Essay Preview: Nike
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History of Nike
Over 50 years ago, Bill Bowerman and Phil Knight shared a vision of producing high quality footwear so they joined forces to start a small footwear company. The company was so small, that the first distribution center was located in the trunk of Knight’s car. Regardless of their inauspicious early years, the duo remained focused and developed innovative designs and creative marketing campaigns transformed their company into one of the world’s most recognizable brands today, Nike.
In 1955, Bill Bowerman was the track coach at the University of Oregon, where he coached a middle distance runner named Phil Knight. Both player and coach shared an interest in developing new and different ways to enhance an athlete’s performance by improving the equipment they used, such as track surfaces and running shoes. Bowerman was so determined that he would cobble his sneaker designs for his team to give them a cutting edge.
After receiving his MBA at Stanford University, Knight’s interest in improving athletic products developed into a business plan to manufacture high quality sneakers in Japan that were sold here in the United States. Knight implemented his plan and struck a deal with Onitsuka Company in Kobe Japan to be the distributor for Tiger shoes in the US.
Knight pitched the idea to his former coach, Bill Bowerman, who quickly became his partner. The two started Blue Ribbon Sports, a distribution company for Tiger shoes. After a few years of selling sneakers out of the trunk of Knights car, business picked up and they were able to open their first retail store in Santa Monica, CA.
In 1971 took Blue Ribbon Sports reported $1 million in sales and promptly went from being a shoe distributor to designing and manufacturing their own shoes. At this point, the company officially changed their name to Nike. The next year, Nike introduced a new line of innovative footwear, designed by Bowerman and completely reinvented their branding.
Carolyn Davidson, a computer graphics student at Portland University, created what is now one of the most recognizable brand marks in the world, the Nike Swoosh. She was paid $35 for her work. In 1983, Knight gave Carolyn a diamond Swoosh ring and an unreported amount of stock in Nike to show his appreciation. Over the years, the mark has been modified and updated, some examples are below:
In the 1980’s, Nike reached new levels of success by becoming a publicly traded company, continuing to develop innovative footwear designs such as Nike Air and Air Max, expanding into new markets such as soccer, golf, and basketball, and reporting over $270 million in sales.
In addition to innovative products, Nike’s implemented unique marketing strategy and campaigns that became a part of pop culture. Tag lines like “Just Do It” set the Nike brand apart from its competition. The organization also recruited athletes to endorse and promote their products to consumers. Nike has proven to have an eye for young athletic talent because they aligned themselves with rookies who are virtually unknown, and within a few years of signing with Nike, they become superstars.
In 1985, the company signed with a rookie by the name of Michael Jordan. The deal with Jordan took place during a time period where, Nike had lost its position as market leader. The Michael Jordan campaign quickly put Nike back in the number one spot where they have remained ever since. Other athletes such as Bo Knight signed on with Nike and resulted in creative marketing campaigns such as “Bo Knows” and “Revolution”.
By 1990, Nike had established itself as the leader in the footwear industry, so they began to branch out to other sports soccer and golf. Nike started developing more products for soccer and golf, positioning the Nike brand within the market place. They signed on with the 1995 World Cup-winning Brazilian Soccer Team and quickly became the exclusive designers of their uniforms.
In 1996, Nike signed a new endorsement deal that solidified their place in the world of golf. An up and coming golfer named Tiger Woods, who had yet to put on his first green jacket, signed on to endorse Nike for an estimated $5 million a year. The deal quickly paid off for Nike as Tiger redefined the game of golf and Nike reached $6.74 billion in sales.
Nike also moved into the cyclist market and continued to choose their endorsement deals wisely when they signed on with Lance Armstrong. After being diagnosed with cancer. Lance was rapidly loosing all of his sponsors, but Nike stuck by him. In the 1999 Tour D’ France, he made a legendary comeback, and repeated that victory 7 more times consecutively, all while wearing and promoting Nike’s “Live Strong” campaign. The following year, Nike reported a target of $12 billion in sales.
Today, Nike continues to create top of the line, innovate athletic products and holds market leadership in a wide range of sports. Phil Knight and Bill Bowerman have come a long way, from selling footwear out of the trunk of a car, to become a leader in their industry and one of the most recognizable brands in the world.
Market Structure
The US footwear industry consists of approximately 100 manufacturers, 1500 wholesalers, and 30,000 retail outlets. The estimated total combined annual revenue of the industry is $25 billion.
The leading companies within the market, such as Reebok and Timberland, are unique in the sense that they essentially just own the brand name and source their products from independent manufacturers. The retail side of the market consists of chains and small independent companies. Only 50 chains hold 80% of the market, so it is extremely concentrated.
Despite the advances in technology, shoes are predominately still made by hand. That being said, labor costs can be high. For that reason, the majority of the manufacturing is done in countries with low labor costs such as China.
Demand in this market is driven by design and demographics. Profitability of each company depends on their ability to develop shoes that are visually appealing to the consumers and marketing successfully. The US footwear market can be broken down into 3 segments:
Segment
% of Market
Athletic Shoes
Women’s Shoes
Men’s Shoes
Sales and Profits — Past and Present
Income