On a cold and rainy winter morning in 2020, John Donahoe moves along on his pre-work run as Nike's new CEO. In 2015, former CEO Mark Parker laid out an ambitious plan to investors: Nike was going to grow from $30 billion in annual revenue to $50 billion by mid-2021. By end-2019, Nike's revenues stood at $40 billion. The $50 billion goal would require Nike to grow by 25%, which is a quite challenging goal. To achieve this goal, the new CEO needs to tackle both external and internal challenges.

Nike's History of Athlete Endorsement

Nike was founded by Phil Knight and his former coach Bill Bowerman. In its early days, Nike focused on running shoes and achieved a highly successful string of innovations including Nike Air. By 1979, the company had captured more than 50% market share for running shoes in the US. A year later, Nike went public. Nike then diversified into apparel and equipment, representing over a quarter (or $10 billion) of its business in 2019. These products include training apparel, outwear, jerseys, sporting equipment, and various other items

In 1984, Nike signed Michael Jordan - whom many considered the greatest basketball player of all time - with an unprecedented multimillion-dollar endorsement deal. Rather than spreading its marketing budget more widely, as was common in the sports industry at that time, Nike made the unorthodox move to spend basically its entire budget for a specific sport on a single star athlete. Nike's Air Jordan basketball shows are all-time classics that remain popular to this day. The Jordan Brand brought in some $3 billion in revenues in 2019.

In the 1990s and 2000s, Nike sponsored track and field stars such as Marion Jones as well as basketball stars such as Kobe Bryant. Eventually, it expanded its scope to include golf prodigy Tiger Woods, tennis champion Serena Williams, cycling celebrity lance Armstrong, soccer star Wayne Rooney, and football legend Michael Vick.

The company continues to make mega-deals with athletes like Lebron James, Kevin Durant, Megan Rapinoe, Naomi Osaka and Christiano Ronaldo, and Odell Beckham. For example, Nike's lifetime deal with Lebron James is estimated to be worth over $1 billion. However, the endorsement deals do not come easy, and Nike has showed that it cannot always compete. For example, Steph Curry was signed with Nike, but negotiations did not go well and Nike lost its endorsement deal to rival Under Armour in 2013.

Nike's Brands

Nike is one of the world's most recognized brands valued at $37 billion (in 2019) according to Forbes, and it is also the highest ranked apparel brand globally. Today, Nike is a collection of major brands. Going beyond the classic "swoosh", it also drives significant revenue from the Jordan Brand. Nike hopes to repeat the success of the Jordan brand with Lebron James, who also has his own brand with Nike. Nike also has wholly owned subsidiaries Hurley and Converse, which diversifies its pure athletic apparel to swim and fashion respectively.

Taken together, Nike has been tremendously successfully, holding close to a 60% market share in running shoes and nearly a 90% market share in basketball shoes and apparel. In the spring of 2019, Nike recorded $39 billion in revenue.

Sportswear is Nike's biggest segment in terms of revenue ($10 billion), followed by running ($5.2 billion), training ($3.1 billion), the Jordan brand ($3 billion), and soccer ($2.1 billion), among several other sources of revenues

While athlete endorsement has contributed to the company's success, it has also raised some scandals, putting the brand at risk. Over the years, some of Nike's "heroes" were unmasked as cheaters, frauds, and criminals; others have been committed for serious felonies. For example, Kobe Bryant was accused of rape; Tiger Woods was engulfed in a sex scandal; and Michael Vick was charged of felony conviction

Nike's Competitors

Nike competes in the athletic footwear, apparel, and equipment markets. In the US alone, the athletic footwear market along was some $17 billion in 2019, and is expected to grow to $23 billion by 2023, or almost 10% per year. In athletic footwear, in 2018, Nike is leading with $22 billion in sales globally, followed by Adidas ($15 billion), Asics ($3 billion), Puma ($2.5 billion), and Under Armour ($1.1 billion)

In terms of athletic apparel and equipment, the global market is expected to grow from $181 billion in 2019 to $220 billion by 2024. The athletic apparel and equipment markets are driven by many fragmented brands with a few larger players such as Nike with $39 billion in total revenues and Adidas with total revenues of $26 billion in 2019.

Adidas: The longtime rival of Nike has continued to grow and found its own spot in the athletic apparel industry. Adidas has shifted from focusing on performance-based footwear and apparel to a fashion-centric approach, capitalizing on the athleisure movement. Adidas achieved this pivot in part through mega endorsement deals with athletes and pop culture icons such as Kanye West to bring a design-centric approach and cool factor to its products. In comparison, Nike is falling behind with the under-18 crowd, where Adidas boasts some major endorsements from such pop superstars and fashion trend setters.

Under Armour: The company was founded in 1996, initially well-known for its compression t-shirts. Under Armour established sponsorships with a number of collegiate football programs, then quickly entered adjacent markets such as footwear. Like Nike, Under Armour relies heavily on endorsements of athletes to promote its brand. Under Armour successfully signed a string of high-profile athletes such as Jordan Spieth, Tom Brady, Michael Phelps, and Steph Curry.

New Balance: Unlike other competitors in the industry that rely on low-cost manufactures in Southeast Asia, New Balance exclusively manufacturers its products in the US, UK, and Europe. Because of higher labor costs, New Balance products tend to be priced at a premium. The company is also the sole supplier of athletic footwear for the US military, benefiting from legislation requiring the Department of Defense to source from US companies that manufacture domestically.

Nike's Value Chain

Nike focuses its business on the design, marketing, licensing, and selling of athletic footwear, apparel, equipment, accessories and services worldwide. In terms of design, the company prides itself on being an innovator, which stems from the founder imprinting by Bowerman and Knight. Nike holds several patents and trademarks for key technologies that advance the materials and performance of its products, such as Air, Flyknit, Dri-Fit, and React.

Approximately 130 footwear factories and 365 apparel factories independently manufacture Nike's products around the globe. Nike uses a number of renewable materials for its footwear products and ensures that all of its suppliers adhere to standards of ethical manufacturing.

The retail industry has gone through massive changes with the proliferation of online and mobile commerce. The traditional retail model consisted of a mix of footwear stores, sporting good stores, athletic specialty stores, department stores, skate, tennis and golf shops and other retail outlets. In 2017, Nike announced a major shift in its retail strategy. Nike now focuses on major partnerships with approximately 40 retailers, and slowly eliminates the thousands of retail accounts that it currently manages.

The shift in retailing is due to the "Amazon effect". For many years, Nike did not sell its products directly on Amazon. Nike plans to grow its direct sales via "Nike Direct" from $7 billion in 2015 to $16 billion in 2021. "Nike Direct" collectively includeds the company's digital marketplace (via its mobile app and nike.com) as well as its company owned retail stores. The company is also leveraging ecommerce through social media such as Instagram and Twitter. Nike is betting on its direct-to-consumer model as well as direct-to-consumer endorsements by its celebrities on social media to be the fuel for its next leg of growth.

The challenges that lay ahead of Nike are monumental. How should Nike grow its business to reach the $50 billion annual revenue goal? We are going to answer three questions below to help Nike's new CEO John Donahoe with analyzing the external environment and internal organization as well as formulating a business-level strategy.

Question 1)

Based on the case information, use an appropriate framework to analyze Nike's industry environment. Based on your analysis, what are the opportunities and threats in the industry environment?

Question 2)

Nike has the capacity to build brands through athlete endorsement. Use an appropriate framework to analyze whether the capability is a core competence, and whether this capability can be a source of competitive advantage.

Question 3)

Facing increasingly strong competitions, Nike hired you as a consultant to help them formulate a business-level strategy. Which type of business-level strategy would you suggest Nike to adopt? Explain your logic of choosing the business-level strategy. How can the strategy you choose help Nike gain competitive advantages and achieve the challenging annual revenue goal set by the former CEO Mark Parker?