Seminar Three

INDUSTRY AND MARKETPLACE

NIKE INDUSTRY AND ITS DEFINITON

NIKE, Inc., together with its subsidiaries, designs, develops, markets, and sells athletic footwear, apparel, equipment, and accessories for men, women, and kids worldwide. The company offers products in eight categories, including running, basketball, football, men's training, women's training, sportswear, action sports, and golf under the NIKE and Jordan brand names. It also markets products designed for kids, as well as for other athletic and recreational uses, such as cricket, lacrosse, tennis, volleyball, wrestling, walking, and outdoor activities. In addition, the company sells sports apparel and accessories; and markets apparel with licensed college and professional team and league logos. Further, it sells a line of performance equipment, including bags, socks, sport balls, eyewear, timepieces, digital devices, bats, gloves, protective equipment, golf clubs, and other equipment under the NIKE brand name for sports activities; various plastic products to other manufacturers; athletic and casual footwear, apparel, and accessories; casual sneakers, apparel, and accessories under the Converse, Chuck Taylor, All Star, One Star, Star Chevron, and Jack Purcell trademarks; and action sports and youth lifestyle apparel and accessories under the Hurley trademark.

NIKE, Inc. sells its products to footwear stores; sporting goods stores; athletic specialty stores; department stores; skate, tennis, and golf shops; and other retail accounts through NIKE-owned retail stores and Internet Websites (direct to consumer operations), as well as a mix of independent distributors and licensees. The company was formerly known as Blue Ribbon Sports, Inc. and changed its name to NIKE, Inc. in 1971. NIKE, Inc. was founded in 1964 and is headquartered in Beaverton, Oregon.

SHAPE OF INDUSTRY

The U.S. athletic footwear industry grew by 8 percent in 2015, generating $17.2 billion and marking one of the best performances the industry has had in a number of years; unit sales grew by 3 percent and average selling price by 5 percent, to $61.15 (Cox, 2016). Performance footwear, particularly running and basketball shoe sales slowed down in 2015 and there was a rise in more casual and retro styles. Through research it is said that the more casual and retro style sales will continue to grow throughout 2016. With the merging of outdoor and athletic shoes, hiking shoes will see growth in the coming years as well. With each decade that passes, trends seems to change and often it is a cycle of different styles that are very popular and then lose some of their momentum because another style shoe is becoming the front runner based on fashion and market trends. 

Coinciding with the holiday season, athletic footwear sales peak in December and 2015 saw one of the best months for sales in terms of sales growth for athletic footwear. Total dollar sales grew 13 percent, unit sales by 10 percent, and average selling price by 3 percent compared to December 2014 (Cox, 2016). The top brand for athletic shoes for men in 2015 was the Nike/Jordan brand, with Adidas and New Balance trailing behind. Nike and Jordan Brand claim a solid 62% share of the athletic shoe market, which is 10 times the amount of athletic footwear Adidas sells in the United States.

DEVELOPMENT OF INDUSTRY

The US athletic shoe market is a $13 billion-per-year industry that sells more than 350 million pairs of sports shoes annually. Sports shoes have become a fashion statement and also assist in the everyday task of working.

The driving force of new athletic-shoe design is not just performance. The use of athletic shoes for casual wear as well as for fashion plays a large role in shaping their appearance and features. The youth market is frequently targeted by advertisers and young people’s behaviors are used in selecting shoes. High school students have even been brought into the offices of manufacturers to get a handle on “how cool” contemplated models look. Colors, styles, fashions, and what is likely to be “hot” are important factors in the design of athletic shoes. A few manufacturers have discovered the extensive role that athletic shoes play in the workplace especially for aging boomer population which is a good potential market (Pribut & Ritchie, 2002).

The special role that marketing would play and the sophisticated manner to which it would be taken was presaged when Phil Knight announced with panache that four of the first seven finishers in the 1972 US Olympic trials wore Nikes (Pribut & Ritchie, 2002).

Before the late 1970s, running shoes were not high-tech items. Until the middle of the 19th century, shoes were made on a single straight last and there was no differentiation between left and right shoes. During those years, not many international competitions were held, and the modern Olympics did not appear until 1896. Keds started as a product produced by US Rubber in 1917. Keds was chosen as a name because the desired name, “Peds,” was already trademarked by another company. Keds were the first sneakers, so-called because of the stealth and quiet manner in which you could run up on someone when you wore them. Keds, and later Converse, captured much of the US “Sneaker Market.” Keds was purchased by the Stride Rite Corporation in 1979 (Pribut & Ritchie, 2002).

PF Flyers was named for “Perfect Foundation,” with the intention of making the sneakers appear to have been crafted with the latest scientific ergonomic principles in mind before anyone had even heard of “ergonomic.” Shoes need to be devised to assist the athlete in the specific demands of the sport and to meet the individual biomechanical of the participant (Pribut & Ritchie, 2002).

Today’s running shoes are designed with an eye toward accommodating various types and shapes of feet. Shoes are made that allow for the differences between men and women, light- and heavyweight runners, pronated and supinated feet, and narrow and wide feet. Sport-specific shoes also attempt to meet the diverse needs of differing sports which means that there is a shoe to fit everyone.

Podiatrists first participated in the development of athletic shoe technology in the 1970s. As biomechanical knowledge of foot and leg interactions gained huge momentum in the podiatric medical profession during that decade, the use of corrective devices in shoes achieved widespread popularity. Podiatric medical practitioners commonly added wedges, arch supports, heel cradles, and various cushioning devices to the existing footwear of athletic patients to treat their injuries and enhance their comfort. Soon, some podiatrists offered these technologies to athletic-footwear companies. The subsequent incorporation of such devices into athletic shoes led to monumental success for the manufacturer and redefined the standards within the industry (Pribut & Ritchie, 2002).

The most notable technologies developed by podiatrists in the 1970s were the Dynamic Heel Cradle, for Etonic, by Rob Roy McGregor, DPM, and the varus “kinetic” midsole wedges for Brooks, by Steve Subotnick, DPM. In the 1980s, Nike incorporated Dr. Harry Hlavac’s cobra pad into the company’s highly successful running shoe, the Equator. Also, Howard Dannenberg, DPM, developed and patented the Kinetic Wedge® addition to the midsole and outsole of a line of Brooks running shoes that became very successful for several years and that formed the foundation of the entire Brooks running-shoe line (Pribut & Ritchie, 2002).

In l981, Joe Ellis, DPM, of La Jolla, California, working closely with Asics, developed the first midsole technology that incorporated medial posting in the midsole section of the running shoe. During the 1990s, William Olson, DPM, worked closely with many major athletic-shoe manufacturers who wanted to incorporate his TL composite invention into various athletic shoes, including running, basketball, and in-line skating shoes. The TL composite was a proven success in the orthotic marketplace and had great credibility and appeal as a high-performance material for use in constructing athletic shoes. The device was first used in the “Air Jordan 12” basketball shoe during the middle of the 1990s and has been used in every Air Jordan model since (Pribut & Ritchie, 2002). With the important role that feet and athletic shoes play for the millions of people who exercise, podiatrists and podiatric medical students must carefully study the sciences of biomechanics and sports medicine. Enhancing knowledge in these areas will add a good deal of variety, interest, and even patients to a practice.

THE MARKETPLACE

Currently, Nike sells their goods on the global marketplace. Their operations within the marketplace consist of "the design, development, marketing, and selling of athletic footwear, apparel, and equipment. Sales are seasonal and depend on geography... Nike has seven reporting segments:

• North America
• Western Europe
• Emerging Markets
• Greater China
• Central and Eastern Europe
• Japan
• Converse

In the marketplace, Nike has remained an industry leader against competitors because they are always anticipating customer's current and future needs of those in the market. Nike does this for customers all over the global marketplace, as some needs are different than others. Nike describes that:

As Nike has evolved, so has the consumer. They connect and collaborate with each other all over the world. As retail evolves to meet these changing needs – from athletic specialty to department stores – old, predictable formats tend to blur the line among products and brands. So we ask tougher questions. What kind of choices does a consumer have? What type of experiences does a consumer respond to best? We see this as opportunity for Nike and our retail partners.

As the industry leader, we have the ability and the responsibility to take the industry and our partners someplace new. Our retailers want Nike to lead and that’s exactly what we’re doing – driving innovative product and brand presentation into the stores of our wholesale partners.

We do this by working with our wholesale partners to create differentiated retail destinations and product assortments that are tailored to their consumers. We do it by investing in direct retail concepts that elevate our products and our brands online and in store. And we tightly manage the distribution of our products to balance supply and demand, maintain the strength of our brands and the profitability of our business.

(Nike 2016)

CURRENT CONDITION OF THE MARKETPLACE

Currently, Nike generates most of its revenue from the North American segment. In 2015, the North America segment was responsible for 44% of the company's total revenue. Nike's competitors have similar results in this way. " Under Armour Inc. (UA), derives over 90% of its revenues from North America. Other NIKE competitors, VFC Corporation (VF) and Lululemon Athletica Inc. (LULU), also have a much higher dependence on North American sales," (Soni 2014).

Currently, Nike's "hopes to grow its North American segment by high single digits each year through fiscal year 2017 (Soni 2014).

Nike recognizes that in order to stay ahead as an industry leader within the markets they operate in, they need to make sure their products and brands stay in demand with their consumers. "Nike is now strategizing on how to widen the gap with its nearest competitors, or increase the degree of separation," (Soni 2014). Nike plans on doing this through:

·       Innovation

·       Providing the customer with premium, must-have products, and a premium experience

·       Transforming the marketplace and expanding its direct-to-consumer footprint

It is NIKE’s "consumer-focused category strategy that will be driving growth through increased market place capacity and penetration... Our consumer focused strategy enhances our ability to deliver great product and elevated consumer experiences which will help grow the NIKE Brand to approximately $23 billion by the end of fiscal 2015," (Nike 2010).

It is clear that no matter how Nike is doing in the market, the consumer will always be their number one priority. Being so customer focused is what keeps Nike in operation across all its markets.  

CHANGES IN THE MARKETPLACE

Nothing ever stays the same what was once a fringe group of fanatics is now changing the way sportswear giants Nike and Adidas both do business, and redefining the sneaker business (Tomaszewski, 2014). The rise of "sneakerheads" is causing a growing populace of consumers following these companies' every move like a tabloid photographer follows the latest celebrity train-wreck. That level of brand awareness is driving sales and even creating new markets.

A sneakerhead is a devotee of athletic footwear and at one time they were an underground community of fanatics, now they are a semi-mainstream collection of enthusiasts whose demographics run the gamut from suburban teens to celebrities like Mark Wahlberg, Jason Sudekis, and Jerry Seinfeld. According to Forbes, it is estimated that sneakerheads represent about 5% of the $22 billion retail sneaker market in the U.S. That's good for roughly $1.1 billion (Tomaszewski, 2014).

Since companies are aware of the buying power of sneakerheads, they are providing fans with a lot of information regarding upcoming releases. This drives up demand among sneakerheads who famously camp out in advance of a release to get a pair (Tomaszewski, 2014). It is not uncommon for a particularly coveted or limited model release to sell out in minutes.

The big sneaker companies are also adjusting their business models in other ways in an effort to court sneakerheads. Since Michael Jordan entered the NBA and ascended to the top of the sporting world (in many ways he's still on top), Nike released several models of his eponymous shoe, the Air Jordan, every year, each in a different color scheme (Tomaszewski, 2014).

Because of sneakerheads players like LeBron James now sport as many as 10 versions of their signature shoe during the regular season, followed by a completely different model in various color schemes for the post season. Each time a new color scheme or model is debuted on the hardwood, the sneakerheads begin their quest to add them to their collections. A pair of signature shoes can range in cost from $140 to $275 (Tomaszewski, 2014).

This type of devotion to footwear has even led Nike to use social media to offer sneakerheads the ability to purchase shoes that had previously sold out. Because a particularly coveted model will likely sell out within minutes of release online, Nike will sometimes, and without warning, issue what is called a restock (Tomaszewski, 2014).

Creating New Markets

Sneakerheads are creating an entirely new market for athletic footwear, the second-hand market. A sneakerhead will do what he or she has to in order to acquire the latest pair of shoes. Due to the limited inventory released into the retail market and the increasingly high demand for models from the likes of Adidas, Nike, and its high-profile subsidiary Jordan Brand, the only way the vast majority of people who want a particular pair of sneakers is to buy on the secondary market ... at a price that is often two to three times the cost of retail (Tomaszewski, 2014).

Sneakerheads are changing the way companies like Nike, and these changes are here to stay. In the future we can expect changes to the way sneakers are marketed and sold. It won't be long before every 10-year-old is following Nike on Twitter to get release dates, checking out LeBron James' Instagram to see what sneakers he's wearing, and then texting their parents to ask for the latest pair before tapping a "buy now" button embedded in the James photograph (Tomaszewski, 2014).

COMPETITIVE SITUATION 

DIRECT AND INDIRECT COMPETITIORS

Nike has both direct and indirect competitors who they compete with on a daily basis. Some direct competitors that Nike has include Adidas, Reebok, and Converse. Some indirect competitors include Wal-Mart, Target, and other discount stores. 

Nike’s challenge is to gain a strategic advantage by putting a better product above the rest of their competitors. One apparent advantage is the brand name and logo of Nike. The name Nike and the Swoosh logo are known worldwide and are associated with high-quality products. 

Another strategic advantage Nike has is its ability to promote its product through top athletes. When certain athletes like Michael Jordan, Lance Armstrong and Tiger Woods are mentioned, people are familiar with their endorsement relationship with Nike. Consumers relate with these athletes and purchase items based on what they are using or wearing.

References

Marketplace - Nike Inc. A Growth Company. (n.d.). Retrieved March 09, 2016, from http://media.corporate-ir.net/media_files/IROL/10/100529/nike-gs09/marketplace.html

Nike News. (2010, May 05). NIKE, Inc. Introduces 2015 Global Growth Strategy. Retrieved March 09, 2016, from http://news.nike.com/news/nike-inc-introduces-2015-global-growth-strategy

NKE. NKE profile | Nike, Inc. common stock. Yahoo! Finance.           http://finance.yahoo.com/q/pr?s=nke

Pribute, S. M., & Richie, D. H. (2002). Dr. Stephen M. Pribut's Sport Pages. Retrieved March 09, 2016, from http://www.drpribut.com/sports/sneaker_odyssey.html

Soni, P. (2014, December 02). Welcome to Market Realist. Retrieved March 09, 2016, from http://marketrealist.com/2014/12/nikes-global-markets-top-revenue-earners/

Tomaszewski, J. (2014, June 22). How sneakerheads are changing Nike, Addias. Retrieved March 09, 2016, from http://www.usatoday.com/story/money/2014/06/22/how-sneakerheads-are-changing-nike-and-addias/11035771/