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Alt 04-11-2008, 20:52   #1
Yaso
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Standart Introduction:

INTRODUCTION:

This report defines the operational, financial and economic position of Nike, Inc. in the market. In the report, customer profile, demand determinants, price elasticity, productivity, market structure, growth rates; recent actions against and legislations pending the company will be defined and analyzed.
QUESTION 1:

The subject of this report is Nike, Inc. , which is principally engaged in the design development and worldwide marketing of footwear, apparel, equipment and accessory products. Nike sells its products to approximately 17,000 retail accounts in the United States and through a mix of independent distributors, licensees and subsidiaries in approximately 140 countries around the world and employs 22,700 employees.
Virtually all of the Company's products are manufactured by independent contractors. Most of the Company's footwear products are produced outside the United States, while apparel products are produced both in the United States and abroad. Although the company expanded all over the world, the head quarters is still in Beaverton, Orlando. [1]
QUESTION 2

The firm primarily functions in shoe industry. Apparel, equipment and accessory can be considered as secondary industries. The Standard Industrial Classification (SIC) code for Nike’s Men’s Footwear is 3143;the one for women’s footwear 3144; the one for Children’s footwear is 3149 and athletic clothing for men and women is 2329.[2]
The North American Industry Classification System (NAICS) code for Nike’s men, women and children footwear is 3162, and that for athletic goods manufacturing is 3399. Also they can be categorized as footwear wholesaler which has a NAICS code of 4223.[3]

QUESTION 3

NIKE's athletic footwear products are designed primarily for specific athletic use, although a large percentage of the products are worn for casual or leisure purposes. They place considerable emphasis on high quality construction and innovative design. Running, basketball, children's, cross-training and women's shoes are currently their top-selling product categories and they expect them to continue to lead in product sales in the near future. However, they also market shoes designed for outdoor activities, tennis, golf, soccer, baseball, football, bicycling, volleyball, wrestling, cheerleading, aquatic activities,
hiking, and other athletic and recreational uses.
They also sell active sports apparel covering most of the above categories, athletically inspired lifestyle apparel, as well as athletic bags and accessory items. Nike apparel and accessories are designed to complement our athletic footwear products, feature the same trademarks and are sold through the same marketing and distribution channels. They often market footwear, apparel and accessories in "collections" of similar design or for specific purposes. They also market apparel with licensed college and professional team and league logos. In general Nike’s customer profile is mainly composed of people who wants the best quality of footwear and equipment in any age group. Also professional athletes can be considered as their customers in both footwear, apparel and equipment.[4]


QUESTION 4

The major determinants of demand for Nike’s primary product (footwear) are the quality, product research and development. Nike believes that their research and development efforts are a key factor in their past and future success. Technical innovation in the design of footwear, apparel, and athletic equipment receive continued emphasis as Nike strives to produce products that reduce or eliminate injury, aid athletic performance and maximize comfort. In addition to Nike's own staff of specialists in the areas of biomechanics, exercise physiology, engineering, industrial design and related fields. Nike also utilizes research committees and advisory boards made up of athletes, coaches, trainers, equipment managers, orthopedists, podiatrists and other experts who consult with them and review designs, materials and concepts for product improvement. Employee athletes wear-test and evaluate products during the design and development process. The athletic footwear, apparel and equipment industry is keenly competitive in the United States and on a worldwide basis. Nike competes internationally with an increasing number of athletic and leisure shoe companies, athletic and leisure apparel companies, sports equipment companies, and large companies having diversified lines of athletic and leisure shoes, apparel and equipment, including Reebok, Adidas and others. The intense competition and the rapid changes in technology and consumer preferences in the markets for athletic and leisure footwear and apparel, and athletic equipment, constitute significant risk factors in Nike’s operations.
Currently, Nike is the largest seller of athletic footwear and athletic apparel in the world. Performance and reliability of shoes, apparel, and equipment, new product
development, price, product identity through marketing and promotion, and customer support and service are important aspects of competition in the athletic footwear, apparel and equipment industry. To help market their products, they contract with prominent and influential athletes, coaches, teams, colleges, and sports leagues to endorse their brands and use their products, and they actively sponsor sporting events and clinics.
Also advertising can be counted as one of the major factors of Nike’s marketing strategy. Advertising creates a public awareness of the product. It is more likely for potential customers to buy the best-advertised product when they decide to buy a product of that family/category. Competitors’ advertising affects a firm negatively. The more a product is advertised, thus the more awareness is created, the more likely it is to be sold. If the rival succeeds in creating a better awareness, it is obvious that the sales of the company in hand will be negatively affected. We can say that competitors’ advertising and sales of the company in hand are inversely proportional.


Years GDP % Change in GDP Sales (in Million $) % Change in Sales
1992 6469.8 6.40% $3,405.20 13.37%
1993 6795.5 5.03% $3,931.00 15.44%
1994 7217.7 6.21% $3,789.70 -3.59%
1995 7529.3 4.32% $4,760.80 25.62%
1996 7981.4 6.00% $6,470.60 35.91%
1997 8478.6 6.23% $9,186.50 41.97%
1998 8984.5 5.97% $9,553.10 3.99%
1999 9522.5 5.99% $8,776.90 -8.13%
2000 10027.9 5.31% $8,995.10 2.49%
2001 10263.3 2.35% $9,488.80 5.49%
Table 1. Annual Growth Rates of Gross Domestic Product (U.S. GDP) Against Company Sales [4][5]


Comparing the growth rate of U.S Gross Domestic Product (GDP) to the growth rate of company sales, we can conclude that company’s total sales are not cyclical. They don’t
follow the business cycle, ups and downs in the economy. Nike’s sales change rates are independent from the change in GDP.


Quarter Sales (in millions $)
2000.1 $2,501.1
2000.2 $2,059.7
2000.3 $2,161.6
2000.4 $2,272.7
2001.1 $2,636.7
2001.2 $2,198.7
2001.3 $2,170.1
2001.4 $2,483.3
Table 2. Quarterly Sales Data for Nike, Inc.[4]


According to the quarterly sales figures above, we can say that Nike has a high season, which is the first quarter of the year. The other seasons have close sales figures to each other.

QUESTION 5

Nike, Inc. faces inelastic demand for reasons below.

First, shoes are one most important needs of people. Everybody has to
wear shoes. For the past 20 years people have started wearing comfortable shoes. Athletic shoes can be considered as a comfortable shoe and people buy this type of shoes without considering the fact that they do any sports. Because they wear this type of shoes most of their times.
Second, although Nike has so many competitors, they are the leader in the industry. They have more than 3 times of sales compared to its closest rival. They have been updating their technology and developing new designs every year and because of most of the new products they have patents and they are unique in their designs.
Third, the price of a pair of shoe is an affordable price for most of the people. Therefore compared to other industries footwear business has sales in big amounts in quantity. The life of a shoe is not as long as a car or electronic device so this market has a very big demand.
Finally, although Nike has high prices compared to its rival, they are the leader in the market therefore we can consider this demand as an inelastic demand. [4]

QUESTION 6

Nike, Inc., can be categorized as non-durable products manufacturing business. Bureau of Labor Statistics report about the change of productivity and costs between the fourth quarter and the preceding quarter are as follows;
Productivity changed in manufacturing durable goods as 5.2%, output has changed –2.6%, change in hours is –7.5, change in hourly compensation is 1.2%, and change in real hourly compensation 1.5% and change in unit labor costs -3.8%.
The deviations from the same quarter a year ago are 1.3 % in productivity, -3.4 % in output, -4.7%in hours, 3.9% in hourly compensation, 2.0% in real hourly compensation and 2.5% in unit labor costs. Figures show us that there is an increase in productivity. Output and working hours have decreased. Also compensation, real hourly compensation , and unit labor costshave increased. We can have a conclusion that the increase in costs could result in an increase if the footwear products of Nike were produced in the USA. We know that most of the shoes are produced in China, Vietnam and Indonesia. Actually, only operations in the USA will be effected from the changes.[6]

QUESTION 7

The market structure of the footwear business is highly competitive. Nike, Inc., has competitors in this industry from all around the world. Major domestic competitors can be listed as Reebok, Timberland and Skechers. Foreign rivals can be listed as Adidas and Fila Holding S.p.A.. Although Nike has the major part of the market share they face with the low-prices from their rivals. Almost all of Nike’s rivals offer similar products as Nike involved in. Those companies also offer similar apparel and equipments as Nike does.
Actually there are few barriers to enter the industry. There are thousands of sports shoe producers around the world. This is caused because shoes are considered as non-durable products. But most of the shoe companies prefer to work in their local markets. International market is much more competitive than the local markets. Companies such as Nike, Reebok , Adidas and Timberland can be defined as the leading companies in this business and they have the advantages of their sizes in their operations. These companies can supply the raw material and components at lower prices compared to other small sized companies. So price is an important factor. In order to compete in full product range with the giant companies serious amounts of capital is needed.
Non-price competition is an important factor in the market. Also small sized companies must have research & development and advertising budget. Advertising can be considered as one of the major expenses in order to compete in this market. Brand awareness and the reputation of the brand comprise are also two critical factors in the success of a product in the industry. People prefer to buy known brands. It is important to build a strong brand awareness and a good brand reputation. Non-price competition can be considered as one of the barriers to enter the industry. Since it takes a lot of time and investment build awareness, for new –entrants who might want to compete with the giants of the industry can find it difficult to penetrate into the market.[4]



QUESTION 8

NIKE INC.
YEAR NET SALES (in million $) GROWTH RATE IN SALES
2001 9488.8 5.2%
2000 8995.1 2.4%
1999 8776.9 -8.8%

REEBOK INTERNATIONAL LTD.
YEAR NET SALES (in million $) GROWTH RATE IN SALES
2001 2992.8 4.3%
2000 2865.2 -1.2%
1999 2899.8 -11.2%
Table 3. Sales Comparison of Nike Inc. and Reebok International Ltd. [4] [7]


NIKE INC.
YEAR NET INCOME (in million $) GROWTH RATE IN INCOME
2001 589.7 1.8%
2000 579.1 22.1%
1999 451.4 11.5%

REEBOK INTERNATIONAL LTD.
YEAR NET INCOME (in million $) GROWTH RATE IN INCOME
2001 102.7 21.3%
2000 80.8 634.5%
1999 11 -117.3%

Table 4. Net Income Comparison of Nike Inc. and Reebok International Ltd. [4] [7]


In Table 3, the sales figures of Nike and Reebok, we can see that there has been a decrease in the both companies’ sales in 1999 and it started to increase for Nike in 2000 and it started to increase in 2001 for Reebok. This decreases can be caused because of the new rivals or there might be a decrease in the footwear business. If we compare both companies in terms of recovering their sales Nike has recovered faster than Reebok. Also we know that they were the leader in the footwear business. In terms of profitability Nike is again the the leader in the Industry .
As we can see in Table 4, there is a serious decrease in the growth rate of income for both of the companies. This decrease might be caused because of the events in September 11. Almost all of the industries were affected because of these events.

QUESTION 9
The latest action taken against Nike is the one that the California Supreme Court reinstated a consumer lawsuit against Nike on May 3,2002. They opened a new legal path for the worldwide movement to combat sweatshop conditions in foreign factories operated by the U.S. clothing industry.
Instead of attacking labor conditions at Nike's Asian factories directly, the lawsuit uses California laws against false advertising and unfair competition to try to deprive the company of profits earned in the state by promoting an image of itself as a progressive employer abroad.
Nike issued a statement on May 3 which says that it was weighing its legal options. Nike that says it maintains contractual relationships with more than 700 factories employing more than 550,000 workers in more than 50 countries.
The Supreme Court's decision classified Nike's promotional campaign as "commercial speech" that's not entitled to full protection under the First Amendment. Unless the suit is tossed out again in further appeals, Nike would be forced to defend the truth of its promotional messages in the lower courts.
"When a corporation, to maintain and increase sales and profits, makes public statements defending labor practices and working conditions at factories where its products are made, those public statements are commercial speech that may be regulated to prevent consumer deception," Justice Joyce Kennard wrote for the court's majority.
The dissenting justices agreed with Nike's position that its campaign was part of the public debate over globalization and problems in emerging countries, the kind of political and philosophical dialogue that's most entitled to undiluted First Amendment freedom.
The suit against Nike was filed not by the state but by Marc Kasky, director of a San Francisco arts complex. Attorney General Bill Lockyer, the AFL-CIO and other powerful national organizations backed Kasky's appeal because of its potential impact in a market where manufacturers increasingly promote their images to sell their products and consumers' social values often determine their choices.
Nike was supported in the lawsuit by the American Civil Liberties Union and the Product Liability Council, an organization of 132 major businesses and manufacturers.
Nike didn't even mention its products in the documents that are the basis of Kasky's lawsuit -- a series of letters to editors, college presidents and athletic directors touting excellent conditions at its Asian factories.
Nike claims it meets or exceeds local Asian and international standards. It says it has dramatically increased wages, decreased child labor and promoted worker health and education since Kasky filed his suit in 1998, the same year the company was hit with a call for a boycott.
It suffered losses that year for the first time in 13 years.
The company launched the promotional campaign that led to the lawsuit in response to a run of picket lines and bad publicity that began in 1996 and continued sporadically into this year with the picketing of Nike-endorser Tiger Woods in New Zealand.[8]


QUESTION 10

There is no recently passed legislation that affects Nike Inc. The search was made in the Thomas Legislative Information website. The company name was typed and no matches were found. When the industry name was entered for searching, some results were found and the most recent legislation was about the Harmonized Tariff Schedule of the United States relating to certain footwear. Harmonized Tariff Schedule of the United States is amended by striking some subheadings.
‘The new subheading as below was inserted. It is as follows. Footwear consisting of an outer sole affixed to an incomplete or unfinished upper to which additional upper parts or material must be attached to permit the footwear to be held to foot, the foregoing footwear of a type that is not designed to be worn over other footwear.’
I don’t think this change would affect the Nike, because all of its products are produced in foreign companies and imported from those companies. [9]










REFERENCES:

[1] Profile Nike, Inc. [Online]. Available:
http://biz.yahoo.com/p/n/nke.html
[2] SIC Codes . [Online]. Available
http://www.osha.gov/oshstats/sicser.html
[3] NAICS codes [Online] Available:
http://www.naics.com/cgi-bin/searchpl.
[4] 10-K Report of Nike for year 2001 [Online]. Available
http://invest.nike.com/visitors/edga...?companyid=nke
[5] The Federal Reserve Bank Year 2001 Gross Domestic Product [Online]. Available:
http://www.stls.frb.org/fred/data/gdp/gdp
[6] Bureau of Labor Statistics (2001) Productivity and Costs [Online]. Available:
http://www.bls.gov/news.release/prod2.nr0.htm
[7] 10-K Report of Reebok for year 2001 V
http://www.reebok.com/US/AtReebok/In...ns/default.htm
[8] California Justices Reinstate Lawsuit against Nike [Online]. Available
Knight-Ridder Business News, May 03, 2002 07:30 PM)
http://www.hoovers.com/co/news/4/0,2171,14254,00.html
[9] Thomas Legislative Information [Online]. Available
http://thomas.loc.gov















TERM PROJECT
NIKE, INC.

BA653 MANAGERIAL ECONOMICS

05/07/2002
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