Nike Situation SWOT Analysis

Nike Situation SWOT Analysis

Are you a business person who wants to learn how to perform a situation SWOT analysis? Are you a college student who needs to complete a school assignment on situation SWOT analysis? This article intends to perform a situation SWOT analysis on Nike. Hopefully, you will learn how to develop an effective situation SWOT analysis for your business or assignment. The analysis in this article relates to the world’s largest athletic footwear and apparel retailer, Nike. However, the general approach remains the same whether the company in question is Nike, your company, or any other business.

The SWOT Analysis is Not Perfect

Few things in life are perfect. Certainly, the SWOT analysis has its flaws. It is not surprising that some experts have criticized the approach, arguing it is too simple. But whether those concerns are justifiable or not, the SWOT analysis is a technique everyone in the world of business should master. The situational analysis is a relatively new approach that strengthens the SWOT analysis. In a sense, the situational analysis lays the foundation for the SWOT analysis. Perhaps applying these two methods together may result in better-quality business decisions.

The SWOT Analysis

Developed by Humphrey in 1960, the SWOT analysis is a simple technique used to design business strategies. Each letter in the acronym stands for a critical aspect of the process. S stands for the strengths a business or organization has. W stands for the weaknesses a business needs to address if it wishes to stay competitive and sustainable. O is for the opportunities that are up for grabs in a given industry. Analyzing the “O” part helps a business to identify situations, events, and factors it can exploit.

Finally, T stands for threats. It is easy to confuse threats and weaknesses, but the two ideas are different. Threats refer to factors within or outside a business that may make strategy execution challenging or even impossible.

When an entrepreneur examines all these factors in their entirety, they are able to map out a clear path toward success. The SWOT analysis is an objective way to increase a business’ self-awareness and situational awareness. In other words, this approach helps a business look at itself from within while remaining actively aware of every important external factor.




The Situation Analysis: What is it?

The situation analysis is a technique that helps decision-makers develop strategic plans based on research or data. While the situation analysis is a different analysis method, it has a lot in common with the SWOT analysis. Both methods analyze similar internal and external factors.

Typically, a situation analysis precedes a SWOT analysis. Completing a situation analysis involves performing both an external analysis and an internal analysis. The information gathered from a situation analysis guides the performance of the SWOT analysis.

Situation Analysis: The Internal Analysis Part

An internal analysis helps a business to determine the extent to which it has met performance expectations. It asks the question: “Has the business met its expectations?” Or, “Has the company exceeded its expectations?” These questions enable managers, investors, and owners to identify all the areas of a business that demand improvement.

A well-done situation analysis is a thorough evaluation of the entire business. Some of the key elements of this analysis are employees, management and leadership structure, organizational structure, company image, and brand awareness.

An internal situational analysis also considers the assets, both tangible and intangible, that a business owns. These assets might include trade secrets, patents, and property, plant and equipment (PP&E). The analysis also evaluates or reviews any exclusive contracts the company may have. Additionally, it assesses the business’ operational efficiency, its market share, and its financial resources. The results obtained from this examination help decision-makers to identify the company’s strengths and weaknesses.

Situation Analysis: The External Analysis Part

An external analysis evaluates all the external factors that may affect how a given business operates. This analysis seeks to find the answers to a few critical questions. Some of these questions include: Who are my competitors? What market does my business serve? What consumer trends govern the marketplace at this time? What social and economic changes are happening? Here is where you study your customers, their current needs, their preferences, and buying behavior. The data and information obtained from an external analysis help a business determine its threats and opportunities.

How Does a Situation Analysis Differ from a SWOT Analysis?

While these two approaches have some similarities, certain aspects separate them. A situation analysis researches deeply, collecting useful data that drives business management and leadership. The method relies heavily on research and data. The method collects primary and secondary data and conducts an in-depth analysis that aims to shed light on a business’ key strengths and weaknesses.

Primary sources may include interviews with a company’s high-level executives, case studies, customer surveys, and focus groups. Industry reports and economic reports are some of the more common secondary sources used in a situation or SWOT analysis.

The Swot analysis relies on the data it receives from the situational analysis. In a sense, the SWOT analysis summarizes the data and information it gets from the situation analysis. It is best to view these two methods as critical parts of the same process rather than as separate methods. Now that we have definitions and explanations out of the way, it is time to analyze Nike Inc.

Nike Situation SWOT Analysis

The SWOT analyses and situation analyses are more or less the same idea. This analysis of Nike opts to use the two techniques concurrently, as though they were different parts of the same process. That is because the two methods keep overlapping, and both have the same aims.

A Brief History of Nike

Formerly Blue Ribbon Sports, Nike Inc. is an American company that deals in sportswear.  Headquartered in Beaverton, Oregon, Nike designs, makes, and sells athletic apparel, footwear, and other sporting goods.

A Coach and his Student Decide to Build a Business

Nike’s co-founders Bill Bowerman and Phil Knight started the business in 1964. Bowerman used to be a track-and-field coach at the University of Oregon when he met his future business partner, Knight. When a teacher looks at their student, they rarely see a potential business partner. They likely see a clueless young man or woman who needs a little guidance.

But Bowerman and his former student Knight decided to start a business together, opening their first retail outlet in 1966. But that is not the year they launched Nike Inc.

It was not until 1978 when the two founders changed the name of their business from Blue Ribbon Sports to Nike, Inc. Building a successful business is often very challenging work. However, the duo managed to take their business public 17 years later.

Nike, Inc.: The Business and its Products

Nike and its subsidiaries design, manufacture, market and sell athletic apparel, sporting equipment, athletic footwear, accessories, and services. The company has grown and expanded to become the world’s most prominent retailer of athletic apparel and footwear. Its products offerings fall into at least 12 categories. These categories include Soccer, Men’s Training, Sportswear, Action Sports, Golf, Basketball, Women’s Training, Running, Walking, Children, Wrestling, Cricket, and Lacrosse.

The specific products Nike makes and markets include bats, golf clubs, timepieces, socks, bags, shoes, sports balls, eyewear, T-shirts, and jerseys. Some of the company’s biggest customers include NFA and NBA. The latest deal between NBA and Nike is a billion-dollar contract that runs from 2020 through 2028. Nike’s uniforms may have started falling apart during the 2017/18 season, but there is a solid contract in place.

Expansion and Acquisitions

The company has been growing steadily, managing to acquire seven organizations between the late 1980s and 2018. Some of the businesses the company has acquired include Cole Haan, Umbro, and Zodiac. Invertex is the most recent acquisition. Nike closed this deal on April 9, 2018.

According to Statista, Nike operated only 674 stores in 2009. In 2018, Nike had 1,182 stores. The company has nearly doubled the number of its stores in the last ten years. That means the sportswear giant opened on average 50 stores every year over the last decade. That number translates into about four stores every month, and that seems impressive. Evidently, the company has been working hard. But has the company been making money?

Nike Earned a Net Income of Nearly $2 Billion in 2017

Nike leads the world when it comes to marketing sporting goods. The company’s logo, the famous Swoosh, is among the most recognizable symbols in the world. Similarly, nearly everyone is aware of the company’s somewhat defiant tagline: Just Do it. Aside from being the leading sportswear brand globally, Nike stands tall among the greatest athletic sponsors. Additionally, Nike employs tens of thousands of people. In 2017, the company’s workforce had over 70,000 people.

Over the last three years, the company has seen a steady growth in revenue. Revenue increased 5.8 percent in 2015. The following year saw a revenue growth of 6.1 percent. But the growth slowed down a bit in 2017; it was 6.0 percent. That growth does not deviate significantly from the numbers the sporting goods industry typically sees. The numbers in the table below come from NASDAQ.

Nike’s Annual Revenue over the Past 3 Years

Financial Year Financial Year Ended 5/31/2015 Financial Year Ended 5/31/2016 Financial Year Ended 5/31/2017 Financial Year Ended 5/31/2018
Total Revenue $30,601,000 $32,376,000 $34,350,000 $36,397,000
Gross Profit $14,067,000 $14,971,000 $15,312,000 $15,956,000
Net Income $3,273,000 $3,760,000 $4,240,000 $1,933,000

Nike’s revenue followed an upward trend over the last three years, just like its gross profit. However, the net income figures over the same period do not seem to behave the same way. The financial ended 5/31/2018 had the highest revenue, but it posted the least net income. How so? Nike’s expenses grew much faster (9.66%) in 2017 than they did in 2016 (0.86%) and 2015 (5.86%).

If you had invested $1,000 in Nike ten years ago, your money would have grown more than three times to $3,319. However, the past is not always an indication of what will happen in the future. Now, let us head straight to what you are here for: Nike situation SWOT analysis.

Nike’s Strengths:

A Strong, Easily Recognizable Global Brand

Nike is currently the world’s most valuable sports brand. Consumers can easily and quickly recognize Nike’s high-quality products while shopping.  The company’s famous Swoosh is a logo like any other. However, few people in the world can honestly say they do not know it. Perhaps Nike’s incessant marketing campaigns that promote high-quality products endorsed by famous sportspeople are responsible for the brand’s popularity.

Phil Knight, Nike’s co-founder, has the Swoosh tattooed on his ankle. That could be an indication of the founder’s level of passion for the brand. Passion combined with great products and effective marketing strategies seem to be a winning formula, at least for Nike.

Continuous Product Innovation: Nike Never Rests on its Laurels

Nike is always innovating. It keeps developing new, exciting, high-quality products that satisfy consumers’ needs. Many people associate Nike with cutting-edge athletic apparel, footwear, and sporting equipment designs that command brand loyalty. Judging from the company’s revenue trend over the last three years, the demand for Nike’s products is huge and growing. The world has seen many companies that became hugely successful and then started to decline. These businesses finally collapsed, never to rise again. Most of the time, complacency is what drives such companies out of business. Hopefully, Nike will keep doing what it does best — creating products that excite consumers and drive demand.

Efficient Production and Distribution Processes

Low-cost, efficient production processes combined with a highly effective distribution network explain Nike’s global dominance. Nike has more than 1,000 factories with over a million people working there. The company can, therefore, benefit from leveraging economies of scale. Nike has enough resources to continue producing top-notch products at production costs that translate into a massive pricing power.

Additionally, Nike runs a network of 1,182 stores (as of 2017) spread out across the globe. The company uses three main channels to get its products to its customers. First, the business works with established wholesalers based in the U.S., Nike’s main market, and other countries. Second, Nike sells directly to consumers through its many factory retail outlets. Third and perhaps most importantly, Nike sells its products through e-commerce. Having an easy-to-use website, www.nike.com, is a great idea at a time when millions of retail sales are happening online.

Nike manufactures most of its products outside of the U.S. India, China, Indonesia, Argentina, Brazil, Mexico, and Honduras are some of the countries whose factories make Nike’s products. The company’s move in 2017 to outsource its New York factory to Honduras left at least 1,400 American workers jobless.  The labor market in these countries allows Nike to spend considerably lower on salaries and wages than it would in the U.S. That does greatly help the company’s bottom line.

Nike’s Weaknesses

There are a few internal and external factors that, if left unchecked, may reduce or slow Nike’s effectiveness. The most important factors are rising costs, labor issues, underfunded research and development, and overreliance on the U.S. market.

A Shrinking Budget for Research and Development

This might seem surprising to people who view Nike as a company that remains fully committed to product innovation. Certainly, Nike continues to innovate and offer useful products that satisfy consumers. However, the company’s income statements for the past three years reveal a worrying reality. Shockingly, Nike has spent ZERO dollars on research and development over the last three years. That is a serious weakness.

Rising Costs

Nike saw more revenue in 2017 than it did in 2016, but its expenses grew significantly. While revenue grew 5.96 percent in 2017, expenses increased by 9.66 percent. Every company whose operating costs are growing faster than revenue should take immediate action to stop the trend.

Nike has slashed its workforce in the past. For example, the company laid off over 1,000 workers in New York in 2017. It is possible the company may take such measures in the future if that would help it control costs. See “Nike’s annual revenue table” we presented earlier in this article.

Relying too heavily on the U.S. Market

Nike continues to expand into overseas markets. However, the company still heavily relies on the U.S. market. Fully 40 percent of the Nike’s revenue comes from North America. That leaves the company exposed to social, political, and economic factors that may seriously affect its business. The recent “Collin Kaepernick effect” witnessed a few months ago demonstrates why it is risky to depend too much on a single market. On Nike’s 30th “Just Do It” anniversary, Nike featured Kaepernick in an ad, drawing a nasty backlash from consumers.

In 2016, the former quarterback for San Francisco 49ers had refused to stand for the national anthem, protesting racial justice. Maybe having Kaepernick as the face of Nike marketing was not a good idea.

Some consumers on social media threatened to burn Nike’s sneakers. Others said they would cut off the Swoosh from their socks. It is possible some consumers might choose to stay away from Nike’s products. Notably, the Nike stock fell 2 percent during the Kaepernick storm. Maybe Nike should start working toward a stronger overseas presence.

Labor Issues: Nike Continues to Contend with Persistent Sweatshop Problems

Labor issues are nothing new. However, they can affect business operations in significant ways. In the 1990s, Nike faced accusations that its factories were sweatshops that paid pathetic wages while abusing workers’ rights in many ways. For example, some factories in places such as Indonesia paid wages that were below the country’s minimum wage. Pressure continued to mount until Nike’s co-founder Phil Knight made a public commitment to resolve those issues.

The company has since spent time and resources in an attempt to clean up its image. But protests seem to be making a comeback. For instance, the business saw a round of worldwide labor-related protests in July 2017.

The protesters, United Students Against Sweatshops, focused on several issues including wage theft, padlocked exits, and terrible working conditions. It is not uncommon for workers to faint due to exhaustion and hunger while working in the factories. Other issues include forced overtime and exposure to toxic materials. We must mention that Nike mainly uses contracted manufacturers to make its products. The company may not directly control how these factories treat their workers.

Opportunities Nike Can Exploit:

Nike Can Grow Sales Through E-commerce

Amazon has dominated the online retail space. However, the opportunities offered by the internet are limitless. A growing number of consumers around the world buys products online instead of visiting a physical store. Consumers are increasingly searching for products and services online using smartphones, PCs, laptops, and tablets. Nike may continue opening stores in different places. However, the company needs to position itself to grab a chunk of the online retail market. The company has a website, but it needs to make it more visible than it is.

Strategic Acquisitions

Acquisitions are one of the ways successful companies become even mightier. Nike has executed several important acquisitions over the years, but the company should not stop doing this. The business has so far acquired seven companies. Invertex is the latest deal, joining six other companies Nike had bought earlier. The company completed the Invertex purchase in April, 2018. According to Crunchbase, Nike also owns Zodiac, Virgin Mega USA, Umbro, Hurley International, Cole Haan, and Converse.

Perhaps Nike should consider buying some of the companies that have come under the spotlight for all the wrong reasons. Acquiring such companies would be a major step in the right direction. It would enable the business to resolve most of the sweatshop issues that keep tarnishing the image of the brand.

Interest in Sports and Growing Prosperity in Emerging Economies

The emerging markets are different than the U.S. market in many ways. Perhaps that is why Nike does not have a strong presence in emerging economies. However, Nike should consider strengthening its presence in these countries. Nike should start watching Latin America, South Africa, the Middle East and a few other Asian economies more closely.

More and more people in these places are becoming wealthier. Most wealthy people want to stay healthy and fit. Some exercise for fun and others for health reasons. They need quality exercise equipment, clothes, and footwear. The increasing prosperity in emerging economies combined with a strong interest in exercise and sports offer endless growth opportunities. China, Saudi Arabia, and Brazil are some of the most promising emerging markets.

Saudi Arabia’s vision 2030 is an excellent opportunity Nike may exploit. The country seeks to grow the number of its exercising population from 13 percent to 40 percent by 2030. The demand for sporting goods in this country will keep growing in the next few years.

Rising Obesity in Developing Countries: Africa and South East Asia

Obesity has traditionally been a developed nations’ problem but not anymore. Obesity numbers in developing countries continue to grow, and that presents a huge opportunity for Nike. According to the World Health Organization, adults in Africa and South East Asia have lower mean BMI values than people in other regions. However, experts assert that waistlines are expanding in Africa and South East Asia. Estimates indicate that obesity numbers in these countries will soon closely compare with the measurements in Europe and the U.S. Nike should position itself strategically to benefit from these predictions.

The Threats Nike Faces

Growing Competition from Strong Rivals Including H&M and Adidas

Every company today must effectively deal with its competition unless it is a monopoly. Some of the most notable competitors against Nike include Adidas, Reebok (which Adidas acquired in 2006), Puma, Under Armor, H&M, and Lululemon. Perhaps H&M poses the greatest challenge to Nike’s business strategy. H&M is the largest clothing retailer in the world, and it has decided to enter the sporting goods industry.

It is also important to note that Adidas saw a much higher growth in the U.S. than Nike. In the third quarter ended February 2018, Nike’s sales in the U.S. fell six percent. At the same time, Adida’s sales grew 21 percent. Adidas is still much smaller than Nike in the U.S. market. However, Adida’s improving performance while Nike’s sales are plummeting should worry Nike. Nike must go back to the drawing board.

How Nike has Responded to Growing Competition

Nike continues to fight for its place in the sporting goods industry. Thanks to its savings from low-cost manufacturing processes, Nike wields considerable pricing power. Additionally, Nike is a master in terms of exploiting opportunities.

Adidas was the leading sportswear retailer in Saudi Arabia in 2016, with a market share of 33 percent. But Nike managed to nibble away at Adidas’ market share between 2013 and 2014, growing its market share 11 percent. Nike also plans to start selling what it calls “a performance hijab” for female Muslim athletes. The emerging markets have become a bloody battle ground for the world’s largest brands, and that affects Nike in many ways.

Nike’s Selling, General, and Administrative Expense are Growing

As mentioned in an earlier section, Nike’s growing expenses are an issue of concern. Increased expenses almost always lead to higher product prices. That could massively reduce Nike’s ability to compete. One of the company’s approaches to expense control has regrettably been job cuts. While job cuts are sometimes inevitable, growing income would be a much better strategy for Nike. An examination of the company’s 2017 numbers suggests that Nike should take steps to control or reduce its general administration expenses.

A Strengthening Dollar and Exposure to Currency Fluctuations

The greenback has been steadily gaining against other currencies. Most of the sales Nike sees happen overseas. The company remains precariously exposed to currency fluctuations. While reporting, subsidiaries convert their numbers into dollars. A stronger dollar translates into lower profits in the countries whose currencies lose appreciably against the greenback.

Hedging may help the company reduce the impact of currency fluctuations, though. However, this bottom-line protection strategy does not and will not completely eliminate the forex-related risks Nike faces. The good thing is that Nike’s key competitors could also be facing similar problems.

Conclusion

From 2015 to 2017, Nike’s revenue has followed an upward trajectory. The recent billion-dollar contract between the company and NBA was a significant achievement that gives Nike a competitive advantage over its rivals. It is a strong, well-known brand that commands consumers’ attention at the marketplace. Continuing product innovation and an efficient distribution network make sure the company’s sporting goods are within reach of consumers.

However, the company must reduce its overreliance on the U.S. market. Acquisitions and expansion into emerging markets can help the company maintain its position at the top of the sporting goods industry.  If the company fully embraces digitization, it could grow its sales exponentially. The company faces a few threats, though, but it continues to march forward with confidence. Overall, the outlook for Nike is bright and positive.

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