Nike Industry Attractiveness

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Strategic Analysis of Nike, Inc.

Submitted to:

A.J. Almaney, Ph.D.

ISS 395

DePaul University

Chicago, IL 60604

March 14, 2000

Submitted by:

Group 1

Kim Enderle

Dan Hirsch



Lisa Micka

Brian Saving

Sheetal Shah

Tatiana Szerwinski

TABLE OF CONTENTS

Executive Summary…………………………………………………………………….…………p.4

History…………………………..…………………………………………………………………..p.6

Profile of CEO………………….…………………………………………………………………..p.7

Competitor’s Profile………….…………………………………………………………………….p.7

Industry Profile……………………………………………………………………………………..p.8

Company Analysis…………………………………………………………………………………p.9

Industry Analysis………………………………………………………………………………......p.24

Top Competitor Analysis………………………………………………………………………….p.25

Other ExternalForces…………………………………………………………………………….p.26

KeyOpportunity……………………………………………………………………………..….…p.27

KeyThreat…………………………………………………………………………………………p.27

Major and SubordinateProblems………………………………………………………….……p.28

Strategic Match…………………………………………………………………………………...p.29

Primary Strategic Match Position……………………………………………………………….p.30

Strategic Plan……………………………………………………………………………………..p.33



Conclusion………………………………………………………………………………………...p.38

LIST OF EXHIBITS

1. Sales TrendsGraph……………………………………………………………………………p.5

2. Net Income TrendsGraph…………………………………………………………………….p.5

3. Nike Board of DirectorsTable………………………………………………………………...p.11

4. Table of Key FinancialRatios………………………………………………………………...p.22

5. Net Income TrendGraph………………………………………………………………….…..p.24

6. Primary Strategic Match PositionChart……………………………………………………..p.30 7. Industry Attractiveness

Matrix………………………………………………………………..p.31 8. Business Strength/Competitive Position

Chart……………………………………………..p.32 9. Grand Strategy Chart…………………………………………………………………………

p.3410. Marketing Short-term Strategy

Chart………………………………………………………..p.35

11. Production Short-term StrategyChart……………………………………………………….p.36

12. Research and Development Short-term StrategyChart…………………………………..p.37

13. Human Resources Short-term StrategyChart……………………………………………...p.37

14. Finance Short-term StrategyChart.………………………………………………………….p.38

EXECUTIVE SUMMARY

Nike Inc. was founded in 1962 by Bill Bowerman and Phil Knight as a partnership under thename, Blue Ribbon Sports. Our modest goal then was to distribute low-cost, high-qualityJapanese athletic shoes to American consumers in an attempt to break Germany'sdomination of the domestic industry. Today in 2000, Nike Inc. not only manufactures anddistributes athletic shoes at every marketable price point to a global market, but over 40% of our sales come from athletic apparel, sports equipment, and subsidiary ventures. Nike

maintains traditional and non-traditional distribution channels in more than 100 countriestargeting its primary market regions: United States, Europe, Asia Pacific, and the Americas



(not including the United States). We utilize over 20,000 retailers, Nike factory stores, Nikestores, NikeTowns, Cole Haan stores, and internet-based Web sites to sell our sports andleisure products. We dominate sales in the athletic footwear industry with a 33% globalmarket share. Nike Inc. has been able to attain this premier position through "quality

production, innovative products, and aggressive marketing."

As a result, for the fiscal year end 1999, Nike's 20,700 employees generated almost $8.8 billion in revenue.1

Products

Our primary product focus is athletic footwear designed for specific-sport and/or leisureuse(s). We also sell athletic apparel carrying the same trademarks and brand names asmany of our footwear lines. Among our newer product offerings, we sell a line of performance equipment under the Nike brand name that includes sport balls, timepieces,eyewear, skates, bats, and other equipment designed for sports activities. In addition, we

utilize the following wholly-owned subsidiaries to sell additional sports-related merchandiseand raw materials: Cole Haan Holdings Inc., Nike Team Sports, Inc., Nike IHM, Inc., andBauer Nike Hockey Inc. Our most popular product categories include the following:

Running Basketball Cross-Training Outdoor Activities Tennis Golf Soccer Baseball Football Bicycling Volleyball Wrestling Cheerleading Aquatic Activities Auto Racing Other athletic and recreational uses



Sales and Income Trends

Revenues in the fiscal year ended May 31, 1999, declined by 8% over the prior year to$8.777 billion. As illustrated in the graph below, this marked the first time since 1994 thatrevenues have declined. Regardless of this year's decline, Nike Inc. achieved 300%revenue growth over a 10-year period, rising from 1990 sales of $2.235 billion.

Exhibit 1

* Obtained from Nike, Inc. 1999 Annual Report

Although revenues declined in 1999, net income increased by 13% over the prior year. Asthe graph below illustrates, net income has been volatile in the latter half of the 90's. Sharpdecreases in 1998 and 1999 net income were due to restructuring charges. If these chargeshad not been incurred, income would have been flat for both years. Efficiency in cost controland inventory management has allowed net income to increase while revenues decreased

in 1999. Note that the largest growth rate was 43% in 1997 over the prior year with netincome of $795.8 million.

Exhibit 2



* Obtained from Nike, Inc. 1999 Annual Report

Challenges

Our greatest challenge in 2000 will be to maintain the operational and financial initiatives weworked so hard to implement in 1998 and 1999. We must maintain our inventory levels lowenough that will allow us to adapt to quickly changing market trends. Financially, we mustremain conservative in our cost structure. Cuts to operating expenses of almost $200 millionthis past year demonstrated that we are in a position to be nimble in light of our industry-dominating size. With the gradual economic recovery in the Asia Pacific region, we cancapitalize on customers who are financially stronger. Our sponsorship of the 2000 Olympic

Games in Sydney, Australia, and the 2002 World Cup in Japan and Korea will be the start of many opportunities to bring sports events into the mainstream for regional and globalmarkets. With added exposure, we are challenged to respond to a market demand for fashionable athletic footwear and apparel. In this quest, we will succeed if we keep qualityand performance at the core of our business.

The Internet is a rapidly changing medium. As the first company in our industry to offer e-commerce capabilities, we must proceed with caution and stealth in order to select anenduring strategy that will complement our existing distribution channels.

HISTORY

Bill Bowerman and Phil Knight founded Nike Inc. as Blue Ribbon Sports in 1962. Thepartners began their relationship at the University of Oregon where Bowerman was Knight’strack and field coach. While attending Stanford University, Knight wrote a paper aboutbreaking the German dominance of the U.S. athletic shoe industry with low-priced Japaneseshoes. In an attempt to realize his theory, Knight visited Japan and engineered anagreement with the Onitsuka Tiger company, a manufacturer of quality athletic shoes, to be

their sole distributor in the United States.



In 1962, Knight received the first shipment of 200 pairs of Tiger shoes to his parent’s garagein Oregon. The shoes were bought by Blue Ribbon Sports (BRS), the name of thepartnership between Knight and Bowerman that they formed with only $1,000 in capital.Knight peddled Tiger’s shoes at local track meets grossing $8,000 of sales in their first year.

In 1966, Bowerman, who had previously designed shoes for his university athletes, workedwith Tiger to design the Cortez running shoe. The shoe was a worldwide success for theOnitsuka Tiger Company and was sold at the first BRS store. In 1971, BRS, with creditor support, started manufacturing their own line of shoes. Later that year, the first BRS shoewas introduced. The shoe was a soccer shoe that bore the Nike brand name, referring tothe Greek Goddess of Victory, and the Swoosh trademark. A student designed the Swooshtrademark for a paltry fee of $35. The Swoosh was meant to symbolize a wing of the GreekGoddess.

1972 marked the breakup of the BRS/Tiger relationship. BRS soon changed its name to

Nike, Inc. and debuted itself at the 1972 Olympic trials. In 1973, Steve Prefontaine was thefirst prominent track star to wear Nike shoes. The late 70’s and early 80’s also saw JohnMcEnroe, Carl Lewis, and Joan Benoit sporting Nike shoes. Nike popularity grew so muchthat in 1979 they claimed 50% of the U.S. running market. A year later with 2,700employees, Nike went public selling 2 million shares on the New York Stock Exchange.

The 1980’s were marked by the signing of Michael Jordan as a product spokesperson,revenues in excess of $1 billion, the formation of Nike International Ltd., and the "Just Do It"campaign. Nike also expanded its product line to include specialty apparel for a variety of sports. In 1990, Nike surpassed the $2 billion mark in consolidated revenue with 5,300

employees worldwide. In addition, we opened the Nike World Campus in Beaverton,Oregon.

In 1991, Nike pushed revenues to $3 billion, up from $2 billion the prior year. This markwould continue to grow throughout the 90’s, with revenues in 1999 reaching $8.8 billion.These revenues grew based on improvements in shoe technology and successful marketingcampaigns. International revenues fueled a great portion of this growth with an 80%increase in 1991 from the prior year. In 1992 international revenues topped $1 billion for thefirst time and accounted for over one-third of our total revenues. Such growth continuedthroughout the 1990's as we continued to focus our marketing efforts on major sportingevents like the World Cup, and the next generation of celebrity endorsers, such as Tiger Woods, Lance Armstrong, and the players of women's professional basketball (WNBA). Atthe end of the 90’s, Nike’s goal, as stated in our company web site, is to become a trulyglobal brand.

PROFILE OF THE CEO

Phillip H. Knight, Chairman and Chief Executive Officer, is the co-founder of Nike, Inc. Hehas been the driving force behind our company's success since its inception in 1964 under



the name Blue Ribbon Sports. Knight is 61 years of age and holds an undergraduatedegree from the University of Oregon and an MBA from Stanford University. Knightpracticed as a CPA and taught at Portland State University prior to founding the companyknown today as Nike. He has been an innovative visionary in the industry of athletic

footwear and apparel. His efforts have helped to establish Nike as an industry leader in bothnational and international markets. Knight's managerial mode is one that is characterized bystrategic planning. This mode is representative of an open-minded CEO, one willing to takecalculated risks and make conservative decisions based on careful analysis of external andinternal environments. Knight's decision-making style favors the participative approach. Heis not hesitant to make unilateral decisions, but prefers to look to his trusted managementteam for their insight and ideas before choosing a course of action.

PROFILE OF THE COMPETITOR

Reebok, in terms of their products, is not entirely different from Nike. Reebok is involved inthe design and marketing of both athletic and non-athletic footwear and apparel, as well asother various fitness projects. Reebok’s market share is a distant third in the footwear industry at 11.2% (compared to 30.4% and 15.5% for Nike and Adidas respectively).Reebok’s financial position has been gradually slipping for a number of years. This isevident in their declining stock price, which has fallen by over 80 percent in the last four years. Reebok’s financial woes are illustrated in their declining net sales. Reebok’s netsales declined 9% during the first three-quarters of fiscal year 1999. During that same

period, net income declined 17%. Taking these and other factors into account leavesReebok’s current financial position, as a whole, looking bleak.

PROFILE OF THE INDUSTRY

Industry Size

In 1998, Americans spent approximately $38 billion to purchase more than 1.1 billion pairsof shoes. The wholesale value of athletic shoes for the US market totaled $8.7 billion in1998 down 8.5% from the year before. According to the Sporting Goods Manufacturers

Association, athletic footwear accounts for almost 35% of all footwear purchases.

In general, consumers are spending less worldwide for athletic footwear. The currentdomestic industry focus is on casual and comfortable shoes. Although athletic footwear sales appear to be recovering, demand is still leaning toward the "brown shoe" casualfootwear with a comfortable and rugged design. This switch is due to the increasing number of workplaces adopting casual dress codes.

Industry Profitability

The athletic footwear industry is a challenging and saturated market. Intense competition,fashion trends, and price conscious consumers have slowed growth in this industry.



Manufacturers are combating sluggish sales with radical new styles, along with offeringmore styles at lower price points. Companies are looking for new ways to boost sales bycapitalizing on direct Internet sales to consumers. Many companies are also increasingprofitability by transferring production to cheaper offshore facilities.

This segment has reached a point of maturity in the domestic market and can look forwardto only modest sales growth for the long term. However, sales are improving slightly,especially in the areas of running shoes, cross-trainers and basketball shoes. Therefore,companies with strong brands will increasingly turn to international markets for growth.

Industry Seasonality

Overall, sales in the athletic footwear industry remain stable throughout the year. The globalvariance in our market balances the seasonal fluctuations. Typical trends in seasonality

appear for spring apparel, the back-to-school season, and the Christmas holiday season.

Industry Cyclicality

In fiscal year 1999, the economy was relatively favorable for footwear manufacturers. Thefootwear industry and its profitability are closely tied to economic cycles. Modest inflation,low unemployment, and a booming stock market will all contribute to healthy consumer spending.

The theory behind the slowdown in sales is that growth in athletic footwear and apparel is

cyclically sensitive to the Olympics. Historically, years of the Olympic Games havedemonstrated surges in growth followed by difficult sales periods. The outlook for increasedsales trends is optimistic due to the upcoming Olympic Games slated for this year. Nike canalso look forward to a boost in demand from the World Cup events.

Industry Entry and Exit Barriers

Entry Barriers

The athletic footwear industry is a very competitive and mature market. The leaders of this

industry are very well established. Leaders like Nike and Reebok have made the industrywhat it is today. Consequently, long-time competitors like Saucony and K-Swiss have beenstruggling for years just to keep their brands alive. This cutthroat environment has hinderedthe entry of new competitors.

Economies of scale also contribute to the lack of newcomers into this market. In order tohave an edge over the leaders, companies must be able to compete at all levels such asreasonable pricing, efficient production, and high product quality. These things are difficultto achieve without the resources of an established manufacturer.

Another key barrier to entry is the access of traditional distribution channels. When combingthe shelves at stores like Sports Authority and FootLocker, it is evident that the leaders



dominate the shelves. Lesser-known brands are viewed by retailers as being too risky toreplace an established brand name like Nike or Reebok on the shelf.

These walls seem to be breaking down with the help of the Internet. The costs of overheadthat come along with traditional brick and mortar retail distributors are being significantlydiminished. New entrants are now able to slide into markets without these high startupcosts, making it more profitable to begin production.

Exit Barriers

When a company decides to exit from this industry it must be aware of things such asindebtedness and its ability to meet those obligations. A company must also be cognizant of lawsuits filed by its stakeholders and claims made on any residual assets.

COMPANY ANALYSIS

Strengths and Weaknesses of the Corporate/Business Level

Strategic Managers

Board of Directors - Strength

Nike’s board of directors consists of both management directors and independent directors.The combination of these two types of directors benefits Nike in that there is a presence of those directly involved with Nike as well as others indirectly involved who bring outsideexperience, provide another frame of reference and can assist the overall board in thinking"outside the box." Nike’s board would be classified as an oversight board, playing an activerole with regards to management’s decisions in the area of strategy formulation.

Board of Directors - Weakness

The average age of Nike’s board is 62, the youngest member being 49 and oldest being 79.

This constitutes a possible weakness in that there is a lack of younger members of theboard who could serve to bring a new perspective to the company and assist in achievingNike’s goals.

Exhibit 3 Nike, Inc. 1999 Board of Directors*

Thomas E. Clarke



President and Chief Operating Officer, Nike, Inc., Beaverton, OR

Jill K. Conway Visiting Scholar, Massachusetts Institute of Technology, Boston, MA

Ralph D. DeNunzio President, Harbor Point Associates, Inc., New York City, NY

Richard K. Donahue Vice Chairman of the Board, Lowell, Massachusetts Delbert J. Hayes,Newberg, OR

Douglas G. Houser Assistant Secretary, Nike, Inc., Partner – Bullivant, Houser, Bailey,

Pendergrass & Hoffman Attorneys, Portland, OR

John E. Jaqua Secretary, Nike, Inc., Partner – Jaqua & Wheatley, P.C. Attorneys,Eugene, OR

Philip H. Knight Chairman of the Board and Chief Executive Officer, Nike, Inc.,Beaverton, OR

Charles W. Robinson President, Robinson & Associates, Santa Fe, NM



A. Michael Spence Dean, Graduate School of Business, Stanford University, Palo Alto,CA

John R. Thompson, Jr. Former Head Coach, Georgetown University, Washington, D.C.

William J. Bowerman Director Emeritus

* Nike, Inc. 1999 Annual Report

Top Management - Strength

Co-founder, Philip H. Knight, has been with Nike since its inception. As a result, he hasmuch knowledge and experience about the company and the industries in which it

competes. Knight’s strategic planning managerial style serves as a strength in that his actions are planned and calculated, allowing for both risky and conservative decisionsbased on careful thought and analysis. His participative decision-making style can also beviewed as a strength such that Knight is willing to listen to others to generate ideas. Hedoes not limit the company’s options to one-sided ideas and decisions.

Environmental Analysis

Internal – Strength

Nike’s management analyzes its internal environment and makes decisions based on thatanalysis. Because of Nike’s marketing research, the company has decided to revamp itsapparel division to be more fashion savvy. As a result of product and pricing research, Nikehas decided to continue to focus on the high end market while increasing its market share inthe middle and low price ranges in an attempt to broaden Nike’s product spectrum.

External - Weakness

Nike’s failure to foresee problems in relation to labor and factory conditions at productionlocations has resulted in bad publicity and declining sales as society and consumers call for

more "socially responsible" companies.



Strategy Formulation

Mission - Weakness

Nike's Corporate Mission Statement:

"To be the world's leading sports and fitness company."

Nike’s mission statement resembles a vision statement and is therefore a weakness. Whilethe mission does broadly identify the business we are in, namely the sports and fitnessindustry, it is not specific as to what products and services we provide. The missionstatement also omits any mention of distribution channels and customers. It does, however,portray management’s beliefs and values of our desire to be number one and maintain theleading position in the sports and fitness shoe and apparel industry.

Corporate Objectives – Weakness

Nike has no published corporate objectives in relation to the overall company. This lack of corporate objectives represents a weakness. Stakeholders should be well aware andinformed of a company’s corporate objectives to better understand the nature of thecompany and its direction.

Nike has established corporate objectives in relation to our perceived corporateresponsibility. Our objective is to "lead in corporate citizenship through programs that reflect

caring for the world family of Nike, our teammates, our consumers, and those who provideservices to Nike." This corporate objective represents a weakness as it does not meet thetwo requirements of being measurable and having a time frame in which to complete or accomplish said objective. Nike’s objective is immeasurable and broad lacking any timespecifications for implementation of programs to meet this objective.

Grand Strategies - Strength

For our grand strategy, Nike utilizes innovation to produce top quality athletic footwear andapparel. As a result of devoting vast resources to the research and development of its

products, Nike has captured the largest market share in the athletic footwear and apparelindustry and continues to be the leader of quality products.

Competitive Strategies - Strength

The competitive strategy that Nike introduced at the end of the 1990's concentrates onhoning the focus of our marketing strategies and product offerings through productdifferentiation. We realize that the team-mentality that captured the spirit of athletics in thelate 1980's and early 1990's has been replaced by a sense of individualism. Younger consumers especially, look to extreme sports and retail outlets such as Ambercrombie &

Fitch and Old Navy to find a sense of individual style. We are responding to this movementin a number of ways. While retaining our company's long-standing tradition of placing



performance through new-product development as a top priority, a never-before seenelement of fashion will receive a second-place priority built into our products and image. For the 1999 back-to-school season, we conducted fashion shows in twelve U.S. cities. Inaddition, an element of individualism is most obvious in our Web site. Customers can select

the color and design a monogrammed heel-insignia for our made-to-order athletic shoes.Strategy Implementation

Corporate Culture - Strength

Nike has created a corporate culture rich with employee loyalty and team spirit. Red"Swooshes" float across everything from screen savers to coffee cups at the company'sheadquarters in Beaverton, Oregon. The company chooses to call its headquarters a"campus" instead of an office. Employees are called "players," supervisors are "coaches"

and meetings are "huddles." These terms go a long way to make the daily work experienceless than dull for the lucky employees in Beaverton.

In 1985, thirteen years after the company was founded, Nike was blindsided when Reebokdeveloped its multicolored aerobic shoes. It was then that we decided to reinvent our business and culture, becoming highly motivated about selling sports and a "Nike way-of-life." With this decision the company also restructured its marketing campaign, focusingmore on an image rather than just product advertising, a strategy which led to the "Just DoIt" mantra.

Since then, Nike has been striving towards an inner culture that reflects this mantra.Employees are given an hour and a half for lunch to play sports or simply workout. The newNike is not just about shoes and slam-dunks, but about promoting a lifestyle. All newemployees view a video of sports highlights accompanied by a soundtrack that discussesthe soul of the athlete and the competitive spirit. In addition, management sends weeklyemails to update employees on the recent successes of Nike-sponsored athletes, and oftenhosts spokespeople to motivate and thank its staff for contributions to the sports world. It isnot surprising that an athletic background helps a prospective employee. In keeping with itssports approach Nike asks its players to work by two principals above all others -- "Honestyfirst, and competition second. Compete with yourself not your colleagues."

Nelson Ferris, a 47 year-old head of its corporate education department states that, "TheSwoosh represents something other than just a company. It represents a whole valuesystem."2 Ferris, a longtime employee, even has a Swoosh tattooed above his ankle. "Itstops being a job and starts to become a way that your are defining the way your are livingon earth."2

Communication - Strength

In late spring of 1999, Nike Retail, Nike's subsidiary consisting of the Nike Town shops andemployee stores around the world, upgraded their hardware and software. Our former



technology offerings consisted of IBM 4690-series point-of-sale cash registers running onthe OS/2 operating system. We have upgraded to PC-based systems running the moresophisticated Windows NT operating system. The software we have been using for the pastfew years called, Connect: Remote, made by Sterling Commerce Inc., is also being

upgraded to the new operating platform. Corporate office communications capabilities withthese branch locations will be improved dramatically. Sales and inventory data can bemonitored in real-time. Electronic journaling, credit authorization, and sales reconciliationprocessing-efficiency will increase due to the addition of in-store databases. Modemstransmitting data at 56K BPS, or even with digital technology, will replace the 9600 BPSmodems and provide for quicker processing times. All of these innovations will allowexecutives at the corporate office and in other branches to better manage operations.

Leadership - Strength

Nike’s top management’s leadership style can be characterized by the team managementapproach. Top management consists of a committed group of executives all bringingtogether vast experience and knowledge. The group is team oriented, but is capable anddoes work independently recognizing the common stake that each places in Nike. This styleof leadership leads to relationships of trust and respect. The company culture lends a handto the fact that top management’s teamwork style has spread throughout the organization.

Motivation - Weakness

While Nike employees have been loyal and committed workers, after the cost-reductions

that took place in the fourth quarter of 1998 resulting in a reduction of the number of employees, we have had to place greater emphasis on motivation among the retainedemployees. Morale also fell as a result of bad media coverage over reports of substandardworking conditions for our Asian factory workers. While initiatives have been set to increaseoverall employee morale, this area remains a challenge to the company.

Strategy Control

Establishment of Standards - Strength

A comprehensive establishment of profitability standards has assisted Nike in our evaluationof individual performance as well as a comparison to other competitors. Nike utilizesstandards such as net profit, earnings per share, return on investment, return on equity,sales growth and asset growth. Performance standards are also established and checkedregularly. Some of the areas in which our company has established standards areproductivity of productions sites, competitive position in the United States relative to theglobal market, technological leadership in comparison to competitors and overall socialresponsibility and the public’s perception.

Evaluation of Performance - Strength



Nike thoroughly examines and compares the aforementioned performance standards to theactual results that have occurred as a result of implementing strategies to meet or exceedperformance standards. These standards are important to Nike as a comparison of pastperformance to present performance as well as in our attempt to forecast future results in

these areas.Correction of Deviation - Strength

Though Nike has established profitability and performance standards, correction of discovered deviations has been a slower and less timely process. Management’s slowresponse time can be attributed to the careful analysis that is performed prior to making anydecisions. While in general this is a good policy to abide by, at times Nike would be better served by a management team that can react more quickly to given information.

Strengths and Weaknesses of the Functional Level

Marketing

Market Share - Strength

Nike’s global market share was an impressive 30.4% in 1998. Despite a slight decline fromprior years, Nike continues to have the greatest market share in the U.S. branded athleticfootwear market. In 1998, the closest competitor, Adidas, held 15.5% of the market sharewhile Reebok held 11.2%. The remaining competitors, including Fila, Timberland, Asics,

Converse, and New Balance, among others, each hold approximately 3-5% of theremaining market share. While Nike’s market share is still in the lead, it is expected toincrease with new products. Nike’s market share is expected to do especially well as aresult of sponsoring the summer Olympics in 2000 in Sydney, Australia, the 2002 WorldCup in Japan and Korea, and the U.S. Speedskating team in the 2002 Winter Olympics inSalt Lake City, Utah.

Distribution through E-commerce - Strength

Nike has taken the lead in e-commerce by being the first to market with its e-commerce

web-site. Nike launched its e-commerce site in April 1999 by offering 65 styles of shoes tothe U.S. market for purchase. Nike increased its e-commerce presence by launchingNIKEiD in November 1999. NIKEiD enables online consumers to design key elements of theshoes they purchase. The program represents the first time a company has offered masscustomization of footwear. Nike’s future plans include opening an online shop for theJapanese market next year followed by global rollout. By being the first to market, Nikeenables itself to become established while competitors rush to join us.

Advertising and Promotion - Strength

Nike’s brand images, including the Nike name and the trademark Swoosh, are consideredto represent one of the most recognizable brands in the world. This brand power translates



into bottom-line revenues. The Nike name and associated trademarks have appearedeverywhere from players' shirts, pants, and hats to stadium banners and walls. Aggressiveadvertising campaigns, celebrity endorsements, and quality products enhance the brand.Nike demonstrated an example of Nike’s brand presence at the 1999 NCAA Basketball

tournament when 42 of the 64 teams participating wore shoes provided. Nike's most recentbrand-building endeavors are focused on strengthening our association with women’ssports. Some examples are our sponsorship of the 1999 Women's World Cup Soccer Tournament and our sponsorship of the U.S. Speedskating team in the upcoming 2002Winter Olympics.

Products - Strength

Though Nike leads the apparel division among industry competitors, Nike has not claimed tobe leading the race among the apparel industry as a whole. Due to increased emphasis by

consumers on fashion in relation to sportswear, we have had to make strides to appeal to afashion savvy market. Our apparel line is not only being challenged by our typical industrycompetitors such as Adidas and Reebok, but also by clothing and accessories retailers suchas Old Navy and Abercrombie & Fitch. Continuous marketing research could prove to bekey in assessing the market. Nike is planning on initiating five structures within the appareldivision to focus on the following areas:

o Womeno Meno Kidso sports graphics and capso strategic response independently

We are also spending more time on continuing to support and develop programs to gain abetter understanding what our customers would like to see in the market.

Products - Weakness

Nike has had much success as a result of collaborating with other companies within thesports and fitness industry. However, at times we expanded into markets for which we were

not strategically suited. An example is the decrease in brands made available due todeclining sales of in-line skating and roller hockey products at Bauer Nike Hockey. As aresult, we have had to exit two manufacturing operations at our Bauer Nike subsidiary. Wehad to terminate 51 employees. Had we anticipated the decline sooner, perhaps gradualchanges could have been made so that the end result may not have been as finite in nature.The desire to prevent situations such as these from continuing to occur, we have initiated amore aggressive program to review product collaborations that are outside of our core basisof products.

Pricing - Weakness



In general, Nike’s products are considered to be of higher quality and as a result havehigher prices relative to our competitors. While the prices are realistic given the nature of the products we offer to our consumers, at times our consumers may not agree. Thispresents a weakness. To mitigate any future problems in our high quality/high price lines,

we are placing a renewed emphasis on emerging technology and innovation towards thedevelopment of new products, specifically the Nike Alpha Project, a revolutionary new lineof athletic shoes. Despite the fact that in the past we may have overlooked the mid- tolower-price-point products, presenting another weakness with room for improvement, weare dedicating our time and money to better develop our competitive position at all pricepoints to build strengths at each of these levels. We see much potential in the lower pricepoints and plan to meet the needs of those markets.

Marketing Research - Strength

Nike primarily conducts marketing research on a continual basis to assist in maintaining our company’s position as the leader in the athletic footwear and apparel industry. Because of such research, we have decided to revamp our apparel division, an area in which we canstill greatly improve. Nike will be organizing the internal business by gender as opposed tosport category and conducting increasing amounts of research addressing the buying habitsof men, who tend to be item-driven, and women, who tend to be collection-driven, withspecifically targeted product lines.

Production

Location of Facilities - Strength

Nike’s facilities are located throughout Asia and South America. The locations aregeographically dispersed which works well in our mission to be a truly global company. Theproduction facilities are located close to raw materials and cheap labor sources. They havebeen strategically placed in their locations for just this purpose. In general, the facilities arelocated further from most customers, resulting in higher distribution costs. However, the costsavings due to the placement of our production facilities allows for cheaper production of our products despite the higher costs of transporting our products. As Nike continues toexpand in the global economy and increase its market throughout the world, these

dispersed facilities will prove to be beneficial.

Newness of Facilities - Weakness

Our facilities abroad have attracted bad publicity in recent years. Though our facilitiescomply with local labor standards, generally, they have not met U.S. standards. We want tobe a leader and set a responsible corporate example for other businesses to follow. As partof Nike’s new labor initiative, we commit to:



o Expanding our current independent monitoring programs to include non-governmental organizations, foundations and educational institutions. Wewant to make summaries of their findings public;

o Adopting U.S. Occupational Safety and Health Administration (OSHA) indoor

air quality standards for all footwear factories;o Funding university research and open forums to explore issues related to

global manufacturing and responsible business practices such asindependent monitoring and air quality standards.

While establishing these policies is a step in the right direction for Nike, the difficult task athand will be the implementation of the aforementioned goals to ensure the success of theprogram.

Research and Development

Focus - Strength

Although Nike conducts continuous, basic research that benefits numerous facets of thesports and fitness industry, our primary focus is directed towards applied research. Appliedresearch focuses on short-term initiatives such as successfully developing new productlines. This proves to be a strength in that this method of research is less costly than basicresearch, and less risky due to the short-term nature. Successful projects can realizeimmediate profitability while unsuccessful projects may be discontinued without enduringmaterially large losses.

Focus – Weakness

Focusing on applied research can be a weakness as well. Many new, innovative ideascome into existence as a result of basic, unspecific research. Though more risky andexpensive, Nike would benefit from increasing the amount of basic research we conductwith hopes of uncovering potential opportunities of which Nike could take advantage.

Posture - Strength

Our posture is primarily innovative, while at times adjusting to a protective position, andother times a catch-up stance. Nike prides itself on being a premiere provider of high qualitysports footwear and apparel. Innovation has been the key to aiding Nike in securing itsposition as the leader in the market. Due to the lead Nike possesses in the industry, we canafford to look long-term and place a greater emphasis on innovation as opposed to other companies with a short-term outlook attempting to improve upon existing products andservices. At times, we need to adjust our posture in relation to a particular product line or area of products. In these instances, Nike may choose a defensive strategy to remedy thecurrent situation. We may also choose a catch-up strategy and mimic what is working wellfor other companies in the industry.



Human Resources

Human Capital - Weakness

No successful company can exist and succeed without utilizing its human capital. WhileNike has had various policies in place, weaknesses still exist in regards to labor policies inoverseas locations. We received much bad publicity as well as experienced a decrease insales as a result of poor labor policies and lack of policies established abroad. Because of this and Nike’s goal to be a responsible citizen of the corporate world, Nike has committedto goals to better the problems as part of the aforementioned labor initiative:

o Increasing the minimum age of footwear factory workers to 18, and minimumage for all other light-manufacturing workers (apparel, accessories,equipment) to 16;

o Expanding education programs, including junior and high school equivalencycourses, for workers in all Nike footwear factories;

o Increasing support of its current micro-enterprise loan program to 1,000families each in Vietnam, Indonesia, Pakistan, and Thailand.

While establishing these policies is a step in the right direction for Nike, the difficult task athand will be the implementation of the aforementioned goals of the new labor initiative toensure the success of the program.

Public Affairs

Ethics – Weakness

Accusations of unethical behavior, whether or not they are true, only serve to injure Nike’simage, and, as a result, product sales. One such example of questionable behavior relatesto Vietnam and the trade embargo placed on the communist country as a result of UnitedStates POWs/MIAs. In 1993, United States President, Bill Clinton, promised to keep theembargo in place until the U.S. received an accurate picture of the situation. However, twoyears later President Clinton normalized trade relations to the dismay of the POW/MIAfamilies involved, yet to the delight of the corporations operating in Vietnam. White House

documents have revealed large donations to the Democratic National Committee bycompanies with an interest in seeing the embargo lifted. The author of the article, "Nike’sDirty Little Secret," alludes to the fact that Nike was present on this list. The image of profitability being more important than American POW/MIAs has led to an unfavorableimage with armed forces, families and Americans as a whole. This, combined with the"sweatshop" operations in Nike facilities in Vietnam and other countries, has negativelyimpacted Nike’s image. While the worst is over, Nike is still working on initiatives to changethe current situations throughout factories. Whether true or not, the company still suffersfrom this unethical image and must sway the minds of the consumer and give them arenewed faith in the responsibility of Nike.



Social Responsibility - Strength

In response to accusations by consumer groups over unfair labor practices, Nike hasdeveloped a Corporate Responsibility Policy that discusses how we will improve workingconditions for our international employees. The Policy outlined on our web-site has thefollowing mission, "To lead in corporate citizenship through operations that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services toNike." The policy includes, but is not limited to, the following initiatives: raising age limits infactories to 18 years, securing independent monitoring for our factories, extending acommitment to the environment, improving safety and health conditions, and developingprograms to provide educational programs. The policy shows Nike’s commitment toresponding to the concerns of consumers, as well as a commitment to our employeesaround the world.

Finance/Accounting

(For the following, see Exhibit 4, Table of Key Financial Ratios on page 22)

Management of Cash - Weakness

Our company’s current ratio is 2.26, just slightly below the industry average of 2.28. Thecurrent ratio, while not a major strength, shows that Nike is inline with the industryconcerning ease of converting assets to cash to cover short-term obligations. The quickratio of 1.43 is above the industry average of 1.17. Being slightly above the industry

indicates that we could sell less of our inventory than what other companies in the industrywould have to sell to meet current obligations. Neither the current or quick ratio exceeds theindustry average substantially enough to be considered a true strength. The fact that we arenot leaders is ultimately a weakness.

Management of Inventories - Strength

Nike’s inventory turnover of 7.32 exceeds the industry average of 4.34. Reducing inventorylevels was a key initiative for Nike in fiscal year 1999. Due to our ability to quickly turnover inventory, Nike benefits from greater cash flows, reduced storage costs, and less spoilage.

In addition, quick turnover reduces Nike’s inventory of out-of-style shoes and clothing.Company management stated, "We put a considerable amount of effort into improvingproduct buying power patterns and as a result the composition and levels of inventoryresulted in improved gross margins relative to a year ago." Inventory levels are beingreduced due to increased sales in the company's own branch retail stores.

Management of Accounts Receivable - Weakness

Nike does permit sales in cash, cash equivalents and on credit. Our collection procedureshave been lax compared to others in the industry resulting in slow payers and defaulting



customers. Our collection period calculates to 63.17 days while the industry average is only7.71 days. Steps are being taken to alleviate the problem of collecting accounts receivablein a more timely fashion. We have just recently changed our collection period from 90 daysto 60 days as an attempt to encourage faster payment.

Management of Debt - Strength

Our debt-to-total-assets ratio is 15.36%, which is far below the industry average of 40.69%.Nike is not as leveraged as competitors in the industry and uses less debt financing tofinance firm operations. This can be interpreted as a strength as we do not rely as heavilyas our competitors on debt financing. However, our highly liquid position gives us the abilityto increase debt financing should we need or desire additional capital for companyoperations, research and development, or other changes as top management sees fit.

Management of Debt - Weakness

Despite the lower percentage of assets that are borrowed to finance Nike, our times interestearned ratio is weaker than the industry average. Our ratio of 19.43 reflects the number of times funds available from earnings can cover interest payments. The industry average of 21.88 indicates that the industry as a whole is in a slightly better position to cover its interestcharges.

Profitability - Weakness

Nike’s profitability is wavering in comparison to the industry average. Our profit margin of 5.14% to the industry’s 5.69% is partially due to decreasing sales. Though net income didincrease from 1998 to 1999, this was in part due to a reduction of our marketing budget by$100 million and terminating 7% of our employees. Our return on equity of 13.54% inrelation to the industry mean of 18.77 indicates that Nike is realizing a lower percentage of earnings on stockholders’ investment. Nike’s low ROE can be linked to the dropping stockprice as a reflection of stockholder confidence in our company.

Exhibit 4 Table of Key Financial Ratios

RATIO: Formula: Calculation :

(in millions)

NIKE: Industry :

Liquidity Current Currentassets/currentliabilities

3264.9

1446.9 =2.26 times =2.28 times



Quick/acidtest

Current assets-Inv./currentliabilities

3264.9-1199.3

1446.9 =1.43 times =1.17 times

Activity Inventoryturnover

Sales/inventory 8776.9

1199.3 =7.32 times =4.34 times

Collectionperiod

AccountsRec./Averagesales per day

1540.1

8776.9/360 =63.17 days =7.71 days

Total assets

turnover

Sales/total

assets

8776.9

5247.7 =1.67 times =1.69 times

Leverage Debt to totalassets

Total debt/totalassets

806.2

5247.7 =15.36% =40.69%

Times interest

earned

Net operating

income/Interestexpense

856.8

44.1 =19.43 times =21.88 times

Profitability Profit margin Net income/netsales

451.4

8776.9 =5.14% = 5.69%

Return on

Equity

Net income/net

worth

451.4

3334.9 =13.54% =18.77 %

Distinctive Competency

Nike’s distinctive competency lies in the area of marketing, particularity in the area of consumer brand awareness and brand power. While the reasons that Nike is successful inmarketing our products are numerous, this key distinctive competency towers over our competitors. As a result, Nike’s market share is number -one in the athletic footwear industry. Catch phrases like, "Just Do It," and symbols like the Nike "Swoosh," couple withsports icons to serve as instant reminders of the Nike empire.



Two key attributes of a distinctive competency are its inability to be easily replicated and thevalue or benefit it offers to consumers. As Nike becomes a more integrated part of Americanand world culture, our brand power becomes increasingly difficult to replicate. The premiseof a trademark and a slogan is that they are a company’s fingerprints. Nike is able to

capitalize on its unique identity due to our industry-leading financial strength. Nike reachesmillions of consumers through large-scale marketing campaigns made possible bysignificant budgetary appropriations. Few companies have such a recognizable image andthe resources to promote it. This ultimately translates into added value for consumers. Thepublic benefits from the strength of Nike’s image at the point of purchase. For decades,consumers have come to associate the Nike image with quality products. By associatingstar athletes and motivational slogans like, "Just Do It," with marketing campaigns thatemphasize fitness, competition, and sportsmanship, consumers identify their purchases withthe prospect of achieving greatness. Younger consumers especially benefit from thispositive influence. This image is something that competing companies can not easily

duplicate by simply enhancing the physical characteristics of their products.

Key Weakness

The key weakness of Nike, Inc. resides in our financial status. While we are not in financialtrouble, we recognize that strengthening the financial well being of the company can onlyassist our company in the short- and long-run. We have many areas challenging our continued success such as increasing our profitability and bettering our management of cash, accounts receivable, and debt. Nike suffered a blow to sales and revenue sparked bybad publicity in 1997 about our international labor policies. Since then, we have attempted

to overcome the bad press by raising and enforcing minimum age requirements for employees in overseas factories. Nike attempted to regain its mid-90's momentum asshown in 1998’s recovery, but the loss of Michael Jordan as our spokesman and the Asianfinancial crisis put a damper on gains that year. During 1999, the company made somechanges in its products and deeply cut costs. These initiatives, in addition to the stabilizationin the Asian financial picture, will combine to fuel the recovery that Nike expects in the near future. Nike's recent alliance with Fogdog Sports, an Internet sporting goods retailer, andour presence in the 2000 Sydney Olympic games will also aid in sales growth.

Exhibit 5



* Nike, Inc. 1999 Nike Annual Report

As a result of reducing our marketing budget by $100 million and eliminating 7% of our employees, Nike’s net income has increased for fiscal year 1999. In fiscal year 1998, thecompany incurred a one-time restructuring charge to better align our overall cost structureand planned revenue levels.

Overall, Nike is recovering from a large decline in 1997’s numbers. As noted above, thelabor controversy has been the biggest factor in the changes shown.

Competitors can exploit our financial weakness by emphasizing their own individualstrengths and attempting to gain greater shares in the market while we are revampingprocesses from within. This could be a key time during which other companies in soundfinancial condition, such as Adidas, could utilize their resources in an attempt to

overshadow our existing and new product lines.

INDUSTRY ANALYSIS

Opportunities

The athletic footwear and apparel industries will benefit from the currently strongeconomic backdrop in the United States. Spending is high and is expected to result

in sales growth industry-wide. Athletic shoes and apparel have become a staple in wardrobes worldwide. This is

due to both the increasing numbers of people exercising and the trend towardscasual apparel.

Competition is fierce at all levels in within the industry, especially among the leaders.This creates a sense of security for the companies that have been able to create aniche.

Cost cutting due to restructuring of operations will give many companies the chanceto price products more competitively.



One area in the industry that is ever changing is research and development. Thestrong departments will surely capitalize on the trends of tomorrow if their efforts aresuccessful.

Increasing financial recovery in overseas markets proves to be an area of expansion

for the athletic footwear and apparel industry. E-tailing, or customer-designed internet merchandise, is threatening the traditional

distribution channels, thus eliminating the "middle-man" distributors and allowing for increasing profitability.

Threats

The industry has reached a level of maturity. While style and technology in athleticapparel and footwear has reached a leveling-off point, the important aspect now is

for companies to differentiate their lines. Inflation is looming over the U.S. economy, which may spark a cutback in consumer

spending. Consumers are becoming savvier and may lean towards discounted items.

In terms of market saturation, many of the key manufacturers in this industry havebeen around for many years. Consumers may be scanning the market for new anddifferent footwear and apparel products.

TOP COMPETITOR ANALYSIS

Distinctive Competency - Marketing (Consumer Loyalty)

Despite the tough times Reebok has recently come upon, reasons for optimism remain.Reebok has managed to hold the loyalty of a large portion of the industry’s femaleconsumers market. While Reebok’s spending on advertising has fluctuated, individualproduct designs have come and gone, female consumers have, as a group, remained loyalto Reebok and their products.

Can Reebok use this distinctive competency to inflict damage on Nike?

Yes, Reebok can use their distinctive competency to wound our company. If Reebok canexpand their appeal to incorporate female consumers who are not currently Reebokcustomers, Reebok could expand their market share and take customers away from Nikeproducts.

Can Nike protect itself against this threat?

Yes, we can protect our market share among female consumers within the industry bytargeting some of our promotions to female consumers. Nike’s sponsorship of the 1999



Women’s World Cup Soccer Tournament was a great example of how Nike is appealing tofemale athletes.

Competitor’s Key Weakness – Marketing – (Advertising/Promotion)

The leading cause of Reebok’s recent tumbles stemmed from problems relating to poor marketing. Reebok’s shortcoming in the area of marketing is their key weakness. Whileother athletic shoe companies bombard the airwaves with commercials pushing their product lines, Reebok remains out of sight and out of mind. While Reebok’s competitors areknown by familiar slogans like Nike's "Just Do It," Reebok’s, "Are You Feeling It," does notequate to their brand name in the eyes of most consumers.

C an Reebok’s key weakness damage their competitive position?

Yes, Reebok’s chances of growing their market share are slim as long as their advertisingendeavors remain to be so unsuccessful. For Reebok to rebound from their current

economic woes, they will have to improve the quality of their overall marketing operations.

Can Nike take advantage of our competitor’s key weakness?

Yes, Nike can take advantage of Reebok’s marketing woes by doing one of the things wedo best: marketing. Continuing our successful marketing programs should allow Nike tocourt the customers Reebok fails to draw in with their weak marketing initiatives.

OTHER EXTERNAL FORCES

Demographics

Opportunity

Nike's once loyal market is currently aging. This means that our customers are not asathletic as they may have been in the past. However, this poses as an opportunity for Nikebecause they have the ability to influence the next generation of Nike customers. The older generation of Nike brand purchasers have the power to influence their children - part of the

next generation of Nike loyalists. In addition, by marketing different types of shoes to thismarket, these existing customers will continue to be loyal to Nike.



Threat

The phenomenon of the aging of our most loyal market segment questions whether there isa threat that the new generation will not be exclusively loyal to Nike. In the current marketthere are a number of other competitors that are not mainly athletically oriented. Examplesinclude such manufacturer-retailers as The Gap and Old Navy. Their clothing and shoes arecompeting with Nike's. In addition, Nike is not keeping up with the latest trends and styleslike some of its competitors have been. For that reason, the newer generation is attractedby Adidas and Tommy Hilfiger.

Pressure groups

Opportunity

An opportunity produced by pressure groups is the ability to react in a positive manner toconcerns of the public as well as customers. Consumer watch groups are paying especiallyclose attention to Nike's use of sweatshops and child labor to produce our products. Nike'sopportunity lies in being able to show the consumer force that we are indeed taking steps toreduce and eventually eliminate sweatshops and child labor through new policies and strictimplementation procedures. Also, by responding to such consumer activism, we areportraying a positive image in that we are promoting ethics even while we are trying to beefficient and economical.

Threat

In the same manner, not responding to these consumer activist groups poses a threat toNike. The negative publicity that Nike has received thus far has lowered its image to that of being an ethical company. Such publicity has the potential to ruin a company permanently.By disregarding the voice of concerned citizens, we are disregarding our customers, one of our most important stakeholders.

KEY OPPORTUNITY

The key opportunity for Nike, Inc. currently is the booming economy of the United States.Currently the company has the ability and the resources to exploit this opportunity. Nike hascapitalized on the recent economic boom with higher sales and income. However, we arenot using our resources to the fullest degree. There are currently many areas in which Nikeis not paying attention. We have not catered to a large portion of the new generation thatdemand the latest trends and styles. Also, Nike must take into account the changingdemographics in this country. There is a much higher proportion of Hispanics, Asians, and African Americans than there was before. These groups have somewhat different tastesthat Nike should be able to satisfy.



To exploit this opportunity, Nike needs to focus on who the next generation of loyalcustomers will be and cater to their needs. In addition, the world economy is recoveringcurrently, which allows Nike to make an impression in foreign markets as well. Nike isstrong in many foreign countries, but we need to focus on the younger market of

consumers. Nike has been doing a great deal of research and development, but if we wantto keep the lead in market share, we must look at trends while maintaining our highstandards of quality.

KEY THREAT

The key threat for Nike, Inc. is market saturation. The problem is that the athletic shoemarket is already full of different brands and companies. Now, there is very little room for

new companies. There is also very little room for new product innovation and growth of market share for companies like Nike, Inc. Since Nike is currently holding the lead in themarket as far as market share, there is little room for them to expand. In fact, we must holdonto our market share because if anything it is ours to lose. Nike, Inc. is now competing withother athletic companies as well as companies that just sell clothing or other types of shoes.If all of these other companies merely gain a small percentage of the market, Nike will beone of the main companies to start losing market share.

In response to this threat, we would focus on keeping our market share and making surethat competitors like Old Nay do not steal away our market share. We will do this by

focusing our efforts on a broader market. This would include the younger generation that isinterested in sports as well as extreme sports. We need to make sure that we not only stayabreast of the athletic shoes market but also are competitive in the athletic apparel market.

MAJOR AND SUBORDINATE PROBLEMS

Major Problem: Finance

Symptom: Declining stock market price

Causes:

1. Declines in net income of $344M from 1997 to 1999.2. Declines in sales revenues of $410M from 1997 to 199912.3. Recent declines in market share in the United States.4. Operating in a mature market with minimal opportunity for growth.

Subordinate Problem: Strategy Formulation, Competitive Strategies



Symptom: Loss in market share for shoes and apparel to non-traditional athletic companies(e.g. Old Navy).

Causes:

1. Poor management foresight in predicting consumer and fashion trends moving awayfrom athletic shoes.

2. Cyclicality in footwear and apparel industries.3. Nike’s product offerings are limited to athletic f ootwear and apparel.

Subordinate Problem: Marketing

Symptom: Drop in sales revenues in 1999 from 1998.

Causes:

1. An over reliance on Michael Jordan as a central marketing figure, his departurecaused a decline in sales.

2. Recent marketing campaigns are vague, focusing on relating Nike to a non-relateditem. Poor reception of these ads by consumers.

Subordinate Problem: Public Affairs

Symptom: Public outrage over manufacturing and labor practices.

Causes:

1. Underage employment in foreign operations discovered by consumer watch groups.2. Poor work environments in foreign operations reported in the national media.3. Foreign wages paid are considered unjust when compared to U.S. wages.

Why Finance?

We choose finance as our major problem because continuing success for Nike is based onour ability to generate future cash flows by producing higher revenues and net income.Future positive cash flows are required to invest in research & development, marketingcampaigns, and capital improvements required by our production activities. This choice isalso consistent with finance being identified as our company’s key weakness (see page 23). Additionally, financial performance effects the public perception of Nike in the marketplace.For these reasons, we chose finance as our major problem.

STRATEGIC MATCH



Leverage

Strength: Opportunity:

Ý Effective Marketing Ý Recovering International Economies

Constraint

Weakness: Opportunity:

Ý Declining Profitability Ý Robust Economy

Maintenance

Strength: Threat:

Ý Largest Market Share Ý Market Saturation

Vulnerability

Weakness: Threat:

Ý Poor Competitive Strategy Ý Changing Demographics

PRIMARY STRATEGIC MATCH POSITION

Business Strength/Competitive Position Matrix

Exhibit 6 Against Adidas Against Reebok

Success Factors Weight Rating** Score Rating** Score

1. Market Share .07 5 .35 4 .28

Breadth of Product Line .10 5 .50 3 .30

Sales DistributionEffectiveness

.06 4 .24 3 .18

Price Competitiveness .10 3 .30 2 .20

Advertising Effectiveness .14 5 .70 3 .42

Facilities location and X* X X X X



newness

Production Capacity .04 5 .20 4 .16

Relative Product Quality .10 4 .40 3 .30

R & D position .18 4 .72 3 .54

Caliber of top management .03 5 .15 4 .12

Customer Service X* X X X X

Experience Curve .05 5 .25 4 .20

Corporate Culture .05 5 .25 3 .15

Profitability Ratios .08 5 .40 4 .32

TOTAL 1.00 4.46 3.17

* X means that the criterion is not applicable

** 1 means that the firm’s competitive position is very weak

5 means that the firm’s competitive position is very strong

Exhibit 7 Industry Attractiveness Matrix

Evaluation Criteria Weight Ranking Weighted Score

1. Industry Growth .08 2 .16

Size .06 4 .24

Profitability .06 2 .12

Cyclicality .03 3 .09

Seasonality .03 3 .09

Entry/exit barriers .01 2 .02

Customers .05 4 .20

Competitors .08

2

.16



Suppliers .06 3 .18

GovernmentRegulations

.02 2 .04

Labor unions .02 4 .08

Demographics .12 3 .36

Culture .10 2 .20

Economy .12 5 .60

Politics .02 4 .08

Technology .10 3 .30

Pressure groups .04 2 .08

TOTAL

1.00 3.00

* X means that the evaluation criterion does not apply to the particular industry

** 1 means that the evaluation criterion (or the industry condition) is very unattractive

5 means that the evaluation criterion is very attractive

Primary Strategic Match Position

Average Business Strength/Competitive Position Index = 3.82

Industry Attractiveness Index = 3.00

Exhibit 8

Business Strength/Competitive Position

High Average

Low



IndustryAttractiveness

High

Leverage Constraint

Average

Low

Maintenance

Vulnerability



THE STRATEGIC PLAN

Mission Statement

Our mission at Nike is to be a company that surpasses all others in the athletic industry. Wewill maintain our position by providing quality footwear, apparel and equipment to institutionsand individual consumers of all ages and lifestyles. We pledge to make our products easyavailable worldwide through the use of retail outlets, mail order and our company web site.Nike’s management believes that our success lies in the hands of our teammates,customers, shareholders and the communities in which we operate. We vow to keep this inmind with the execution of every decision within our company.

Values Statement

Nike will focus its commitment to all stakeholders by continuing to make strides towardsbeing a company that sets the precedents in social responsibility. Nike is continuouslymaking efforts to ensure that all employees and members of its surrounding communitiesare treated in a manner that is inline with our mission. Nike has made many alliances withhuman rights organizations in an attempt to ensure labor rights for employees of theindustry overseas. We are committed to treating our employees with the utmost respect,which is reflected in our compensation and human resource policies. We are alsocommitted to making sound decisions in regards to our environment, resources, and thefight against pollution.

Vision Statement

At Nike, our vision is to remain the leader in our industry. We will continue to produce thequality products that we have provided in the past. Most importantly, we will continue tomeet the ever-changing needs of our customers, through product innovation.

Alternative Strategic Slogan

Nike…as always, a step ahead of the rest!

Alternative Marketing Slogans

Nike, try to catch us. (Lisa)

Give yourself an edge. (Brian)

For the top athlete in all of us. (Kim)

Finish First. (Sheetal)

***THE WINNER…Second Place is for Losers (Dan)



Long-Term Corporate Objectives

The following are Nike Inc.'s 5-Year long-term corporate objectives:

o Continue our improvement in stockholders' return on equity to achieve a20.0% return in 2004. This would be an increase of almost 6.5% from 1999.

o Increase earnings per share to $2.70 per diluted share by 2004 in an overalleffort to bolster the long-term resilience of our stock's value. This wouldsurpass our 1997 record high.

Short-Term Corporate Objectives

The following are Nike Inc.'s short-term corporate objectives for fiscal year 2000:

o Increase net income to $550 million by the end of fiscal year 2000 in order toreach our long-term goals of improved return on equity and higher EPS. This22% increase from 1999 is realistic in light of combined 1st & 2nd Quarter income already 32% higher compared to the same time last year.

o Recover the market price of our stock from its 52-week low of $26.50 per share on February 8, 2000, to a value that approximates its 52-week averageof $50 per share.

Grand Strategy

Nike Inc. can utilize the complete structured approach to select a grand strategy in carryingout the above corporate objectives. The table below concludes that focusing on productdevelopment will allow Nike to continue to build upon our founding tenant that has securedus a position that borders on leverage and maintenance within the athletic footwear,apparel, and accessories markets. Because Nike has such a strong history of effectivemarketing in key global regions, concentration is an alternate strategy. Market developmentis a third strategy for consideration due to Nike's ability to geographically expand our product offerings. The three strategies are very closely linked. To determine which would

prevail as our overriding strategic position, four evaluation criteria were weighted accordingto each strategy: distinctive competency, culture, timing, and demographics. With a totalweighted score of 4.40 product development surpasses second place, concentration, andthird place, market development.

Exhibit 9 Evaluating Leverage/Maintenance Strategies -- Structured Approach

Evaluation Criteria Weight*

Concentration Product

Development Market Development

Rating** WeightedScore*** Rating**

WeightedScore*** Rating**

WeightedScore***



1. Distinctive Competency .35 4 1.40 5 1.75 3 1.05

2. Culture .25 4 1.00 5 1.25 4 1.00

3. Timing .20 4 .80 3 .60 4 .80

4. Demographics .20 4 .80 4 .80 3 .60

Total 1.00 4.00 4.40 3.45

* represents the value of the criteria to Nike

** effectiveness of strategic option in terms of its ability to satisfy the criteria: 1 = undesirable 5 = desirable

*** (weight) x (criteria)

The core of our business is our products. Producing merchandise that is high in quality,technologically advanced, and fashionable will allow us to achieve our corporate objectivesof profitability and shareholder value. Utilizing this strategy will also allow us to capitalize onour key opportunity. The global economy is becoming so strong that by improving our products in order to extend their life cycle we will be making a long-term investment in thisfinancial boom. Our products will be able to better withstand the risk of passing fads.Incorporating fashion into our products is one way to achieve this strategy. The twoalternate marketing strategies will be just as necessary in order to incorporate our productsinto the shopping habits of consumers.

Competitive Strategy

In the past, our company has utilized product differentiation as our competitive strategy. Asour reputation dictates, we will continue to place our emphasis in this area. Nike has built itsbusiness on providing products that rise above all others; it has made us the success thatwe are today.

Nike is known for its technologically advanced products. We are the leaders in this area,which allows our products to stand out from the rest. Our focus also allows us to maintain asomewhat narrow niche that enables us to effectively capture the needs and wants of our consumers.

Nike will also focus on making a strong effort in price leadership. Our products in the pasthave been concentrated in the higher end of the pricing category. We will now make anentrance into lower price categories with our quality products. This will enable us to capturean even greater hold on market share.

Operational (Functional) Strategies



Marketing Objectives

Long-Term: Increase our market share in the Asia Pacific region from 26% to 30% by 2004.

Short-Term: Increase our market share in the Asia Pacific region from 26% to 27% by fiscal year end

2000.

Exhibit 10 Short-Term Strategy

StartDate

CompletionDate* Budget Savings

Market Research

1. Hire a market research firm familiar with Asia, specifically the boomingmarket of Japan, to study the buyinghabits of Asian consumers.Determine what factors motivatetheir athletic footwear and apparelpurchases.

2. Conduct focus groups in Asia to getfeedback on our existing products,as well as our prototypes.

Pricing

1. Determine price points for our Asianproduct offerings that are properlyadjusted for regional buying power,competition, and currency valuation.

Advertising and Promotion

1. Sponsor regional sporting events for professional, amateur, and collegiateteams. Include sponsorship of the2002 World Cup in Korea andJapan.

2. Run advertisements in the mostpopular forms of regional media:television, newspaper, magazines,billboards, and/or radio.

3. Offer rebates and discounts for certain late-model shoes to

encourage sales and inventoryturnover.

3/1

3/1

3/1

3/1

5/1

5/1

4/1

5/31

5/31

$400,000

$80,000

$5,000,000



4. Conduct fashion shows at top retailvenues to display our latestmerchandise offerings to consumersand the media.

3/1

3/1

3/1

5/31

5/1

$10,000,000

$1,000,000

$100,000

Total 3 months $16,580,000

* completion date based on a 5/31 fiscal year end.

Production Objectives

Long-Term: Decrease our cost of sales from 62.59% of sales to 59% of sales by fiscal year end 2004.

Short-Term: Decrease our cost of sales from 62.59% to 62% in fiscal year 2000.


StartDate


Location, Newness, and Layout of Facilities

1. Hire independent industrialengineers and analysts to work withmanufacturing facilities in order tomaximize efficiency of operations:shop layout, processes, etc.

Inventory

1.

Reduce inventory at all levels of production: raw materials, work-in-process, and finished goods.

2. Work with 3rd party shipping agentsto manage the flow of orders fromfactories to distribution centers.

3. Work with suppliers to implement thenext generation of electronic datainterchange (EDI) technology in anattempt to achieve just-in-timeinventory.

3/1

3/1

3/1

3/1

5/1

5/31

5/31

5/31

$10,000,000 $30,000,000

$40,000,000

$1,000,000

$20,000,000



$10,000,000

Total 3 months $20,000,000 $91,000,000


Research & Development Objectives

Long-Term: Maintain a range of R&D expenditures that does not fluctuate more than 1.5% or less than

.75% of projected sales in the next 5 years.

Short-Term: Increase spending on R&D to 1.2% of projected revenues in fiscal year 2000 to achieve

increased market share.


StartDate


Focus

1. Shift funding to applied research in"up-and-coming" sports. Experimentwith cutting-edge fashion.

Budget

1. Infuse new funding, in addition toshifting current budgetaryallocations, for researching sportsthat could be popular in the future.

3/1

3/1

5/31

4/1

$15,000,000



Human Resource Objectives

Long-Term: Increase availability of educational assistance programs for world-wide manufacturing

employees from 50% of factories to 100% by 2004.



Short-Term: Increase availability of educational assistance programs for world-wide manufacturing

employees from 50% of factories to 70% by 2000.


StartDate


Recruitment and Selection

1. Hire factory workers who express aninterest in educational programs.These employees would achieve themaximum benefit from educationalassistance programs by being more

loyal and productive.

Training and Development

1. Offer general education classes for factory workers who want to learnhow to read, write, or fill any gaps intheir childhood education.

2. Conduct seminars and workshopsfor supervisors in factories so thatthey may improve their production

and management skills.

Compensation

1. Increase salaries of factory workerswho are promoted as a result of completing our educationalassistance programs.

3/1

3/1

3/1

5/31

5/31

5/31

$5,000,000

$3,000,000



3/1

5/31

$5,000,000



Finance Objectives

Long-Term: Increase net income 70% to $767 million by fiscal year end 2004.

Short-Term: Increase net income 22% to $550 million in fiscal year 2000.


StartDate


Management of Accounts Receivable

1. Implement stricter credit terms withretailers to minimize bad debtexpense.

2. Hire 10 additional employees in the

corporate Accounts ReceivableDepartment to maintain and collectaging accounts.

Management of Total Assets

1. Sell non-productive equipment or buildings to reduce depreciation andmaintenance expenses.

3/1

3/1

3/1

5/31

4/1

5/31

$400,000

$300,000

$20,000,000

$25,000,000

$50,000,000

Total 3 months $700,000 $95,000,000


CONCLUSION



Nike, Inc. is a company rooted in competition. From equipping athletes with the finest sportsequipment in the world to continuously improving our own financial performance, Nikedominates its competitors. Phil Knight and Bill Bowerman probably could not have imaginedin 1962 to what degree their $500 investments would yield in 2000. They did know that

product quality and innovation would help athletes to achieve greater goals. Nike stilloperates on this philosophy today. It is one that has helped athletes and stakeholders aliketo realize athletic and financial greatness. Despite a changing marketplace for athleticfootwear, we will continue to expand our product lines and marketing reach to become amore powerful global brand.

Nike Industry Attractiveness

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