The Athletic Footwear industry Free Essay Example

The future of the Athletic Footwear industry looks bright. Out of 966 million pairs sold, athletic shoes account for 39 percent of total pairs of footwear in 1994, and $8. 05 billion in wholesale revenue. This indicates the demand for athletic shoes should remain high for years to come with plenty of room to grow. Internationally, the industry has great potential. Only Nike has been successful at penetrating the Asian market. In 1993, Asian sales represented $500 million of Nike’s totals of $4 billion. -History:- The words “Nike” and sport shoes are almost synonymous in today’s society.

However,this was not the case thirty-five years ago. In fact, it took some time, but Nike, Inc. is now the #1 athletic shoe seller in the United States and the world The current CEO and Chairman of the Board for Nike, Inc. , Phil Knight, and the current Senior Vice President, Bill Bowerman, formed their own athletic shoe company in 1964 in Eugene, Oregon. At the time of their first meeting. By 1971, their newly formed athletic shoe company was growing and the brand name was chosen to be Nike, the Greek goddess of victory.

The good news for Nike came in the 1970’s when jogging became a national craze.

Everyone began wearing sneakers (even if they did not jog or run). Eventually, the jogging habits of Americans slowed down, but athletic shoes would never again be thought of in the same way. The bad news came when Nike and the mostly male officers (former male athletes) missed the big opportunity in the women’s athletic shoe market.

Business did pick up eventually in this market, but Reebok, Nike’s challenger, took the immediate lead in women’s fitness -Mission:- “To maximize profits to shareholders through products and services that enrich people’s lives” is the mission statement for Nike, Inc.

In addition, their objectives to realize this mission are as follows (Nike, Inc. ): 1. “Provide an environment which develops people to maximize their contribution to Nike. ” 2. “Identify focused consumer segment opportunities. ” 3. “Provide quality and innovative services and products internally and externally. ” 4. “Establish and nurture relevant emotional ties with consumer segments. ” 5. “Maximize profits. ” -Culture:- Knight has been known to disassociate with employees who resign from the company.

He also expects complete loyalty from all employees. In fact, employees at Reebok believe that Nike’s culture is too intense. Reebok’s culture stresses their gentler side, creating an atmosphere that clearly shows there are distinct differences between the two companies In Portland, Oregon, Nike has recently donated a $500,000 grant to support the athletic programs in a school district that has a severe shortage of money. Knight is donating $100,000, Michael Jordan is donating $100,000, and P. L. A. Y. is donating $100,000. Approximately 30 percent of Nike’s employees have children in these schools, so these donations show Nike’s support for the community.

Culture is obviuosly important to all businesses. None more so then Nike, who are dependent on employeed performing skillfully. -Marketing Overview:- Nike played by the rules, but established a competitive advantage though inexpensive production and technologically superior product design. More recently, Nike has abandoned its production focus, opting to become a customer oriented company In its earlier product oriented phase, Nike built a competitive advantage on inexpensive outsourcing. Phil Knight first became aware of inexpensive, high quality Asian manufacturing while on a world tour he took after graduation.

The company that once centered on merely outsourcing and technological product improvements now bases its success on a clear focus. That focus has guided Nike into new market segments, such as basketball, tennis and most recently golf. In each one, Nike has further carved out smaller segments, leaving competitors with less and less room. Today, Nike is a marketing giant that has profited greatly from its early and perhaps most important lesson: “Play by the rules, but be ferocious. ”

– International Markets:- Nike sells its products in more than 100 countries, operates sixty-one retail outlets, and has administrative offices in Austria, Canada, Hong Kong, the Netherlands, and the US. Some of Nike’s heaviest business will be outside the US over the next five years. Reebok already makes half its sales overseas, Nike sells about 40% of its goods abroad, and both are tantalized by future prospects. The overseas market for athletic footwear alone is about $6 billion to $7 billion annually. -Brand, Advertising and Endorsements:- Nike made the decision to focus strictly on running and basketball which prompted the Air Jordan project.

This project proved successful and showed Nike that slicing things up into digestible chunks was the wave of the future. Basketball was all about performance, so it fit under the Nike umbrella. Sales began to skyrocket. Other categories under the Nike brand include cross-trainers, water sports, outdoors, and walking. Nike has not always been successful with its advertising. They have taken many risks over the past decade. One example is the Hare Jordan commercial that aired during the 1992 Super Bowl that starred Bugs Bunny and Michael Jordan. This was a successful risk, compared to the risk they took with their advertising direction with women.

In 1987, Nike produced some ads they thought were very funny, but many women found insulting. It took Nike years to recover the female market. -Recent Financial condition:- The net income most recently for Nike in 2001 was $97. 4 million, a 33% decrease from 2000 earnings of $145. 3 million. Revenues were essentially flat with prior year, gross profit declined 5%, and selling and administrative expenses increased 4%. The revenue and gross margin might of been affected by lower demand in the US footwear business, supply chain disruptions, and the weakness of the euro against the US dollar.

Therby meaning the same fate for the likes of Adidas and Reebok. US Nike brand revenues for the quarter, decreased 6% reflecting lower footwear revenues. While US footwear revenues decreased, both US apparel and US equipment revenues increased during the year, by 7% and 56% respectively. International revenues represented 48% of Nike brand revenues and increased 9%. selling and administrative expenses were 29% of revenues compared to 28% in the prior year. Marketing and operational initiatives drove the higher level of selling and administrative costs.

In addition to this factor, selling and administrative expenses for the year also reflected increased marketing activity relating to the 2000 Summer Olympics and the 2000 European Soccer Championships. Cash provided by operations for the nine-month period ended Feb 28,2001 was $328 million, which was a decrease of $109. 7 million from the same period last year. Total cash used by investing activities during he current year period was $245. 9 million, $102. 9 million less than for the prior year period. Net cash used by financing activities for the nine months was $177. 5 million.

This amount included uses of cash for dividends to shareholders, a reduction of short term debt, payment of a maturing note payable and stock repurchases. Future:- Worldwide furtures and advance orders for Nike brand athletic footwear and apparel and scheduled for delivery from March through July 2001 totaled $3. 8 billion. It was 3% higher in the current year than in the prior year. Foreign currency exchange rate fluctutaions can also cause difference in the comparisons. Accounting shares profile:-It is estimated that a charge to net income is made of $0. 10 per share. Under current accounting practise, these costs would have been cahrged to expense in the year 2003.

-Financial Information:- Nike’s financial performance over the last two decades is matched by few, if any, corporations. Sales have tripled since 1990. Shareholders’ equity has more than tripled over the same period. While growing rapidly, Nike has managed to reduce two-thirds of 1990’s debt. Profits grew in direct proportion to sales during this period. In other words as business grew, expenses remained a constant percentage of sales (37% gross margin on sales).

While Nike has successfully managed explosive growth over the last several years, the company’s 1996 balance sheet suggests that future explosive growth rates are possible if cash flows are effectively managed. Some 1996 financial ratios are as follows): But all this is of 1996 as you can see in the application and analysis section the current ratio for the year 1999 is considerably different as it comes out as 2. 3:1, where as the current ratio in 2000 worked out at 1. 7:1.

The current ratio in 1999 has better figures then 2000 because there was far more current assets-3,264. 9 then current liabilities- 1,446. 9, where as in comparison to 2000 the current assets was at 3,596. 4 to 2,140. 0 current liabilities. Even though the current assets is bigger in 2000, the current liabilitiesis much higher. In Adidasthe 2000 figures stands at 2. 4:1, which is the best so far, but this is because they have fewer assets meaning there would be fewer liabilities. The acid test ratio back in 1999 was 1. 4:1, where as 2000 figures is at 1:1, which means it is getting better every year.

The current ratio suggests that Nike has more than enough cash and assets that can be quickly converted to cash to pay for bills due within one year. The acid-test ratio is fairly low. This implies that Nike needs to have efficient collection of credit sales. Inventory also needs to be moved quickly.

However, as stated earlier, the “futures” program should allow for optimal inventory management of footwear. The moderate debt/equity ratio shows that Nike currently has the financial health necessary to borrow significant levels of funds to use for expansion. The debtor collection period is far more effieicient in Nike as by the workings it would take 33. 52 days to collect debts in 1999 to the Adidas collection period of 113. 27 days. The financials, as well as marketing reports, suggest that Nike has two major growth opportunities. One opportunity is penetration into foreign markets.

Nike has grown in both the United States and foreign markets from 1990 to 1996. However, growth in foreign markets has been higher than in the United States. As one can see from the accompanying geographic revenue distribution graph, U. S. revenues accounted for 78. 5% of all revenue in 1990. In 1996, U. S. revenues only constitute 61. 3% of Nike’s total revenue. Where as in 1999-2000 Nike has became more international, meaning US revenues constitute much less. Nike’s second major growth opportunity lies in product development. Originally the company derived most of its revenues from selling athletic shoes.

However, one can see by the accompanying revenue by product group graph that all footwear is only 68. 8% of total 1996 revenue. Nike has developed enough of a brand loyalty that high markups on other products such as clothing apparel are attainable. This fact will be key to continued revenue expansion if the shoe industry suddenly does not support the currently extravagant product pricing. -Conclusion:- Nike is a fine example of how successful a company can become when production, marketing, and management functions are properly integrated.

As you can see from the analysis on the ratios that Nike financial qualities lie on innovating new ideas by branding, endorsing and advertising their products making it far popular then nearest rivals such as Adidas and Reebok, which don’t have as consistently good sales. From this you can see how strong Nike is not only financially, but also in all departments including brand, culture and advertising. Therefore, putting it way ahead of rival competitors including Adidas and Reebok. So I would recommend taking shares from Nike rather than Adidas because of the past success on sales, knowing that it would only get better in the future.