Nike isn't Dominating The Sneaker Industry, Nike IS The Sneaker Industry
Read how Nike is killing the competition
Skechers just passed Adidas to become the second-most-popular shoe company in America.
But while several brands fight for second place, Nike continues to dominate.
Between its Nike and Jordan brands, the company controls a shocking 62% of US brand share, more than four times the other brands’ combined value.
Athletic apparel and footwear is set to outperform the industry for the next five years, according to a recent report by Morgan Stanley.
Every company develops a brand reputation. Sometimes it helps the company bring in more revenue, and sometimes it plays against it. That’s not the case for Nike, which by sponsoring many high-profile athletes and sports teams all over the world has become one of the most recognized global symbols.
Strong branding is just one of Nike’s many competitive advantages. A culture of innovation, plenty of international opportunities for revenue expansion, and significant pricing power make this stock a must watch. Its shares are up almost 50% since early January, but this may be just the beginning. How does Nike plan to conquer emerging markets and what does the future hold for shareholders?
Understanding Nike
Founded in 1964 by University of Oregon track athlete Philip Knight and his coach Bill Bowerman, Nike has become a leading player in the athletic footwear and apparel industry. Over the past 40 years, the company has built several competitive advantages:
— Strong Brand: Nike has been able to establish strong emotional connections with athletes by building one of the most widely recognized brands in the world. Interbrand puts Nike in the 26th position of its Best Global Brands 2012 Ranking, well above Adidas, which is in the 60th position.
— Pricing Power: Nike’s strong brand has enabled the company to set high prices, and therefore enjoy a higher gross margin in footwear than most of its competitors. Just in the latest quarter, the company posted an increase of 110 basis points in gross margin to 43.9%!
— Global Supply Chain: With more than 1000 factories worldwide and 1 million workers employed, Nike’s supply chain overshadows any other competitor. The company has the resources needed to supply the world with top-quality shoes without any trouble.
Nike is by far the most popular sneaker brand in the World. In fact, the other brands don’t even come close.
How Phil Knight built Nike into one of the biggest brands in the world and became a billionaire
Over the past 51 years, Nike co-founder Phil Knight built the company from an idea he had in grad school into one of the biggest companies in the world.
With a net worth of $21.6 billion, he’s also one of the world’s richest self-made billionaires.
Knight might be stepping down as the brand’s longtime chairman this year, but his legacy will live on.
Here’s a look back at how Knight’s marketing prowess and relentless spirit have driven Nike from a selling a single running shoe to being synonymous with athletic gear.
BRS’ strategy was to import Japanese sneakers called Onitsuka Tigers and sell them at higher price points in the US, making a profit on the markup. When Bowerman came up his own design for what became the brand’s signature rubber-waffled sole in 1971, BRS stayed in the Asian market and got the shoes produced there for much cheaper than competitors like Adidas, which operated out of Germany.
When the company officially rebranded as Nike in 1971, several well-known athletes were prominently sporting the shoes, helping double profits annually. Knight and Bowerman’s connections to the running community and focus on producing a high-quality product made Nike the top choice for professional athletes.
The company released the Nike Cortez in 1972 in tandem with the 1972 Olympics in Munich, and Knight ensured the shoes became a top choice of Olympic athletes. The Cortezes came in a variety of colors and debuted Nike’s now ubiquitous “swoosh” logo, making them one of the first sneakers that appealed as much to fashion as to function.
Nike grew quickly throughout the ‘70s and early ‘80s, and its revenue jumped from $28.7 million in 1973 to $867 million by 1983.
The company launched the now ubiquitous Air Force 1 model in 1982. It was the first shoe to feature Nike Air, a pocket of air in the heel that provided additional cushioning and support to basketball players. It went on to become one of the most popular sneakers ever, and millions of pairs are still sold every year.
One of Knight’s biggest accomplishments was signing Michael Jordan for an endorsement deal and launching Air Jordan, now one of the most successful sneaker franchises of all time. Nike courted Jordan in 1985, when he was a college basketball all-star on his way to the NBA. He signed a five-year contract for $500,000 a year, an unheard of number at the time.
Air Jordans hit stores for $65 a piece in March 1985, and by May the company had sold $70 million worth of Jordans, earning more than $100 million in revenue from the shoe by the end of the year.
But when Nike’s sales began collapsing in the mid-1980s, Knight knew the company needed to make a major shift in its thinking. It was then that he realized although Nike was marketing to top athletes, the majority of its customers were average citizens, most of whom didn’t even use the shoes for sports.
Knight altered Nike from a product-oriented company to a marketing-oriented one. He began appealing to the everyday customer, eventually turning around sales around. By the end of 1991, it had regained its footing, with sales totaling over $3 billion. “The most important thing we do is market the product,” Knight told the Harvard Business Review in 1992. “Marketing knits the whole organization together. The design elements and functional characteristics of the product itself are just part of the overall marketing process.”
Knight’s marketing genius stemmed from the fact that he didn’t focus on just selling shoes; he always made it about something more. At an industry conference in the mid-1970s, he pointed out an important distinction of his marketing scheme: He proclaimed he wasn’t in the shoe business — rather, he was in the entertainment business.
In the ‘90s, Nike faced another obstacle: The company had garnered a reputation for using sweatshops and unfair labor practices. Customers began boycotting the brand and protesting outside of its stores, creating a widespread distaste for Nike that lasted nearly a decade.
Sales dropped so low that, by 1998, Nike was forced to start laying off staff. Once again, Knight — who was CEO at the time — stepped in and made drastic changes to save the brand. He owned up to the company’s dismal reputation, raised the minimum wage it paid workers, improved oversight of labor practices, and made sure factories had clean air. Public perception began to turn around, and Nike found itself back on top.
Conclusion:
Nike has been creative since the start. It has been pushing the technological boundaries of innovation to offer its customers new products and also differentiate itself from its competitors. Somewhere in its evolution, Nike also realised the importance of hi-tech gadgets in day-today lives. So it started to combine new products with hi-tech solutions to give unconventional capabilities to a customer of sportswear.
Nike was also quick to seize the opportunity offered by social media to engage with a wider customer base so much so that it is now able to link its new hi-tech gadgets to social media platforms. The power of such customer contact is phenomenal as it gives greater visibility in a single click, generates interactions among customers and gives the company an opportunity to collect info about customers’ choices and preferences. It also gives endless chances for customer segmentation and product differentiation, the pillars of any marketing strategy.
