Nike, Inc.

views updated

Nike, Inc.

One Bowerman Drive
Beaverton, Oregon 97005
U.S.A.
(503) 671-6453
Fax: (503) 671-6339

Public Company
Incorporated: 1964 as Blue Ribbon Sports
Employees: 4,500
Sales: $3.00 billion
Stock Exchanges: New York Pacific

Founded as an importer of Japanese shoes, Nike, Inc. has grown to be one of the world’s largest makers of athletic footwear and apparel. The company has relied on consistent innovation in the design of its products and steady promotion to fuel its growth in both U.S. and foreign markets.

Nike’s precursor originated in 1962, a product of the imagination of Phillip Knight, a Stanford University business graduate who had been a member of the track team as an undergraduate at the University of Oregon. Traveling in Japan after finishing up business school, Knight got in touch with a Japanese firm that made athletic shoes, the Onitsuka Tiger Company, and arranged to import some of its products to the United States on a small scale. Knight was convinced that Japanese running shoes could become significant competitors for the German products that then dominated the American market. In the course of setting up his agreement with Onitsuka Tiger, Knight invented Blue Ribbon Sports to satisfy his Japanese partner’s expectations that he represented an actual company, and this hypothetical firm eventually grew to become Nike.

At the end of 1963, Knight’s arrangements in Japan came to fruition when he took delivery of 200 pairs of Tiger athletic shoes, which he stored in his father’s basement and peddled at various track meets in the area. Knight’s one-man venture became a partnership in the following year, when his former track coach, William Bowerman, chipped in $500 to equal Knight’s investment. Bowerman had long been experimenting with modified running shoes for his team, and he worked with runners to improve the designs of prototype Blue Ribbon Sports (BRS) shoes. Innovation in running shoe design eventually would become a cornerstone of the company’s continued expansion and success. Bowerman’s efforts first paid off in 1966, when a shoe known as the Cortez, which he had designed, became a big seller.

BRS sold 1,300 pairs of Japanese running shoes in 1964, its first year, to gross $8,000. By 1965 the fledgling company had acquired a full-time employee, and sales had reached $20,000. The following year, the company rented its first retail space, next to a beauty salon in Santa Monica, California, so that its few employees could stop selling shoes out of their cars. In 1967 with fast-growing sales, BRS expanded operations to the East Coast, opening a distribution office in Wellesley, Massachusetts.

Bowerman’s innovations in running shoe technology continued throughout this time. A shoe whose upper portion was made of nylon went into development in 1967, and the following year, Bowerman and another employee came up with the Boston shoe, which incorporated the first cushioned mid-sole throughout the entire length of an athletic shoe.

By the end of the decade, Knight’s venture had expanded to include several stores and 20 employees, and sales were near-ing $300,000. The company was poised for greater growth, but Knight was frustrated by a lack of capital to pay for expansion. In 1971 using financing from the Japanese trading company Nissho Iwai, BRS was able to manufacture its own line of products overseas, for import to the United States. At this time, the company introduced its Swoosh trademark, and the brand name Nike, the Greek goddess of victory. These new symbols were first affixed to a soccer shoe, the first Nike product to be sold.

A year later, BRS broke with its old Japanese partner, Onitsuka Tiger, after a disagreement over distribution, and kicked off promotion of its own products at the 1972 U.S. Olympic Trials, the first of many marketing campaigns that would seek to attach Nike’s name and fortunes to the careers of well-known athletes. Nike shoes were geared to the serious athlete, and their high performance carried with it a high price.

In their first year of distribution, the company’s new products grossed $1.96 million, and its staff swelled to 45. In addition, operations were expanded to Canada, the company’s first foreign market, which would be followed by Australia, in 1974.

Bowerman continued his innovations in running-shoe design with the introduction of the Moon shoe in 1972, which had a waffle-like sole that had first been formed by molding rubber on a household waffle iron. This sole increased the traction of the shoe without adding weight.

In 1974 BRS opened its first U.S. plant, in Exeter, New Hampshire. The company’s payroll swelled to 250, and worldwide sales neared $5 million by the end of 1974.

This growth was fueled in part by aggressive promotion of the Nike brand name. The company sought to expand its visibility by having its shoes worn by prominent athletes, including tennis players Hie Nastase and Jimmy Connors. At the 1976 Olympic Trials these efforts began to pay off as Nike shoes were worn by rising athletic stars.

The company’s growth had truly begun to take off by this time, riding the boom in popularity of jogging that took place in the United States in the late 1970s. BRS revenues tripled in two years to $14 million in 1976, and then doubled in just one year to $28 million in 1977. To keep up with demand, the company opened new factories, adding a stitching plant in Maine and additional overseas production facilities in Taiwan and Korea. International sales were expanded when markets in Asia were opened in 1977 and in South America the following year. European distributorships were lined up in 1978.

Nike continued its promotional activities with the opening of Athletics West, a training club for Olympic hopefuls in track and field, and by signing tennis player John McEnroe to an endorsement contract. In 1978 the company changed its name to Nike, Inc. The company expanded its line of products that year, adding athletic shoes for children.

By 1979 Nike sold almost half the running shoes bought in the United States, and the company moved into a new world headquarters building in Beaverton, Oregon. In addition to its shoe business, the company began to make and market a line of sports clothing, and the Nike-Air shoe cushioning device was introduced.

By the start of the 1980s, Nike’s combination of groundbreaking design and savvy and aggressive marketing had allowed it to surpass the German athletic shoe company Adidas, formerly the leader in U.S. sales. In December of that year, Nike went public, offering two million shares of stock. With the revenues generated by the stock sale, the company planned continued expansion, particularly in the European market. In the United States, plans for a new headquarters on a large, rural campus were inaugurated, and an east coast distribution center in Greenland, New Hampshire, was brought on line. In addition, the company bought a large plant in Exeter, New Hampshire, to house the Nike Sport Research and Development Lab and also to provide for more domestic manufacturing capacity. The company had shifted its overseas production away from Japan at this point, manufacturing nearly four-fifths of its shoes in South Korea and Taiwan. It established factories in mainland China in 1981.

By the following year, when the jogging craze in the United States had started to wane, half of the running shoes bought in the United States bore the Nike trademark. The company was well insulated from the effects of a stagnating demand for running shoes, however, since it gained a substantial share of its sales from other types of athletic shoes, notably basketball shoes and tennis shoes. In addition, Nike benefited from strong sales of its other product lines, which included apparel, work and leisure shoes, and children’s shoes.

Given the slowing of growth in the U.S. market, however, the company turned its attention to growth in foreign markets, inaugurating Nike International, Ltd., in 1981 to spearhead the company’s push into Europe and Japan, as well as into Asia, Latin America, and Africa. In Europe, Nike faced stiff competition from Adidas and Puma, which had a strong hold on the soccer market, Europe’s largest athletic-shoe category. The company opened a factory in Ireland to enable it to distribute its shoes without paying high import tariffs, and in 1981, bought out its distributors in England and Austria, to strengthen its control over marketing and distribution of its products. In 1982 the company outfitted Aston Villa, the winning team in the English and European Cup soccer championships, giving a boost to promotion of its new soccer shoe.

In Japan, Nike allied itself with Nissho Iwai Corp., the sixth-largest Japanese trading company, to form Nike-Japan Corporation. Because Nike already held a part of the low-priced athletic shoe market, the company set its sights on the high-priced end of the scale in Japan.

By 1982 the company’s line of products included more than 200 different kinds of shoes, including the Air Force I, a bas- ketball shoe, and its companion shoe for racquet sports, the Air Ace, the latest models in the long line of innovative shoe designs that had pushed Nike’s earnings to an average annual increase of almost 100%. In addition, the company marketed more than 200 different items of clothing. By 1983 when the company posted its first-ever quarterly drop in earnings as the running boom peaked and went into a decline, resulting in slowing shoe sales, Nike’s leaders were looking to the apparel division, as well as overseas markets, for further expansion. In foreign sales, the company had mixed results. Its operations in Japan were almost immediately profitable, and the company quickly jumped to second place in the Japanese market, but in Europe, Nike fared less well, losing money on its five European subsidiaries.

Faced with an 11.5% drop in domestic sales of its shoes in the 1984 fiscal year, Nike moved away from its traditional marketing strategy of support for sporting events and athlete endorsements to a wider-reaching approach, investing more than $10 million in its first national television and magazine advertising campaign. This followed the “Cities Campaign,” which used billboards and murals in nine American cities to publicize Nike products in the period before the 1984 Olympics. Despite the strong showing of athletes wearing Nike shoes in the 1984 Los Angeles Olympic games, Nike profits were down almost 30% for the fiscal year ending in May 1984, although international sales were robust and overall sales rose slightly. This decline was a result of aggressive price discounting on Nike products and the increased costs associated with the company’s push into foreign markets and attempts to build up its sales of apparel.

Earnings continued to fall in the next three quarters, as the company lost market share, posting profits of only $7.8 million at the end of August 1984, a loss of $2.2 million three months later, and another loss of $2.1 million at the end of February 1985. In response, Nike adopted a series of measures to change its sliding course. The company cut back on the number of shoes it had sitting in warehouses, and also attempted to fine-tune its corporate mission by cutting back on the number of products it marketed. It made plans to reduce the line of Nike shoes by 30% within a year and a half. In addition, leadership at the top of the company was streamlined, as founder Knight resumed the post of president, which he had relinquished in 1983, in addition to his duties as chairman and chief executive officer, and overall administrative costs were reduced. As part of this effort, Nike also consolidated its research and marketing branches, closing its facility in Exeter, New Hampshire, and cutting 75 of the plant’s 125 employees. Overall, the company laid off about 400 workers during 1984.

Faced with shifting consumer interests, as, for instance, the U.S. market moved from jogging to aerobics, the company created a new products division in 1985 to help keep up with changing market demands. In addition, Nike purchased Pro-form, a small maker of weight-lifting equipment, as part of its plan to profit from all aspects of the fitness movement. The company was restructured further at the end of 1985 when its last two U.S. factories were closed and its previous divisions of apparel and athletic shoes were rearranged by sport. In a move that would prove to be the key to the company’s recovery, in 1985 the company signed up basketball player Michael Jordan to endorse a new version of its Air shoe, introduced four years earlier.

In early 1986 Nike announced expansion into a number of new lines, including casual apparel for women, a less-expensive line of athletic shoes called Street Socks, golf shoes, and tennis gear marketed under the name “Wimbledon.” By mid-1986 Nike was reporting that its earnings had begun to increase again, and that year sales topped $1 billion for the first time. At that time, the company sold its 51% stake in Nike-Japan to its Japanese partner, and six months later, at year’s end, laid off 10% of its U.S. employees at all levels in a cost-cutting move.

Following these moves, Nike announced a drop in revenues and earnings in 1987, and another round of restructuring and cost-cutting ensued, as the company attempted to come to grips with the continuing evolution of the U.S. fitness market from jogging to walking, from aerobics to cross-training— diversified physical workout. Only Nike’s innovative Air athletic shoes provided a bright spot in the company’s otherwise erratic progress, allowing the company to regain market share from rival Reebok in several areas, including basketball and cross-training.

The following year, Nike branched out from athletic shoes, purchasing Cole Haan, a maker of casual and dress shoes, for $80 million. Advertising heavily, the company took a commanding lead in sales to young people to claim 23% of the overall athletic shoe market. Profits rebounded to reach $100 million dollars in 1988, as sales rose 37% to $1.2 billion. Later that year, Nike launched a $10 million dollar television campaign around the theme “Just Do It,” and announced that its 1989 advertising budget would reach $45 million.

In 1989 Nike marketed several new lines of shoes, and led its market with $1.7 billion in sales, yielding profits of $167 million. The company’s product innovation continued, as a basketball shoe with an inflatable collar around the ankle was introduced under the brand name Air Pressure. In addition, Nike continued its aggressive marketing, using ads featuring Michael Jordan and the Mars Blackmon character played by actor-director Spike Lee, the ongoing “Just Do It” campaign, and “Bo Knows” television spots featuring athlete Bo Jackson. At the end of 1989, the company began relocation to its newly constructed headquarters campus in Beaverton, Oregon.

In 1990 the company sued two competitors for copying the patented designs of its shoes, and found itself engaged in a dispute with the U.S. Customs Service over import duties on its Air Jordan basketball shoes. In 1990 the company’s revenues hit $2 billion. The company acquired Tetra Plastics Inc., producers of plastic film for shoe soles. That year, the company opened Nike Town, a prototype store selling the full range of Nike products, in Portland, Oregon. Additional stores based on this model in other large cities are planned for 1992.

By 1991 Nike’s Visible Air shoes had enabled it to surpass its rival Reebok in the U.S. market. Its efforts to conquer Europe had begun to show fruit as the company gained a second-place market share, behind only the leading German company, Adidas. Unlike the U.S. market, which had largely matured, Nike predicted ample room to grow on foreign soil.

As Nike enters the 1990s, this young company can look back on an extraordinary record of growth over a relatively short period of time. Blessed with good timing, the company rode the U.S. fitness and jogging boom to unprecedented profits, only to suffer the pangs of adjustment as the market matured and changed. Given the company’s record of innovative design and savvy promotion, however, it appears unlikely that Nike will stumble again badly as it runs, jogs, walks, dances, jumps, and plays its way into the future.