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Nike Inc.’s Global Sourcing Analysis Case Study

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Updated: Jun 11th, 2021

Introduction

Nike’s current position as one of the biggest companies in sportswear and athleisure clothing continues to be challenged by both competitors and changing consumer principles. The issue of ethical and high-quality sourcing is one of the most significant concerns that Nike has. The balance between sustainability and cost is a factor that the company has spent years measuring and adjusting. After the company expanded and began delivering more substantial quantities of products to different continents, its relationship with other members of the supply chain also changed. The pressure to produce goods and meet customer demands increased due to the firm’s social responsibility.

Currently, Nike faces several significant problems in the sphere of global sourcing, but all of them are related to one root concern that the company has to address. The demand for Nike products, in particular, and athleisure clothing, in general, continues to increase, and Nike has to perfect its supply chain to deliver the goods. However, its process, from designing a product to selling it to the customer, is long and inflexible, and the slow speed of all operations also makes Nike vulnerable to sudden demand shifts. The search for new suppliers and manufacturers also exposes Nike’s burden of finding ethical and reliable partners. The purpose of this report is to analyze the current position of Nike in the market of sportswear and athleisure and see how it can address such problems as unsustainable sourcing, slow product cycle, and growing demand.

Analysis

Environmental Analysis

Political

Nike operates on a global scale and sources the majority of its materials and labor from overseas. Therefore, it is highly dependent on changes in the political climate. Taxation, labor laws, and manufacturing regulations are among the primary factors that determine Nike’s access to some suppliers as well as its financial contribution to certain countries. Moreover, sales are also regulated by taxation, and such differences can influence Nike’s exports.

Economic

Nike produces a wide range of clothing and accessories, some of which can be considered luxury items, while others are closer to the category of essentials or goods for everyday use. Therefore, it is vital for Nike to consider the economy of countries to which it markets the products, noting their capability and stability. For instance, Nike has successfully penetrated the US market and similar areas with high buying power and stable consumer demand.

Social

The popularity of sports and fitness is one of the trends that Nike can use to increase the demand for its products. At the present moment, the trend for athleisure is dominating not only the segment of sports clothing but the markets of fashion and luxury clothing. Thus, the present social influences are favorable for Nike and its competitors. However, the increase in demand also challenges Nike to increase its quality and meet the demand while also outselling rivaling companies. It is also apparent that the increase in people’s ethical concerns is a trend that the business has to acknowledge and address.

Technological

Innovation in the field of sports clothing is needed in both the quality, design, material of the goods, and the process of their manufacturing. The increase in computerization is one of the steps that the supply chain is implementing to change business operations. Furthermore, as the speed of innovation increases rapidly, Nike’s lack of participation can endanger the status of the company. The increasing role of e-commerce and portable devices (smartphones, smartwatches, fitness bracelets) contributes to the profits of companies such as Nike but raises the demand for new lines.

Legal

The regulation of labor standards in different countries puts significant pressure on Nike to monitor the environment in which supply chain employees work. The previous scandals about poor working conditions, exploitation, underpayment, and child labor urge the firm to continuously strengthen its standards for choosing suppliers. Another concern is Nike’s legal control of copyrighted designs and marketing campaigns. Here, the possible legal constraint is the need to follow popular trends while creating unique goods and preventing the production of replicas.

Environmental

As noted above, the idea of conscious consumption is gaining attention among consumers. Thus, Nike has to maintain its commitment to sustainability and enhance the quality of the manufacturing process. The change in climate is a problem that can be detrimental to sales and production, and it serves as both an opportunity and a threat to the company. Nike’s current focus on ethical production has to be expanded further.

Competition structure

Nike faces competition in several markets since it produces a variety of shoes, clothing, and accessory types. The first and main rival is Adidas – a business that also focuses on sportswear and athleisure clothing. Adidas is the second, after Nike, in sales of sneakers, and the company’s clothing lines target a similar client base. Notably, both companies have sizable contracts with athletes and sports teams. Other firms also compete in the same segment, namely Puma and Reebok. As Nike also markets to consumers interested in athleisure clothing, such competitors as Under Armour have to be considered. The contracts with famous celebrities and athletes allow such brands to gain recognition and increase customer loyalty. As a whole, Nike faces intense competition for all product categories, as the number of established and developing brands is significant.

SWOT

Nike possesses many strengths supported by the long history and current popularity of the brand. First of all, Nike’s logo remains one of the most recognizable symbols on the market – the “swoosh” symbol is connected in customers’ minds to sports shoes and world-class athletes such as LeBron James and Serena Williams. In fact, its celebrity partnerships increase the exposure of the brand and its status as a seller of popular goods. Second, as Nike offers not only shoes but athleisure clothing and professional sports equipment, the company has a broad appeal to several demographics. The supply chain of the business shows that Nike operates through multiple retail channels, diversifying the products’ route from plants to customers (Exhibit 1). Nike’s low cost of manufacturing, based on its selection of manufacturers, is paralleled by its innovative research and development (R&D) departments’ ideas. Finally, Nike is an international brand, which widens its reach to clients all over the world.

However, Nike also has some weaknesses that affect its performance. The long process from the design of a product to its presentation to customers makes the company’s production inflexible. The company’s representatives demonstrate that the company may spend several months creating a shoe. As a result, Nike cannot correctly predict customer demand, trends, weather changes, and other outside factors that may influence sales. Furthermore, Nike continues to encounter unstable suppliers who may have poor working conditions or other violations of Nike’s sustainability and worker protection standards. Nike also relies heavily on the US market as a dominating location of interest, while other markets are not as explored. The ability of retailers to manipulate prices, as evident in the case of Nike’s late delivery of shoes, can significantly lower Nike’s profits. Additionally, the history of previous scandals still affects the brand and limits its outreach to some client groups.

One of the opportunities that Nike can explore is to further build its international presence in the markets of athleisure and professional sportswear. Annual global sports events, for example, are a suitable place to get new contracts, advertise, and raise customer awareness. The shift to increasing the brand’s reliance on other countries may provide additional stable channels of revenue. Moreover, as Nike had a strong R&D department, the company can invest in the creation of new products such as wearable devices, sunglasses, jewelry, and other goods. As athleisure is becoming widely recognized as a fashionable trend, Nike may collaborate with designers and brands to create exclusive lines and limited editions for a sector of customers to enjoy. Another opportunity lies in the supply chain- Nike can integrate some suppliers, taking more responsibility for the quality and environment of facilities.

Nike faces several threats related to the market, customers’ perceptions, and economic instability. As Nike is a famous brand, the possibility of fakes and design stealing among competitors is high. Replicas of Nike shoes sold at lower prices can appeal to some individuals and lower the sales of the brand. Apart from that, the competition in the segment of sports shoes is rising – companies use aggressive advertising campaigns and struggle to establish relationships with teams, athletes, and celebrities. In the supply chain, Nike’s position as an ethical company can always be undermined by new news of human rights violations, unfair labor practices, and other social crises. Lastly, as Nike operates globally, it is vulnerable to any currency exchange rate fluctuation and political conflicts between countries. Table 1 combines the central points in the SWOT analysis of Nike.

Table 1. Nike SWOT Analysis – Key Points.

Strengths Weaknesses
  • Brand recognition
  • Large customer base
  • Celebrity partnerships
  • Wide variety of retail channels
  • Low cost of manufacturing
  • Strong R&D department
  • Global position
  • Inflexible production process
  • Poor labor conditions
  • Unstable suppliers
  • Retailers’ determining position
  • Reliance on the US market
  • History of controversies
Opportunities Threats
  • International expansion
  • Product innovation
  • Integration of suppliers
  • Collaboration with the fashion industry
  • Replicas
  • Rising competition
  • Further ethical crises
  • Unstable exchange rates

Market Segmentation and Positioning Strategies

The abundance of product categories implies Nike’s need to segment the market into several groups. First of all, Nike’s advertising reveals targeting based on demographic qualities. Children, teenagers, young adults, and adults are the main categories to whom Nike offers its products. The main segments are teenagers and young adults since these groups are often the most active in sports, both recreationally and professionally. Nike presents different lines and marketing campaigns for men and women, signifying gender segmentation. While clothing products may be in the same line, their colors and sizes differ according to gender.

Nike’s goods are also separated according to their style, utility, and technological advancement. Some lines are made to target groups interested in athleisure – fashion-based clothing, smaller brands such as Converse, and items for everyday wear. In contrast, other products are marketed as athletic – they are segmented according to the activity, including running, basketball, football, tennis, and others. Finally, Nike also presents separate groups of products with innovative materials and ideas as well as vintage designs. As an outcome, Nike’s market segmentation is sophisticated, and the company reaches a wide variety of customer bases.

To understand the positioning strategy of Nike, one has to analyze who it targets. Among the main characteristics of target groups, young age, urban living, high- and middle-income, and interest in sports are the most distinguishable. Therefore, the brand uses a mix of high price, high quality, and product attributes approaches to formulate the position of the company. For instance, Nike’s focus on athleticism shifts the focus from products to their underlying meaning – a person wearing Nike is an aspiring or established athlete. Here, the inspirational message is embedded with the functionality of the goods, and Nike’s goal is to inspire and assist. Thus, Nike positions itself both in professional and amateur sports categories – athletes are offered goods based on their quality, while other people are being marketed as a tool for achieving sports-related goals.

It should be noted that, by positioning the brand as global and ubiquitous, Nike gains access to many market segments. While running is a significant activity that Nike focuses on due to its history with running shoes, the brand also has an established position in basketball and tennis, working with major athletes from these sports. As a result, Nike’s technological advancements are also appealing to different people, and their positioning can be further expanded to new areas of physical activity. Additionally, with the latest popularity of athleisure, the brand’s choice of a younger demographic is a benefit to maintaining a status for being both high-quality and fashionable.

Customer Analysis

As described above, Nike’s segmentation allows it to appeal to multiple groups simultaneously. Nonetheless, one can further describe the three main targets that the brand considers as the primary client categories. The first group is young athletes – Nike’s image of an inspirational brand based on partnerships with major athletes is key to attracting young aspiring sportspersons to consider Nike’s shoes and clothing. Second, Nike markets to women, both in professional and athleisure segments. Although men’s clothing continues to take up a significant part of Nike’s lines, women’s increasing role in sports and advocacy for health change aligns with Nike’s marketing. Finally, runners are another group that gets more attention than other athletes due to Nike’s participation in various projects.

However, customer analysis shows that other characteristics may define Nike’s clientele. The income of people mentioned in the previous analysis cannot be overlooked, as Nike’s pricing is often approached with the premium strategy. Thus, Nike’s consumers have high incomes to match the prices that Nike sets. Furthermore, the focus on residents of urban areas is tied to Nike’s collaboration with major athletic teams and its preference for athleisure and professional training. It is clear that Nike’s customers have to respond to such influencers as famous athletes who are also winners and leaders of sports competitions. Nike’s proposition to its customers, therefore, is to bridge the gap between these ideals of performance and customers’ physical abilities. To establish a connection with clients and deliver this message, Nike uses short inspirational quotes and direct calls to action.

Marketing Mix: 4Ps

Product

The range of goods offered by Nike is wide, but the company focuses on athletic shoes, clothing, and accessories. The category of shoes is the pillar of Nike’s activity – historically, shoes have been the main products that Nike sold. However, now, the brand’s selection of footwear is much larger than before, as it sells sneakers, hiking and outdoor boots, shoes for professional basketball, football, and tennis players, running shoes, and many other varieties. In addition, the company also designs footwear not directly related to sports, including flip-flops and sandals. The second category, clothing, is also divided according to its purpose. While some items are marketed as specific for physical activity, others are now viewed as a part of everyday outfits. Finally, Nike sells equipment and accessories – the list ranges from golf clubs to water bottles.

Price

Nike applies several strategies to its products, using both value-based and premium pricing for its goods. Some lines of footwear and clothing are created with technological advancements or specific characteristics, making premium pricing a viable option in the market. For instance, as Nike presents itself as the best company for running gear and sportswear, prices for the latest models and gadgets may be higher than those of competitors. In other categories, Nike pays more attention to the market’s trends, using the price of the materials and the final product to establish the worth of each item. As a whole, this combination of approaches allows Nike to market to a broad audience.

Place

As mentioned in the previous analyses, Nike distributes its products through several channels. These include specialty stores, department stores, discount chains, and various outlets (Exhibit 1). Additionally, Nike has an online-based store with the ability to deliver goods to customers internationally. Retail stores are the foundation of Nike’s selling strategy since they make goods easily accessible to consumers. Nike’s products are often sold alongside its competitors, which requires the brand to pay increased attention to marketing, presentation, and pricing. Moreover, the capabilities of e-commerce allow Nike to distribute its new lines without having to think about its relationships with other members of the supply chain. The brand’s outlet stores also provide Nike with more opportunities to collect customer data.

Promotion

As a major international company, Nike utilizes many approaches to marketing. The need to maintain a strong brand image identified in the SWOT analysis put additional pressure on Nike to engage its consumer base. First of all, Nike continues to work with traditional media, advertising its products on television and in print. Second, Nike uses online advertising, sharing campaigns with celebrities and ordinary people. Direct marketing is a strategy that the company uses when working with sports teams, organizations, and event representatives. Sales staff engages in personal selling, persuading customers to choose certain products. Moreover, Nike contributes to public events through sponsorship and endorsements. Finally, discounts and special offers sometimes are applied to Nike’s products, depending on the location and season.

Alternative Solutions

To reiterate, Nike is facing such issues as a long and inflexible process of developing new products, unreliable suppliers, and the growing demand for products burdened with the increased environmental and social awareness. The analysis shows that Nike has succeeded in creating a sound brand image that has a high recognition and commitment scale. Nonetheless, the public’s attention to ethical manufacturing and the growing number of competitors endanger the top position of the company. One may suggest a number of strategies that would address the problems related to global sourcing.

The first alternative is to restructure the supply chain to engage suppliers in producing goods for their respective regions. Currently, the majority of manufacturing plants are concentrated in a small number of countries, and almost all goods are created in and shipped from one region. This system results in several problems – transportation and shipping are complicated and unsustainable, Nike’s relationship with companies is not involved, and it is challenging for the company to establish ethical standards for its suppliers adequately. The proposed change is to refocus on some other regions that will shorten the time of travel and open new areas for new supplier relationships.

Nike has already examined the potential of South and Central America, finding that the placement of its plants in these regions would shorten the time of delivery. Therefore, it would also affect Nike’s flexibility in responding to new trends and customer demand fluctuations. The benefits of this proposition lie in the diversification of Nike’s key locations, thus making its planning more adjustable to the market. Nonetheless, Nike will have to completely reform its approach to pricing, find new suppliers and train them according to its standards, and engage more resources to maintain the quality of goods and the state of plants’ working environment.

The second alternative does not call for relocation but encourages Nike to improve its ethical standards further. While the current system places much focus on workers’ conditions, it does not increase workers’ safety and comfort actively. The brand puts this responsibility on suppliers, monitoring their compliance and changing orders when necessary. This strategy does not engage Nike in the process of changing the practices of these manufacturers.

As evident in the case, many suppliers comply only for a short period of time or fall back into harmful practices with time. To combat such an inability to follow standards, Nike can pursue several options. One approach is to make the position of Nike more demanding and uplift the voices of workers by providing them with a direct channel of communicating concerns. The other is to participate in the enforcement of guidelines, creating training programs, and resourcing staff and employee awareness.

The proposed strategies of increasing Nike’s participation in suppliers change programs, if successful, will allow Nike more control over the quality of goods and the environment in which employees have to work. The main benefit of this solution is the improved ethical position of suppliers. By taking on specific responsibilities, Nike will also be able to raise clients’ awareness about the ethical policies of the company, which may positively affect customer interest. This approach has drawbacks, mainly related to the use of financial resources and staff. Training projects and higher engagement require sufficient funding and available personnel. Moreover, some suppliers may protest the increased intervention from the outside, withdrawing from contracts. Finally, this strategy is unlikely to reduce the time of development for Nike, keeping its processes inflexible and vulnerable.

Recommendation

Using the information about the company as well as its analysis, one may recommend Nike to pursue the first discussed alternative strategy – to restructure the supply chain. The relocation of manufacturers to move them closer to customers can bring many benefits to the company, but only if Nike continues to enforce its sustainable and ethical principles in choosing and monitoring suppliers. The environmental analysis of the brand shows that Nike is highly dependent on retailers’ decisions, customer trends, and economic relationships between countries. Therefore, making transportation of the goods more accessible can positively influence the resource flow in the business. If the process shortens the time during which a product is designed, manufactured, and delivered to the customer, it will also allow Nike to respond adequately to retailers’ demands and crises.

Moreover, this step will provide Nike with a marketing opportunity and distinguish it from its competitors as a pioneer in making steps towards sustainability. As the SWOT analysis indicates, the threat of competition will increase, and Nike has to take additional steps to maintain its place as the leader of sportswear and athleisure goods. The proposed alternative also aligns with the opportunities presented in the SWOT analysis – the relocation may open up new markets and collaboration projects.

This approach would require Nike to review its possibilities and contracts with the existing manufacturers, deciding which of them adhere to the standards. Nonetheless, it will be a chance for the partners to show that they are the best for working with Nike in terms of quality, speed, sustainability, and working environment. Overall, Nike should not disregard an option of making communication between employees in the supply chain and the brand more transparent. By integrating several solutions in multiple steps, Nike can move forward towards high-quality global sourcing without sacrificing its image and the relationship with its suppliers.

Exhibit 1: The Apparel Commodity Chain

The Apparel Commodity Chain.
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