I.

Executive Summary
II. Statement of the Problem

The focal point of this case analysis is to identify Nike, Inc’s Global Operations, Global
Brand & Category Management and Global Sports Marketing departments strategic management
problems, and the symptoms and causes of these problems and differentiate which of these
problems are short and long term in order to navigate the paths from the present to the future
with demonstrated progress toward achieving their goals. Some potential problems are identified
and listed in the following:

1. High Levels of Expenditure within the Corporation

One of the primary factors that have contributed to the high levels of financial loss at
Nike Corporation is the high levels of expenditure. Expenditures are costs that the business
incurs and tend to eat into a business’ profit margins. As a result, higher margins of expenditure
reduce the profit margin and in some instances, result in a loss on the part of the company. At the
Nike, the company is faced with very high operational costs that have resulted in increased losses
within the organization. The high levels of costs at Nike is a result of costs from different
departments such as finance, procurement. Production and marketing among others pooled
together. Most organizations in the present generation are falling into the losses due to
mismanagement of the company’s expenditures. To take assertive control of expenses and
reduce costs, it’s important to visualize your reductions over the short term and the long term. To
do this, evaluate alternatives that will reduce your cost over a longer timeframe. That way, the
company will not risk basing its result only on the short-term, which won’t last very long. A
study conducted by McKinsey shows that only 10% of cost reduction projects were successful 3
years after their implementation. The company has already been working for some time to
shorten lead times on its products and increase the number of sales made. The organizational
change, 2% of its global workforce or about 1,400 employees are cut and also, as part of their
new strategy Nike wants to double innovation by increasing the number of new sneaker
technologies it releases.

2. High levels of Competition within the market

The other issue faced by Nike Corporation in its market is a higher level of competition by
various other players in the market. When competition is high in the market, businesses are
forced to undertake strategies that will attract customers into the business . One of the basic
strategies undertaken by businesses in the face of intensive competition is a price reduction .
However, price reduction also affects the profitability margins resulting in low profitability
margins. Many people talk about long-term competitive advantage- an intricately structured and
ambitious plan that establishes nearly impenetrable presence in the marketplace but few
company actually work on it. Fewer people talk about short term competitive advantage and
even fewer launch initiatives to improve their short-term competitive advantage. Gaining short-
term competitive advantage will not escalate your company to a position where you’ll never have
to work at maintaining that advantage. It’s more meant for a quick snapshot of your strength and
weaknesses, as well as glimpse of the messaging battlefield ahead. Alternatively, long-term
competitive advantage is created by relatively unique market position, most obvious in larger
companies . To solve the issue of competition in the market, Nike follows the competitive
strategies of the Product Differentiation, focus on Market niche, and strengthen customer and
supplier intimacy to improve the competitive strategies among its competitors.

3. Decline in Nike’s brand power

The Decline in Nike’s brand power has also played a significant role in a financial loss at Nike.
This is because the brand is no longer able to command the market the way it used to be. As a
result, Nike was forced to sell its products at a lower level to maintain competitiveness. In some
instances, the corporation is forced to sell its products at a price lower than the costs of
production which results in financial losses on the part of the business. Loss of brand power also
results in a decline in the market share as the customers no longer find the products appealing to
their respective needs and wants . Branding is one of the most crucial aspect that creates and
defines a company’s identity. Declining of Nike’s Brand power is the result of issues in early
1990’s, where they were accused of providing very poor work condition to its employees, it was
rumored that Nike used 12 years old kid to produce their product and this was a breach of child
labor law. This accusation left a dent in their image and this needs to be resolved . Marketing
Strategies can be make or break of a brand; therefore, it is imperative that marketers make the
right decision. Short-term strategy is a plan that can last up to a year. It is often used to promote
new products, services or sales. Campaigns that are part of this strategy produce a temporary
boost in sales to a business. On the other hand, long-term strategies main objective is to establish
brand awareness and continue to produce results for years. It lays out more general objectives for
a longer period of time and keeps the brand fresh and relevant. Nike, Inc has created superior
marketing by utilizing celebrity endorsers to represent their brand. The idea is that embedding a
celebrity image into the consumer’s mind will cause the consumer to associate the endorser with
Nike’s products. Nike pours millions into advertising and marketing because keeping their brand
visible is key to driving future growth earnings.

III. Causes of the Problem

High Levels of Expenditure within the Corporation

Capital expenditures refer to funds that are used by a company for the purchase,
improvement, or maintenance of long-term assets to improve the efficiency or
capacity of the company. Long-term assets are usually physical, fixed and non-
consumable assets such as property, equipment, or infrastructure, and that have a
useful life of more than one accounting period. Capital expenditures refer to funds
that are used by a company for the purchase, improvement, or maintenance of long-
term assets to improve the efficiency or capacity of the company. Long-term assets
are usually physical, fixed and non-consumable assets such as property, equipment, or
infrastructure, and that have a useful life of more than one accounting period.

Nike is a consumer products company and the relative popularity of various sports
and fitness activities and changing design trends affect the demand for our products.
The athletic footwear, apparel and equipment industry is highly competitive both in
the United States and worldwide. Product offerings, technologies, marketing
expenditures (including expenditures for advertising and endorsements), pricing,
costs of production, customer service, digital commerce platforms and social media
presence are areas of intense competition. This, in addition to 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 our
operations. In addition, the competitive nature of retail including shifts in the ways in
which consumers are shopping, and the rising trend of digital commerce, constitutes a
risk factor implicating our NIKE Direct and wholesale operations. [ CITATION Riz16 \l
1033 ]

Nike outsources all manufacturing costs, so the amount of fixed assets they
own is much lower relative to large cap companies. Their main long-lived assets
consist of the world headquarters and distribution facilities in the United States and
distribution facilities in Belgium, China, and France. The forecasted capital
expenditures for PPE as 2.91% of total revenues each year, essentially growing to the
extent it needs to fund investments as the business grows. The Consumer Direct
Offense strategy has required an expansion in Nike Direct and supply chain stages
once ready for distribution. The expected capital expenditures to continue grow as
they build out technology platforms and distribution facilities.

According to Litt (2013), a firm invests in capital expenditures to achieve its

objectives. In today’s evolving business world, these objectives are bound to
increasingly reflect the growing public emphasis on social and environmental
accountability.

The effect of capital expenditure decisions usually extends into the future. The
range of current production or manufacturing activities is mainly a result of past
capital expenditures. Similarly, the current decisions on capital expenditure will have
a major influence on the future activities of the company.

However, Nike has a high level of expenditure which according to Kent (2016),
high capital expenditure is something on which a business spends money in order to
earn more money but at the same time these investments are what have put into the
business or have at risk should the business fail. The significant factors that affect this
is high level of expenditure for Nike are the combination of high-value researches,
designs, sales, marketing, financial services and branded merchandisers. Nike has
focused on strategic efforts at exercising control over its point of consumption
[ CITATION Gol98 \l 1033 ].

To conclude, significant capital expenditure usually represents a substantial

commitment of the resources of NIKE, both financially and in terms of man-hours. It
is therefore incumbent upon the management to ensure that proposals for such outlays
receive proper and full consideration of all the relevant implications before
implementation. Once policies as to levels of authorization and commitment are laid
down, there should follow the formal appraisal of the financial effects of the proposal.
These can be formulated only after detailed discussion with the appropriate
departments as to all the physical, technical and environmental factors involved in
making the final decision. There will also be brought into consideration, where
pertinent, the marketing and sales effects. Most organizations will have sets of forms
for use in the authorization and control of capital expenditure and these will vary in
design and content. From which according to the theory of Turrell (2002) Most
organizations will have sets of forms for use in the authorization and control of
capital expenditure and these will vary in design and content.

High levels of Competition within the market

Competition, the process of rivalry between firms striving to gain sales and make
profits, is the driving force behind markets. [ CITATION Nic08 \l 1033 ] One important
benefit of competition is a boost to innovation. Competition among companies can
spur the invention of new or better products, or more efficient processes.
Nike is the leading sports footwear brands in the world and is known as one of the
top 3 amongst the trio leading the sports footwear market across the world – Adidas,
Reebok and Nike. All three of them are known and loved for their marketing
strategies and the way they connect to their customers. Adidas is one of the topmost
Nike Competitors. One of the key advantages of Adidas is that it operates via both –
the Adidas brand and also has a strong subsidiary in Reebok. The combination of
both gives a strong valuation to Adidas as a top competitor of Nike.
Strong competition is another challenge that the companies are forced to bear.
Nike and Adidas use celebrity advertisement, which can sometimes lead to the
creation of negative images, especially when the celebrity engaged in unethical
behaviors. A huge cause to Nikes shortcomings earlier this year could be designated
to its shoe failing while being worn by high profile basketball prospect, Zion
Williamson.
It may also lead to distress, when the company grows beyond expectations and
capabilities. In conclusion, Nike and Adidas brand images are outstanding, but Nike
has a slightly lower competitive advantage when compared to Adidas. The
competitive advantage enjoyed by Nike is related to its innovation and reputation for
quality.
According to the study of Wang (2014), competitive advantage is obtained when
an organization develops or acquires a set of attributes (or executes actions) that
allow it to outperform its competitors. Since Nike had a low competitive advantage, it
is more likely that Adidas outperforms it in the future.
Not only Adidas and Reebok are the competitors of Nike but also new growing
companies like Asics, Puma, Under Armour, Fila, Anta, New Balance, Rothy,
Skechers, and Allbirds. These companies in the monopolistic competition place an
emphasis on “non price differences” to promote their products, such as endorsements
from NBA superstars. Los Angeles Lakers superstar Kobe Bryant endorses and
wears Nike, while Orlando Magic superstar Dwight Howard endorses and wears
Adidas.

In this type of competition, it concerns that the perceived “prestige” of the brands
induces consumers into spending more on the product. This means that the name
associated with the product rather than the actual benefits are the driving factor in
consumers potentially over paying.

In a Monopolistic Competition, since the brands are virtually identical (recall

the shoe example – a Nike pair of basketball shoes provides the same usage as
Adidas) consumers must now collect and process information on a large number of
different products from all different brands, keeping in mind that each manufacturer
sells many different models. The total choices for shoes can be in the dozens!

According to Fally (2018), producers have some independent control over

price (market power) -- they are price makers not price takers -- but the price
elasticity of demand is higher than it would be under a monopoly, i.e. they can lose
customers if they raise prices too much. The ability to set higher prices is a primary
advantage of monopolistic competition. These companies can determine the item’s
price points, which tend to be much higher than perfectly competitive industries by
virtue of their branding efforts. Additionally, an advantage of monopolistic
competition is that it enhances a firm's ability to improve a product's quality through
its brand. Economists defend branding as a way to enhance trust and reliability to the
consumer. Brands strengthen the need to maintain high quality based on the
business’s financial stake in its reputation.
 However, with the faulty mishaps and rise of old and new competitors, Nike is
at a low competitive advantage and at high risk of being at the competition.

Decline in Nike’s brand power

Brand power is established through brand awareness. It’s all about making
consumers familiar about their products and services. Marketing strategies should
make the customers extend the positive approach towards brand and continue through
repeated purchases. [CITATION Lak17 \l 1033 ]

Nike’s major product categories include Footwear, Apparel, and Equipment.

The company is the largest seller of athletic footwear in the US and leads the
competition by a considerable margin. Through innovation and technology, Nike
continues to widen the pricing gap with rival footwear manufacturers.

Competitors Under Armour (UAA), VF Corporation (VFC), and Lululemon

Athletica (LULU) have sales models tilted more toward apparel. Meanwhile, Nike
enjoys a leadership position in the athletic footwear category in nearly every major
market.

The following factors drive Nike’s brand value: focus on innovation, high-
quality products, and the introduction of proprietary products strong portfolio of
globally recognized brands use of targeted, high-impact marketing at major sporting
events such as the FIFA World Cup, the Olympic Games, and the NFL’s Super Bowl
making endorsement deals with prominent athletes such as Neymar, LeBron James,
and Roger Federer.

Nike’s superior brand power supports its higher pricing when compared with
its peers. The company’s products are available in six main sporting categories:
running, Nike basketball, Jordan brand, soccer, training, sportswear (sports-inspired
lifestyle products).

The company also markets products for kids, as well as other sports, including
cricket, football, golf, lacrosse, tennis, volleyball, and wrestling. Nike’s line of
performance equipment includes bags, socks, digital devices, eyewear, protective
equipment, golf clubs, and other equipment designed for sports activities.

Sportswear, running, and the Jordan brand are Nike’s top-selling products in
the Athletic Footwear category. Sportswear, training, and running are its top-selling
products in the Apparel category.
 The company has redefined itself from just another shoe company to an
athletic and fitness lifestyle brand. Consequently, the Nike Swoosh has become a
significantly recognizable logo, putting Nike in the position of being one of the most
valued and successful brands today. If any company can translate the importance of
creating, protecting, and maintaining a brand for a company, Nike is paragon.

As for the study of Sammut-Bonnici (2015) she stated that branding is one of
the most crucial aspects that creates and defines a company’s identity. By building up
their brand, a company is taking a series of steps to create value, brand visibility, and
make their products desirable. A successful brand should give consumers something
to identify with or something to utilize in their life, giving the product both meaning
and use. Take it from Nike, whose successful dominance in the world of sports has
thrived on their ability to construct their brand image, visibility, and giving the
company logo extremely high value.

Teenagers have always been important to Nike in particular and brands in

general because they tend to be early adopters of trends and wield significant
purchasing power, some $92 billion, according to Statistic Brain. However, today's
teens tend to be less loyal to brands than those who came before them, and companies
have to convince them their product is a good value. It may be it's getting harder to
convince teens today that spending $150 to $200 on a pair of Jordans is still a good
deal, especially since Michael Jordan's star power is fading.

Additionally, Adidas, on the other hand, is surging. Second-quarter sales rose

nearly 20%, and Adidas said full-year top- and bottom-line numbers would be better
than expected. Not only is Adidas stealing from Nike, but it's completely
undermining Under Armour, a brand now classified by teens as an "old brand,"
according to the Piper Jaffray research. And streetwear brands like Vans and Supreme
-- brands that have strong sway with urban youth -- saw their popularity surge.

That suggests that streetwise brands carry a level of authenticity Nike finds
hard to duplicate, and its focus on sports stars, like its recent NBA sponsorship, may
actually work against it. While Nike is attempting to counteract a number of these
trends, including by selling directly to customers via Amazon.com as well as through
its own website, the heightened competitive pressure may lead to further discounting
of its shoes. Although that may be necessary to help pick up sales, it's never a good
sign for a "luxury" brand to appear to be begging for sales in the mass market.
Because Nike has been such a dominant force, its brand erosion is skewing the teen
survey, which found the brand's mindshare losses accounted for the entire loss
experienced in the athletic apparel segment. Losing teen consumer support is
extremely worrisome and indicates Nike may have a lot further to fall before it's able
to regain its footing.
 To summarize, Nike’s pricing power gives it a competitive advantage over its
peers. The company’s pricing power is supported through premium innovation and a
structural shift toward the direct-to-consumer business. Nike’s dominant position in
the athletic footwear and apparel category further drives pricing with lower
markdowns. Plus, Nike’s superior brand power leads to premium pricing. However,
due to high competition and loss of branding power to teenagers there is had been a
decline on the brand’s power.

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