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Nike SWOT Analysis

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                       Nike SWOT Analysis 2018

Introduction:

Nike is known as the biggest and best sports shoe and apparel brand in the world. It designs and sells products in nine key categories. While its products are mainly designed for athletic use, they have also grown popular world wide as leisure wear. The brand focuses on two important things – product innovation and product quality. Nike was incorporated in 1967. It acquired global popularity based on its excellent product quality and marketing strategy. Its swoosh logo is easily identifiable among the large crowd of brands. The brand has expanded fast internationally which is evident from its revenue. It share of non US revenue has shot past 50% in 2017. Its main strategic suppliers for footwear are 127 footwear factories located in 15 countries. Its largest number of suppliers are located in Asia which accounted for more than 90% of Nike’s footwear production in 2017.

Competition in the athletic footwear, apparel and equipment industry has grown intense and it is why all brands are investing in digitization, product innovation and things like AI for a better customer experience and higher satisfaction for consumers. Nike also spends a lot on advertising as well as research and development. This is a SWOT analysis listing the brand’s key strengths, weaknesses, opportunities and threats.

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Nike number of employees

Nike Marketing expenses

Strengths:

Brand Image – A strong brand image is a key strength for any brand. Over time, Nike has built a strong image as an ethical and customer oriented business. It is an innovative brand that is also known for its excellent marketing and for good quality products. Most of Nike’s fame depends on its stylish products and a well crafted marketing strategy. Its swoosh logo sets it apart from the crowd of businesses. Nike’s focus on innovation and ethics has resulted in stronger reputation and faster growth.

Excellent Marketing capabilities – Marketing can be a source of competitive advantage in this era. A very large part of the entire battle is being fought in marketing and marketing capability of a brand determines its sales and revenue. Not just Nike, its competitors are also focusing heavily on marketing. Apart from innovative marketing and advertising, the brand spends a heavy sum on marketing. In 2016 and 2017, it spent $3.2 and $3.3 Billions on marketing. Nike is now relying increasingly on digital and social media advertising.

Financial strength – Financial clout also becomes a key strength for any brand in the 21st Nike’s position is much stronger than its competitors financially. In the fiscal year 2017, the brand achieved record growth in revenues and earnings per share despite continuing foreign currency headwinds. Its revenues grew by 6% over 2016 to $34.4 billion in 2017. Its net income increased by 13% and Diluted Earnings per share by 16% to $2.51.

International presence – Nike’s International presence has grown fast. Its number of non US retail stores has climbed to 758. Total number of Nike brand factory stores is now 642 and that of brand in line stores is 71. The number of Converse stores internationally has also grown to 45. The total number of Non US stores is now double that of the US stores.

Large and well managed supply chain and distribution network – A large and well managed supply chain and distribution network is also among the key strengths of Nike. For a well known sports shoe and apparel brand, Nike has a quite big and well managed supply chain and distribution network. It relies almost totally on independent manufacturers for the production and supply of its products. The brand works with more than 500 suppliers across 42 nations and has strategic partnership with 363 apparel factories in 37 countries and 127 footwear factories in 15 countries. Asia has the highest number of Nike suppliers and especially in China, Indonesia and Vietnam. The brand has 1142 stores internationally of which around a third are in US and two third outside US. The brand has Nike and Converse websites in 45 countries and is working on new innovative models to extend its reach closer to the customers.

#Weaknesses:

Overdependence on the US market – The brand still depends heavily on the US market for sales and revenue. In 2017, close to 46% of its revenue came from inside US and around 54% from outside US. While the brand has expanded fast overseas, the US market is its biggest source of income.

Increasing marketing and overhead operating expenses: Rising competition in the spots shoe and apparel market has caused an increase in the marketing related expenses of Nike. In 2016 and 2017, it spent more than 3 Billions on marketing. There was a rise of more than 60 million in marketing expenses of Nike from 2016 to 2017. Operating overhead expenses for 2016 and 2017 were higher than 7 Billion for Nike.

#Opportunities:

Digitization and product innovation – For further growth, the brand must continue to retain its focus on digitization and product innovation. Digital marketing and ecommerce both will affect its growth and profits. Its competitors are also investing in these areas and they will continue to affect the consumer experience of Nike as well as its sales and profits.

Acquisitions – Acquisitions can also be a good method to find growth faster. The brand can grow faster by acquiring related businesses.

International expansion – International expansion can also be great for faster growth. Nike is currently operating its ecommerce websites in only 45 countries. It can exploit both ecommerce and physical retail channels for international expansion. Asia is particularly a fast growing market full of space and opportunities for market growth.

Backward integration- Nike currently relies totally on independent manufacturers for the production and supply of its products. It can either acquire a few of them or build some of its own which will help it have a more agile and stronger supply chain and find faster growth.

#Threats:

Stronger US dollar hurting earnings – A stronger US dollar has an adverse effect on the earnings of Nike.  A stronger US dollar increase inventory cost and reduces the consolidated earnings of Nike. In both 2016 and 2017, the detrimental effect of fluctuation in foreign currency was felt by Nike. It felt a detrimental impact of $542 million and $1,985 million on its consolidated revenues for 2017 and 2016 respectively. A similar detrimental impact was felt on Income before income taxes because of fluctuation in foreign exchange rates which was close to around $115 million and $449 million for 2017 and 2016 respectively.

Increased competitive pressure – The competitive pressure over Nike has also kept increasing requiring higher investments in marketing as well as operations. Adidas and Under Armour are also investing heavily in innovation and marketing creating competitive pressure on Nike. To manage the competitive pressure Nike will have to retain its focus on product quality, innovation and supply chain management.

Growing HR and marketing expenses – With growing business, the HR and marketing expenses of Nike have also grown. It spent more than 3 billion on marketing in 2017. The company is also experiencing higher wage related and compensation expenses.

Higher legal pressures – The legal pressures over businesses have grown globally leading to higher pressure related to ethics and compliance. This has also led to an increase in compliance related costs for Nike. Failure to comply with regulatory standards can lead to financial and reputational risks.

#Conclusion:

Nike is the biggest sports shoe and apparel brand of the world which has focused on product innovation and marketing for growth. Its excellent marketing capabilities have held it apart from the crowd of brands. Its e-commerce websites are now active in 45 countries. However, despite its international growth the brand still relies heavily on US market for revenue and income. A stronger US dollar and continued tightening of the regulatory net are some of the most important threats before the brand. Competitive pressures against the brand have also kept rising.  To retain its growth rate, the brand must retain focused on product innovation and marketing. It can also try backward integration since it depends heavily on independent manufacturers in its supply chain.

Sources:

Nike Annual report 2017 (https://s1.q4cdn.com/806093406/files/doc_financials/2017/ar/docs/nike-2017-form-10K.pdf)