43.59% in 2013. The gross profit margin represents what is left after deducting production costs. Other profitability ratios, like ROE, also showed an upward trend from 2011 to 2013, indicating a favorable year for the company compared to its figures in 2012. Forbes (2014a) attributes this success to pricing actions and cost reductions in materials such as cotton, as well as lower investment activities by Nike in 2013. The company's asset turnover declined in 2013 due to decreased sales in China, one of its major markets. Moreover, Nike's liquidity ratio increased during the review period with both the current ratio and quick ratio showing improvement. In 2013, the quick ratio reached a rise of up to 2.60 times from its value of 2.22 times in 2011, surpassing the current industry average of being at only around0 .77 times.
The company's current ratio has been increasing, indicating a strong financial position and the ability to meet future debt obligations. The debt ratio and debt to equity ratio also saw a significant increase from 2.49% and 3.71% in 2012 to 7.89% and 12.44% respectively, suggesting that the company relies on debt to fund its assets. This reliance on debt is likely due to the strong liquidity position reflected in its quick and current ratios, resulting in a low risk of using debt for the company.
Furthermore, the inventory turnover for the company decreased from 4.35 times to 4.09 times in 2012 but slightly rose to 4.16 times in 2013. This indicates that compared to the figure in 2011, the company is still slow in selling and replacing its inventories.
NIKE's current situation is influenced by the slow recovery of most countries after recession and sluggish growth in key markets. However, this challenge is not exclusive to NIKE, as the company still outperforms the industry average of 3.6 times. Moreover, between 2011 and 2013, NIKE has experienced an increase in receivable turnover, contributing to its strong liquidity position. Additionally, NIKE's EPS has shown an upward trend from $2.20 in 2011 to $2.71 in 2013. The company's P/E ratio also grew by 18.90% to reach 22.90%, reflecting profitability and investor confidence in NIKE's future earnings and growth prospects. In summary, a financial analysis of NIKE indicates that despite a slight decline in certain emerging markets, the company maintains a robust position with increasing revenue, strong liquidity compared to industry standards, and high growth ratios – all pointing towards positive future performance.
Figure: Movement of Nike share price in the past 6 months. The figure above illustrates the performance of NIKE's shares over the last half-year. It can be observed that during the third quarter of NIKE's fiscal year, which ended in May 2014, the share price experienced a sharp decline to $70.51. However, it subsequently rose to $79.64, reaching its peak during the examined period. Afterward, the share price witnessed a decrease to $73.2 and has since been fluctuating within the range of $70 and $71. According to NIKE (2013), these fluctuations in share prices can be attributed to various factors affecting performance, including product seasonality, general economic conditions, weather conditions, and changes in consumer preferences. Additionally, dividend payouts, expectations of quarterly results, and other industry-related factors can also contribute to fluctuations in NIKE's share price. Overall, the share performance of NIKE has maintained relative stability within the range of $70-$80 with no significant drops observed during the examined period. CONCLUSION
In conclusion, NIKE is still one of the largest sports manufacturing brands globally. Its emphasis on creating groundbreaking products has kept it highly competitive in the sportswear and clothing industry. Despite a slight slowdown in global economic growth and its impact on key emerging markets like China, investors have high expectations for NIKE's growth potential. They believe the company has the capability to withstand intense competition and further expand its market dominance. It is crucial for NIKE to sustain its innovation efforts to foster customer loyalty and drive revenue growth.
Al-Araki (2013) conducted a SWOT analysis revisited through PEAK-framework in the Journal Of Intelligent & Fuzzy Systems. Amin, Razmi, and Zhang (2011) discussed supplier selection and order allocation based on fuzzy SWOT analysis and fuzzy linear programming in the Expert Systems with Applications. BanJo (2014) wrote about Nike's struggle to balance cost and worker safety in Bangladesh in the Wall Street Journal. Bode, Wagner, Petersen, and Ellram (2011) explored responses to supply chain disruptions from information processing and resource dependence perspectives in the Academy Of Management Journal. Forbes (2013) discussed Nike's potential for sales growth in emerging markets. Forbes (2014b) emphasized tough competition faced by Nike in Europe and China.[Online] available from: http://www.forbes.com/sites/greatspeculations/2014/03/04/nike-faces-tough-competition-in-europe-and-china/ [Accessed on 17th June 2014] Forbes.(2014a) Nike Brand Apparel Division in Focus.[Online] available from: http://www.forbes.com/sites/greatspeculations/2014/03/20/nike-brand-apparel-division-in-focus/ [Accessed on 17th June 2014]. Gotham, S. (2013) Nike's Changing External Environment.Nike.Blogpost [Online] available from: http://philnike.blogspot.com/2013/02/nikes-external-environment.html [Accessed on 18th June 2014]. Hamilton, Leslie &Webster, Philip, (2012) The International Business Environment, Oxford University Press, 2nd Edition. Lussier, R, Kimball, D, (2014), ‘Applied Sport Management Skills’, Elms College, 2nd Edition. NIKE Inc.(2013) Annual Report and Notice of Annual Meeting.[Online] available from: http://investors.nikeinc.com/files/nike2013form10K.pdf [Accessed on 18th June 2014]. 'NIKE, Inc.(2014) NIKE Inc.SWOT Analysis, pp.1-8, [Online] Available from Business Source Premier, EBSCOhost, database [Accessed 18 June 2014]. Porter, M. E. (2008) The five competitive forces that shape strategy.Harvard business review, 86(1), 25-40. Singla, R. K. (2007) Business Studies.Prince Print Process, New Delhi. Tefris.(2013) Here’s What Matters For Nike’s $56 Valuation.[Online] available from: http://www.trefis.com/stock/nke/articles/167536/heres-what-matters-for-nikes-56-valuation/2013-02-12 [Accessed on 18th June 2014]. Trefis (2011) Nike's [SWOT] Analysis in 2011 illuminates its strengths, weaknesses, opportunities, and threats.
Analyzing NIKE Inc.'s Business Environment. (2016, Apr 08). Retrieved from https://studymoose.com/company-analysis-of-nike-2014-essay
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