In his first major initiative since inheriting the top spot (Chief Executive) in January, 2006, Parker explained to investors at Nike’s annual analyst conference how the company aims to grow to $23 billion in global revenue by 2011. The comprehensive long-term strategy calls for reshaping the management structure; redefining Nike’s relationship with its fast-changing, digitally driven consumer; and adding 100 new company stores worldwide in three years. “We’re fundamentally changing the way we organize the company,” Parker said. Nike is as hungry and as driven as we’ve ever been before and becoming more focused and more competitive. ” While analysts and investors applauded much of Nike’s new strategy, some questioned whether the company could actually do it. After all, revenues would need to rise 53% over five years, or average about 9% a year, to reach the target of $23 billion. It’s going to be challenging to achieve $8 billion in new sales without turning around slumping sales in Europe, Japan, and the U. S. basketball market — a crucial $3 billion to $3. billion market segment. “I think it’s going to be tough for them,” said John Shanley, financial analyst for Susquehanna Financial. “Basketball, for example, is shrinking in terms of sales. They have 96% of the market share in the $100 or more price point. How do you get high single-digit growth when you already have more than 96% of the market? ” Nike executives fell short in offering specific details to some of these questions and focused more on painting a broader picture of the new strategy.
They stressed a multi-pronged approach that includes reorganizing the Nike brand into six main athletic divisions — running, basketball, soccer, women’s fitness, men’s training, and sport culture — that are expected to generate 75% of the brand’s growth. The company had previously divided the brand into three segments: footwear, apparel, and equipment. Growth is also expected to come from emerging markets and potential acquisitions. But Nike Brand President Charlie Denson said the company can reach the $23 billion target without new acquisitions. As for new markets, China is expected to become Nike’s second biggest market behind the U.
S. , potentially chalking up $1 billion in sales. Nike is building a strategy for growth across China that will foster new connections with Chinese youth, a market share plan designed to reap benefits far beyond the Beijing Olympics next year, top executives said last week. By tapping into swelling consumerism, label consciousness and new social freedoms among China’s youth, Nike hopes to cement and expand its current position as the leading athletic footwear and apparel brand in the world’s most populous country, currently the company’s fourth-largest market.
With about $600 million in current annual sales, Nike believes China has the potential to be the company’s second-largest market behind the United States with revenue of $1 billion within five years. The company estimates some 50 million Chinese youth play basketball. “We think our opportunity there is to connect more deeply with local culture,” Parker said, explaining Nike’s overall China strategy. Parker said Nike will create products and retail and digital experiences designed to resonate with wired, hip and willing-to-spend Chinese youth living in different cities and regions. Ultimately, that’s going to be our best foundation for growth going forward,” Parker said. China is a prime component in the global Nike puzzle that will help push total sales for the Beaverton, Oregon-based company toward a target of $23 billion by 2011. Nike also views India, whose population growth rate is rising faster than China’s and Russia as potential $1 billion markets. Although the budget for Nike’s 2008 Beijing Olympics strategy has not yet been planned, Nike Brand President Charlie Denson said that commitment would be “major. ” But, Denson said, “We are looking beyond Beijing. A recent “Just Do It” campaign that aired on Chinese television featured a young woman basketball player and a young male skateboarder who spoke of their lives and dreams through sports. A popular Internet-based advertising campaign that followed the television advertisements encouraged teenagers to send in their own stories. While soccer and basketball are the most popular sports among Chinese youth, Nike also sees a huge market for its sports culture footwear and apparel lines that capture the allure of sports without the performance aspects.
Trevor Edwards, Nike’s vice president of global brand and category management, explained that Nike is trying to encourage Chinese youth to find their individual voice. The “Just Do It” campaign and others, Edwards said, communicated that “we were a brand about opportunity; we were a brand about hope. ” Nike sponsors 22 out of 28 Chinese sports federations. While the best-known Chinese athlete in the United States, basketball centre Yao Ming, is signed with Reebok, a division of Adidas AG , popular Chinese hurdler and Olympic gold medallist Liu Xiang is a Nike athlete.
Even though much of Nike’s marketing campaign in China is based on youth individuality, Nike wants to make sure their footwear fits the millions. To that end, Nike’s engineers and physiologists back at their headquarters have been collecting data about Chinese feet. But the company will not say whether specific footwear lines will be launched for China. Nike’s India business has grown 40% since last year thanks in part to its efforts in cricket. Nike executives also said they plan to invest aggressively in other potential billion-dollar markets — such as Russia and Brazil.
Back in the USA, Nike’s efforts to add new retail stores and “elevate” its partnership with existing retailers is a big part of its new strategy. This effort comes at a time of sluggish sales from some of its biggest retailers — mall-based chains Foot Locker (FL) and Finish Line (FINL). Nike executives said the company plans to grow its direct-to-retail business to 15% of total sales, or $3. 5 billion, from 12% today. The segment includes its own stores, factory outlets, and an e-commerce division, which executives expect to see a significant increase in revenues over the next five years.
For the planned retail investment, Nike will increase capital spending to $475 million annually, up from just under $400 million, Nike said. Gary DeStefano, president of Nike’s global operations, stressed its retail goal is to make Nike a better retail partner: “This is not about Nike vs. the retailers,” he said. “This is a partnership. We believe this could be a growth strategy. ” But probably Nike’s boldest bet is on the consumer. In the eyes of Parker, this new and evolving digitally driven consumer is reshaping the retailing landscape. The power is now in the onsumer’s hands, and Parker believes Nike and other consumer brand companies need to adjust to the new market dynamics. “Consumers have never held as much power as they do today,” Parker said. “And clearly the power has shifted to consumers. ” Nike’s Denson said this fundamental shift can be captured in the way the company studies its consumer profiles. In the past, managers used to consider 18- and 22-year-olds as part of the same demographic target. Now he says they are treated as separate and distinct markets when it comes to age, interests, and tastes. We spent the last 30 years trying to bundle things, and now it’s almost the reverse and we have to un-bundle things,” Denson said, explaining Nike’s new efforts to tailor products to individual consumers. Despite these fundamental changes in how Nike approaches its customers and its reshaped management structure, some things never change. Nike remains its audacious self and competitive juices still run strong. It still has goals to dominate markets where it is not already No. 1, and it’s redoubling efforts to unseat rival Adidas as the world’s top supplier of soccer shoes and apparel.
Its recent bid to sponsor the German national team is part of its 2010 goal to “dominant the football brand,” said Nike marketing vice-president Trevor Edwards. “We believe it’s time to create separation. This is not a game of chicken. ” Some things never change. Adidas expects growth overseas, particularly in Asia, to push sales at its Reebok division to US$5 billion ($7. 42 billion) over the next three to five years, up from US$3 billion, adidas chief Herbert Hainer said yesterday.
The world’s second-largest sporting goods maker after Nike also said it expected to cut costs – including at Reebok, which it acquired last year – by about 87 million euros ($1. 6 billion) this year. That will more than offset integration costs, resulting in an overall cost savings of about 10 to 20 million euros, Hainer said. “For the Reebok brand, the main growth driver will be Asia and to a certain extent Europe as well. “Key markets like Germany and France are underdeveloped, as is Russia. Emerging markets have a huge potential and we will grow in the US, but by far not at the pace of Asia. ‘ Much of that growth will come toward the latter part of that period with the brand expecting only “modest” revenue growth, said Paul Harrington, president and CEO of the Reebok brand. Adidas, the German based sporting goods giant, bought Reebok in a US$3. 8 billion deal, looking to complement its strength in Europe with a major US brand that had greater strength in the fashion segment. But the Reebok brand has been a drag on Adidas’s performance thus far. In November 2006, the German company lowered its 2007 profit growth forecast to 15 per cent from 20 per cent, citing trouble at Reebok.
Adidas shares have slid almost 14 per cent since the Reebok takeover closed on January 31, 2006. Rival Nike’s shares have risen about 24 per cent over that time. Reebok’s sales have been lagging in the United States and the United Kingdom, though adidas plans a big expansion for the brand in Asia, including about 3200 stores in China, India and Russia by 2010. It is to open 200 stores in China and 90 in Russia this year. The brand is also eyeing an expansion in Japan, South Korea, Turkey, Poland and other parts of Eastern Europe.
In Brazil, Argentina, Switzerland and Spain, where the brand is still sold by third-party distributors, the company is working to buy out those contracts, but some may have to run their course through to 2012. At present, about 40 per cent of the Reebok brand’s sales come from North America and 40 per cent from Europe. Part of what makes the expansion outside the United States so appealing is that profit margins tend to be higher in the rest of the world, Hainer said. “You have much higher quantity on the US market, but … much more value, higher profit margins on the European or Asian market. ‘ Adidas plans to reposition its Reebok brand to target athletics apparel consumers who value individuality, with a goal of broadening beyond an urban youth target audience and re-emphasizing Reebok’s roots as an athletics performance brand. The strategy comes as Germany-based adidas ramps up its investment in Reebok a year after acquiring the brand and then seeing Reebok sales fall into a slump. The revised brand strategy builds off the edgy “I am what I am” campaign Reebok adopted four years ago by embracing hip-hop culture and youth-oriented entertainment alongside its traditional athletics performance market.
The new strategy will maintain the “I am what I am” theme in many of Reebok’s advertisements. But it also will position Reebok as “an American-inspired global brand that celebrates individuality in sport and life,” according to Adidas. Reebok President and Chief Executive Paul Harrington said the brand will gently shift emphasis toward suburban consumers of all ages without abandoning the urban youth targeted by “I am what I am. ” Reebok also will try to reconnect with consumers who value athletic performance over fashion.
While “I am what I am” won’t go by the wayside, “It may not be as loud as it was when we first launched it,” Harrington said in an interview at Reebok’s Canton headquarters, where he was joined by Adidas CEO and Chairman Herbert Hainer. The street-influenced “I am what I am” campaign helped Reebok connect with youth by featuring endorsers such as rappers 50 Cent and Jay-Z. But some industry analysts said the campaign risked alienating customers who prize performance over fashion and marked too sharp a departure for a brand that gained traction pitching aerobics shoes to women in the 1980s. We’re not going to move totally away from music, but we’re going to reach for a broader audience,” Harrington said. Adidas hopes Reebok will double its U. S. business and narrow Beaverton, Oregon-based Nike Inc. ‘s market leadership. But adidas said in November last year (2006) that sales of Reebok-branded shoes and other apparel fell 7 percent in the first nine months of last year, compared with the same period in 2005. Adidas also conceded that Reebok’s profit growth this year would fall short of initial expectations, and it said it intended to increase Reebok investment this year.
Among other things, Reebok has been hurt by a recent decline in the once-hot market for retro-styled sneakers that mimic styles from the ’80s — a trend that Reebok helped drive, said John Horan, publisher of Sport Goods Intelligence, a Glen Mills, Pennsylvania-based industry newsletter. Since Adidas completed the Reebok deal in January 2006, analysts have speculated as to how the one-time athletics sneaker and apparel rivals would position the two separately managed brands to avoid competing against one another in the same market niches.
The strategy announced Thursday will be launched with two Reebok campaigns this year. The first is a “Run Easy” campaign beginning this spring emphasizing the fun and joy of running, rather than its “blood, sweat and tears” aspect and winning. Reebok plans to launch a broader campaign in August targeting a variety of athletes as well as lifestyle apparel consumers around the theme “Best On/Best Off” — suggesting that Reebok products offer the best in apparel both on and off the playing field.
New products Reebok plans to introduce this year include a running shoe created especially for women, a new Allen Iverson model basketball shoe, and an apparel collection endorsed by actress Scarlett Johansson. Andrew Rohm, a former Reebok marketing employee and now an assistant professor of marketing at North-eastern University, said the revised strategy reflects an attempt by Reebok to create a new niche to complement the Adidas brand, whose traditional strength has been in athletic performance, especially soccer. I think it may be a reflection of looking less at sheer sales volume, and more in terms of owning a unique space, and becoming more of a niche player than they have tried to be in the past,” Rohm said. Reebok’s Harrington said the revised marketing strategy will help position the brand for a comeback. “It really positions us for growth in the back end of 2007,” he said. Puma, the maker of athletic shoes, shirts and other sporting goods, said its fourth-quarter profit fell 26 percent as it tries to broaden its product base and expand into new regions.
But the company, the world’s third-biggest maker of sports apparel behind Nike Inc. and adidas AG, said it expected sales and earnings in 2007 to increase in the higher single-digit figure range, largely on demand for its licensed products. “Overall, we are very pleased with 2006 and our start to (the latest restructuring phase), as we set some ambitious targets and are on track or ahead on all accounts,” Chief Executive Jochen Zeitz said in a statement. “But more important than the past is the future and we’ve put ourselves in a solid early position to deliver on our objectives. Puma earned euro32. 8 million (US$43 million) in the last three months of 2006, down from euro44. 1 million in the same quarter of 2005. Analysts polled by Dow Jones Newswires had expected a profit of euro34 million (US$44. 6 million). Sales rose 38 percent to euro480 million (US$629. 7 million) from euro349. 2 million a year ago, still less than the euro492 million (US$645. 4 million) analysts had predicted. For the year, Puma earned euro263. 2 million (US$345. 3 million), down nearly 8 percent from euro285. 8 million in 2005, just below analysts’ estimates of euro264 million (US$346. million). Sales rose 33 percent to euro2. 37 billion (US$3. 11 billion) from euro1. 78 billion in 2005, just under estimates of euro2. 38 billion (US$3. 12 billion). The sales increase was led, in part, by better-than-expected demand for its shirts and helped by the afterglow of the 2006 soccer World Cup, in which Puma sponsored the champion Italy. It is also a key supplier to many African teams. Since Zeitz was named CEO and chairman of the company in 1993, Puma has returned to profitability and increased sales and expanded its research and development, marketing and branding programs.
Its latest restructuring effort is aimed at expanding the company’s reputation as a maker of lifestyle brands — clothes, shoes and accessories, such as eyeglasses — and expand in more regions and categories. For the year, Puma posted strong sales in North and South America, with sales reaching euro724. 1 million (US$949. 95 million), up 51. 8 percent from 2005. In Asia and the Pacific, sales more than tripled to euro486. 5 million (US$638. 24 million). In Europe, the Middle East and Africa sale increased 5. 1 percent to euro1. 15 billion (US$1. 51 billion).
The company’s backlog of orders — a key indicator for future sales performance — was at euro1. 12 billion (US$1. 47 billion) at the end of 2006, up 4. 7 percent from euro1. 07 billion in 2005. Shares of Herzogenaurach-based Puma were up nearly 2 percent after the results were released but fell back more than half a percent to euro288. 01 (US$377. 84) in Frankfurt trading. References: Business Week Online Can Nike Do It? By Stanley Holmes 7 February 2007 Reuters News Nike striving to be “brand about hope” in China By Alexandria Sage 12 February 2007 New Zealand Herald
Reebok to race in Europe and Asia 3 February 2007 Associated Press Newswires Adidas shifting Reebok’s brand identity By MARK JEWELL 2 February 2007 Associated Press Newswires Athletic apparel maker Puma says 4th-quarter profit drops 26 percent By MATT MOORE 19 February 2007 Questions 1. Conduct a SWOT analysis of the “key players” in the sneaker industry and critically analyse their influence within the industry and the market. (25 marks) 2. Evaluate all significant trends in the environment and assess what impact each is likely to have on the sneaker industry. (25 marks) (Total = 50 marks)