The Nike Inc.: Opportunities and Challenges

Introduction

Nike’s slogan ‘just do it’ was very popular and it has been the slogan since time in memorial until they changed it to ‘just done it’. “Nevertheless, Phil Knight’s idea to come up with the idea to form a brand Nike was not in vain” (Belch, & Belch, 2009, p. 3). He developed the idea back in 1955 after their collaboration with Bill Bowerman who was an athlete). Knight wrote a paper on outsourcing when studying MBA at Stanford University. It elaborated on running shoes production in Japan that could conquer the existing brands in the market. Therefore, his first target was Bowerman and lucky enough they collaborated to form Blue Ribbon Sports (BRS) in 1964. “This was possible with an initial investment worth $500 in which they ordered 500 pairs of shoes (Belch, & Belch, 2009, p. 3).

Jeff Johnson developed the name Nike and he was among the first full-time BRS employees. Consequently, Knight, and Bowerman decided to change their business from footwear distribution primarily to focus on “designing and manufacturing their own brand of athletic shoes” (Bottazzi, Secchi, & Tamagni, 2008, p. 23). This was accompanied by athletes’’ endorsement in which Steve Prefontaine became the first athlete to endorse it. Unfortunately, Prefontaine had a fatal car accident at an early age, which slowed the publicity of Nike. Later, Nike had to involve Wieden and Kennedy to revive their business dream through innovation and partnership targeting to make the company grow globally.

“Sure enough, Nike managed to reach a global stage after successful IPO completion by 1980 in which they had a Nike Air Line of footwear” (Belch, & Belch, 2009, p. 3). Through Michael Jordan’s agent David Falk, Nike got Jordan’s endorsement. However, it was not that easy because Jordan was working closely with other athletic Shoes competitors such as Converse and Adidas. It took much consultation from the agent, and he later agreed despite Nike’s lower bid. Nike got a global image as prominent athletes, such as “Lance Armstrong, Tiger Woods, and LeBron James topped the endorsement list by 2000” (Belch, & Belch, 2009, p. 3).

Success and Challenges in Nike Inc.

Despite the initial constraints to the formation of Nike, the founders were optimistic that the company could later become a global company.

Major reason associated with the Nike’s success has been global brand promotion. Nike has invested much in an extensive advertisement that has popularized the brand worldwide. Its brand management has been an integral factor through its efforts in sponsorship agreements with the world-class athletes, including individual performers and sport clubs. The Nike’s logo is present in most sport wares hence expanding its corporate image in both contributing to corporate image and healthy assignments through promoting sporting activities. (Aw page society, 2012, p. 1)

Unfortunately, the company focused much on promotion and advertisement worldwide, which cost them millions of Dollars in their campaigns. The original Nike products are scarce among the bigger world’s population and their prices have remained very high among the Franchise with the products. Globalization has taken a better part of Nike’s business strategy.

“Recently, Nike has had a tough time because of the allegations that it has been using unfair working practices” (Belch, & Belch, 2009, p. 3). The company faced allegation on using child labor, giving unfair wages, and workers are working under poor working conditions. In addition, their campaigns encountered legal claims. As a result, Nike decided to change their business strategy to distance themselves from bad practices. They have taken both social and environmental business operations that will help the company regain the global image that has been deteriorating.

Nike’s future Opportunities

Based on the financial reports dated 2008, the company had a bright future in the global market. This was the most successful year to the company before it squandered their opportunities among the consumers. It remains possible for the company to regain the competitive form as earlier witnessed through a change in the business strategy. There is an opportunity for Nike after initiation of social and environmental projects geared to strengthen its activities and the community working with the company. As a result, the company has several corporate projects and programs directed to their loyal customers to meet the demands and social needs adequately.

The company will bounce back if they continue with purposeful promotions and sponsorship accompanied by availability of the original products to customers at affordable prices. The great opportunity will be noticeable as new stars and uprising stars become popular globally. Nike should utilize the presence of world upcoming and established athletes and sportsmen, such as Usain Bolt, Xavi Hernandez, Maria Sharapova, Mo Farah, and David Rudisha (Belch, & Belch, 2009).

Challenges facing Nike

Main challenges facing Nike emanate from the global financial crisis, which companies are facing currently. As a result, Nike will have to close some of its subsidiary offices in other parts of the world to sustain its operations. In addition, Nike faces a possible reduction of their manufacturing rates in some countries to minimize cost of production (Nikebiz Homepage, 2012).

Another challenge facing Nike is the global competitiveness in the sportswear industry. The presence of other brands, such as Adidas, and Puma. The current expenditure in advertising and promotional sales in the company cost the company much money. Therefore, the presence of these rivals in yet another challenge (Chew, 2008).

More so, the company has ethical challenges that will ensure the company follows the Corporate Social responsibility (CSR) in its activities. After admitting that there is child labor, it should be better if the company look for alternative sources of labor. In addition, employees have been complaining of poor working conditions and poor wages. The company must adhere to CSR to curb these challenges (Hunnicutt, 2009).

Ethical implications on Nike’s financial issues

Corporate image is a paramount component to any industry. However, the customer’s loyalty to the company deteriorates and sometimes it can cause financial crisis in the company upon tarnishing the corporate image. This will emanate from the reduced sales, reduced market share, and poor inventory.

On the other hand, various unethical behaviors on the employees such as poor working conditions, and poor salary are discouraging. As a result, it reduces the employees’ morale to work as well as productivity. More so, service delivery, and quality of the products worsen. Therefore, customers will not be willing to buy such products and the seller’s approach becomes a problem to the company. This could have been the reason the company has not gained much profit since 2008.

Evaluating Nike’s financial reports

Although Nike had much success in 2008, it later reduced but regained momentum by 2011. The revenue has increased from May 2011 to May 2012 in which it increased from $20.9B to $24.1B. In addition, sales allotted for selling both in general and administrative costs reduced from 32.08% to 30.80% triggered the bottom line growth from $2.1B to $2.2B. However, the gross profit has not declined since 2008 because it was $8.6 B in 2009 and $10.5 B in may 2012. Using the information from Bloomberg business week¹, the following tools facilitated the calculation of various ratios for financial data dated May 2012.

Liquidity

This means that Nike can pay back the short-term loans and debts within a short period.

Solvency

Calculating Nike’s solvency will help in evaluating how best the company can pay back the long-term liabilities

Profitability

Various ratios can be used to measure the profitability of Nike based on the financial reports released between 2010 and 2012². Its net profit margin improved from 10.03% in 2010 to 10.22% in 2011 although it worsened from 2011 to 9.21% in 2012. On the other hand, its gross profit margin gradually deteriorated from 46.28% in 2010 to 43.40% in 2012. Its Return on assets (ROA) gradually improved from 13.23% in 2010 to 14.37% in 2012. Last, its Return on equity (ROE) improved from 19.55% in 2010 to 21.67% in 2011 but slightly deteriorated to 21.41% in 2012 (EBIT Financial Analyses Center, 2012).

Conclusion

To sum up, the Nike company has had mixed fortunes in their business because the ratios are not constant. In fact, there has been an increase in some areas, such as the revenue whereas the profits have reduced. This could be associated with the global financial crises and management issues in the company (Chew, 2008). There is still potential in the company given that it has been gradually recovering from their previous turmoil and plans are underway to restore the lost glory. The emergence of new athletes will be a major boost to the company by enhancing and implementing the business strategy accordingly.

References

Aw page society. (2012). Nike Corporation: Jumping the Hurdles of Social Responsibility Disclosure. Web.

Belch, G., & Belch, M. (2009). Advertising and Promotion an Integrated Marketing Communications Perspective. New York: McGraw-Hill Irwin.

Bottazzi, G., Secchi, A., & Tamagni, F. (2008). Productivity, profitability and financial performance. Ind Corp Change, 17(4), 711-751.

Chew, D. H. (2008). Corporate risk management. New York: Columbia University Press.

EBIT Financial Analyses Center. (2012). Nike Inc. (NKE) | Profitability Analysis. Web.

Hunnicutt, S. (2009). Corporate social responsibility. Detroit, MI: Greenhaven Press.

Nikebiz Homepage. (2012). The birth of the Nike brand, and company. Web.