PART II (1 Page) Analyze One Ethical Problem/Issue NIKE Has Now (or Had Before) Why this is an ethical problem/issue for NIKE Did NIKE handle this ethical problem/issue properly? Can NIKE do better, in your opinion, to resolve this problem/issue? PART III (1 Page) Analyze One NIKE Global Strategy What is this global strategy? You can start this part of the report with "One of the NIKE global strategies is ... Does this global strategy make sense? Are there anyways to improve this strategy? www.nike.com, NKE Headquartered in Beaverton, Oregon, Nike is a large sports apparel company providing apparel to athletic clubs, universities, fitness-minded people, and many others. Most products are de- signed for specific athletic activities, but many people wear the products for casual purposes. In addition to apparel and shoes, Nike sells sports bags, eyewear, watches, bats, gloves, and many other types of equipment. The firm also owns the Hurley and Converse brands. Nike has always been famous for hiring star athletes to market their brands, the company has three athletes, Michael Jordan, LeBron James, and Cristiano Ronaldo, signed to life-time endorsement deals. Jordan, from 1993 through 2016, was paid over $475 million from Nike even though Jordan re- tired from professional sports in 2003. Nike has over 70,000 full-time employees, operates 384 U.S.-based stores and 758 interna- tional stores. Nike reported 2017 revenues and net income of about $34 billion and $4 billion, respectively, both figures increasing nicely from the prior year. However, for Nike's second quarter (02) of fiscal 2018, revenues for the Converse division of Nike were $408 million, down 4 percent, due to faltering sales in North America. Nike's net income for Q2 2018 decreased 9 percent to $767 million. For both Q1 and Q2 of fiscal 2018, the company's footwear sales declined 5 percent and the company's equipment sales dropped 8 percent in North America. Thus, rival companies are cating into Nike's financial performance in the United States. However, outside North America, Nike is doing really well, growing both revenues and not income in double digits. For fiscal 2018, Nike's revenues rose 6 percent to $36.4 billion, up 4 percent. For fiscal 2018, NIKE Brand sales to wholesale customers increased 2 percent while NIKE Direct revenues grew 12 percent to $10.4 billion, due primarily to a 25 percent increase in digital commerce sales, the addition of new stores, and 4 percent growth in comparable store sales. For fiscal 2018, Nike's revenues for Converse were $1.9 billion, down 11 percent, as growth in Asin was more than offset by declines primarily in North America. For fiscal 2018, the company's net income de- creased 54 percent to $1.9 billion. Nike needs a clear strategic plan going forward, especially to revitalize its businesses in North America Copyright by Fred David Books LLC, written by Forest R. David. History Bill Bowerman and Phil Knight founded Nike in 1964 as Blue Ribbon Sports and changed the name to Nike in 1971. The name comes from the Greek goddess of victory who was named Nike. Phil Knight was a University of Oregon track athlete and his coach was Bill Bowerman. Nike went public in 1981. Nike originally manufactured shoes in the United States but exited the U.S. manufacturing market in 1984. Nike's trademarks such as "Just Do It" and the Swoosh logo are well known worldwide. Phil Knights stepped down as chairman of Nike in 2016. Over the years, Nike has acquired many companies, including Cole Haan in 1988, Bauer Hockey in 1994. Hurley International in 2002, Converse in 2003, Umbro in 2008but then began divesting companies, including Bauer Hockey in 2008, Umbro in 2012, and Cole Haan in 2013. Nike still today pays top athletes top dollar in many sports to use, promote, and advertise their technology, design, trademarks, logo, and products. Nike's first professional athlete en dorser was Romanian tennis player Ilie Nastase, soon followed by track star Steve Prefontaine Michael Jordan signed on with Nike in 1984, followed by numerous others such as Spike Lee and Mars Blackmon. 520 STRATEGIC-MANAGEMENT CASE ANALYSIS Vision/Mission Nike does not appear to have a formal vision statement. Nike's mission (paraphrased) is "to inspire and facilitate every athlete in the world to achieve greatness." Internal Issues Organizational Structure Nike does not make its organizational chart public but likely a division-by-product or division- by-region type structure would work well since the company reports revenues and operating profits both by product (footwear, apparel, and equipment) and by region (North America, Western Europe, China, and Japan). However, the existing executive titles do not match well with either of these reportable segment scenarios. EXHIBIT 1 Nike's Top Executives and Organizational Chart 0 11 12 I. Mark Parker, Chairman, President and CEO of Nike, Inc 7. A Miller, Vand Corporate Secretary 1 Anty Caution, EV, C & Nilesh Sharan, VP Investor Relations and mature 3. Hilary Kane EVP. Chief Administrative Officer and earn Comel Cris Auton, VP Core Controller 4. Monique Matheson, EVP Global HR 10. Sim Scholefield, Chief Information Officer 5. John Slusher, EVP Global Sports Marketing 11. Michael Spitam. Peid of Categories and Product 6. Et Spunk. Chief Operating Omer 12. Trevor Bwan President, Nike Bled Source: Based on company documents Current Strategies Nike has built an empire based on product development followed by heavy marketing. Nike offers products in most major sports played worldwide and hires professional athletes to market their products, even signing Michael Jordan, LeBron James, and Cristiano Ronaldo to lifetime endorsement contracts. Nike has pald Jordan over $475 million in endorsements and the deals with James and Ronaldo are valued as much as $1 billion. The $1 billion number may seem high, but estimates are Ronaldo's social media presence alone generated $475 million in value for Nike in 2016. Another stady concluded that Ronaldo generates around $175 million for his sponsors annually, which is seven times what Stephen Curry, the second top-revenue generating wthlete for sponon. Based on data in 2016, of the 15 top athlete endorsement deals, Nike owns 11, with rival Adidas responsible for 3, and Nian accounting for one with their relation ship with Dwayne Wade. Nike also has deals with many professional teams around the world to be the sole supplier of their uniforms Nikeuses social media heavily, especially with the NikePlus membership, which is free. Nike offers two applications that include Nike Run Club and Nike Training Club used on mobile de vices and Apple Watch, whereby users can track their progress through running or cross training programs. Nike has a partnership with Apple where the Nike logo appears on select Apple watches, Nike benefits by tracking tons of data on workouts from users across the world. In addi- tion to using the apps for free, customers earn Nike Puel points whereby they can purchase items at discounts on Nike's website and even purchase products not yet available to the public in stores Nike recently introduced the Air Tech Challenge, a strategy whereby the company offers ten nis shoes with synthetic leather stabilizers, and better heel cashioning, all in a lighter shoe. Two . 521 CASE 20 NIKE, INC-2018 new running shoes developed by Nike are Free Flyknit and Free Hyperfeel. The firm also has a new pair of self-lacing shoes called the HyperAdapt 1.0. Manufacturing Nike produces 97 percent of its products through contractors in overseas markets, with Vietnam China, and Indonesia accounting for 44, 29. and 21 percent, respectively. In total, 127 footwear factories in 15 different nations supply Nike, with no single factory responsible for more than 8 percent of total footwear sales. Nike is supplied by over 369 apparel factories in 37 different countries, with the largest supplier accounting for 13 percent of revenues. Like shoe production, virtually all Nike apparel is manufactured outside the United States with China, Vietnam, and Thailand as the three largest suppliers of apparel. With the Trump administration's incentives to reshore manufacturing back to the United States, Nike has announced plans to build additional manufacturing plants in America. Presently, the company has 8 manufacturing facilities in the United States, accounting for about 8 percent of the company's total manufacturing output. Nike is very transparent about its manufacturing of footwear, appurel , and equipment. Simply click on the website http://manufacturingmap nikeine .com/" to see the company's manufacturing facilities worldwide by country, Finance Nike's fiscal year ends on June 30. Nike had an excellent fiscal 2017 with revenues up 6 per cent and net income up nearly 13 percentas indicated in Exhibit 2. However, Nike received a tax benefit in 2017 or either reduced a tax burden from 2016, helping to partially explain the larger jump in net income than in revenues. Nike's overseas revenues and profits are increas ing nicely, but its North American financial results revealed in the company's segment data are problematic Exhibit 3 reveals a strong balance sheet for Nike with relatively little goodwill or intangibles and a current ratio around 3.0. Despite increasing net income by 5500 million in fiscal 2017 to $4.2 billion, notice on Exhibit 3 that Nike's retained earnings dropped 4 percent in 2017, explained partly through $1.1 billion in dividend payments, but also by an anomaly called "deferred compensation revealed on the company's cash flow statement. It is very unusual for any company to have some amount of net income, pay less in dividends than that set income and then have its retained earnings to decrease on the balance sheet Segment Data Being very transparent, Nike reports revenues in several different categories. The two principle brands owned by Nike are Nike and Converse Converse accounts for only 6 percent of revenues Men account for about 57 percent of Nike revenues, followed by women with 26 percent, and kids account for 17 percent of revenues. Revenues from all three groups are growing around 5 Percent Change 6.105 9.389 2.285 EXHIBIT 2 Nike's Income Statements (in millions USD) Income Statement 531/16 531/17 Revenues $32,376 $34,350 Cost of Goods Sold 17.405 19,038 Grow Profit 14.971 15.312 Operating Expenses 10,469 10,565 EBIT 4502 4.79 Interest Expenie 19 4.600 This 863 646 Nos Recurring Events 140 196 Net Income 3.760 4.240 0.90 210.53 4.62% -25.145 40.00% 12.77% Source: Based on 2017 Anal Report and other company data 4 of 9 GEMENT CASE ANALYSIS Percent Change 135 139 3677 5.055 1.150 75 135 1999 155 95 EXHIBIT 3 Nike's Balance Sheets (in millions USD) Balance Sheet 5/31/16 5/31/17 Amets Cash and Short Term Investments 55.457 56.179 Accounts Receivable 3.341 Inventory 4838 Other Current Assets 1.489 Total Current Assets 15.025 16,061 Property Plant & Equipment 3320 Goodwill 131 19 Intangibles 281 283 Other Long-Term Assets 2,787 Total Assets 21,379 212.99 Liabilities Accounts Payable 2.191 2,048 Other Current Liabilities 3.167 Tulumen Lisbilities 3358 Long-Term Debe 1.993 3.471 Other Long-Term Liabilities 1.770 1.900 Total Liabilities 9.121 10,832 Equity Common Stock 3 3 Retainings 4.151 3.979 Treasury Stock 0 Paid in Capital & Other . Total Equity 12.358 12.407 Total Liabilities 21,379 23.359 Source: Based ce 2017 Report and company data - 25 89 195 09 NA NA 8,104 9 es and guilty percent annually. Three of Nike's top-revenue generating brands including sportswear, running and the Jordan brand account for 30, 19. and 11 percent of revenue, respectively. Sport enjoyed a 14 percent revenue gain in 2017 and the Jordan brand enjoyed a 13 percent increase in revenues from 2016, both coming off double-digit revenue growth the prior year as well The lowest revenue generating brands include Nike Basketball and Women's Training, each representing 4 percent of revenues, followed by Action Sports and Golf, each representing 2 per cent of revenues. The three lowest revenue generating brands discussed above all experienced declining revenue in 2017, with golf's revenues falling 18 percent, and the other three brands mentioned revenues falling between 6 and 9 percent. Each of the four wone performing areas suffered revenue drops from 2015 to 2016 as well with golf reporting another 18 percenter coue drop during this time period. Moving forward, it will be important for Nike to decide how to allocate resources across these product lines Nike is in the retail business, having forward integrated over the years. Nike operates 384 factory stores in the United States and 758 factory stores outside the US. Exhibit 4 reveals per enues and EBIT for Nike (not including Converse) in 2017. Canada accounted for 54 percent of all revenue in 2017. China generated the most EBIT per dollar of revenue received, followed by North America Central & Eastern Europe, followed by Western Europe, generate significantly lower EBIT for every dollar of revenue, compared to other parts of the world. Both regions in Europe also suffered from a 16 percent drop in their respective EBIT contribution for 2017, Exhibit 4 reveals that Nike revenues in all markets in fiscal 2017 experienced a net positive enue change in 2017 with Japan and China experiencing 17 and 12 percent revenue growth and North America only growing revenue by 3 percent. EXHIBIT 4 Nike's Worldwide Revenues and EBIT (in millions USD) Geographic Region Revenues EBIT North America $15.216 $3.875 Western Europe $6,211 $1.203 China $4.237 $1,507 Emerging Markets $3.995 $816 Central & Eastern Europe $1,487 $244 Japan $1,014 $224 Totals $32,160 7,869 Source: Based on Nike's 2017 Form TOK. Exhibit 5 reveals Nike's revenues by product type. Footwear is far and away the largest revenue-generating segment of Nike, representing 66 percent of 2017 sales. Both footwear and apparel sales were up 6 percent in 2017, but equipment sales were down 5 percent. Notable 2017 changes in revenue by region and product type are as follows: apparel sales up 15 percent in Western Europe; footwear and apparel sales each up 13 percent in China and 17 and 21 percent respectively in Japan, footwear sales up 11 percent in emerging markets. The largest loser on a percentage basis was equipment sules in North America, that were down 10 percent in 2017 as this division across all nations continues to struggle for Nike. Exhibit 6 reveals Nike (not including Converse) revenues by customer type: wholesale customers account for 72 percent of 2017 revenues. Wholesale customers include Foot Locker, Dick Sporting Goods, and other merchants that purchase and sell Nike products, while direct-to- consumer includes Nike stores and online sales. Competitors Nike is the largest seller of athletic footwear, apparel, and equipment in the world, but there are aggressive rival firms, including Adidas, Under Armour, New Balance, and Puma, along with a few others in the production of athletic gear. In addition, as a forward integrated company, Nike competes with retail stores such as Foot Locker and other shoe retailers who ironically also sell Nike products. Nike represents nearly 50 percent of the whole athletic sportswear industry based on market capitalization on U.S. stock markets, followed by V.F. Corp at 14 percent. U.S. based Under Armour only represents 2.5 of the industry. Exhibit 7 gives a quick glimpse at Nike compared to two rival firms. Note that Nike is far larger than Under Armour and Adidas combined. EXHIBIT S Nike's Revenues by Product Type Nike Reveries by Product Type Equipment 4% Apparel 3046 Footw.car 9 EXHIBIT 6 Nike's Revenues by Customer Type (in millions USD) Nike Revenues by Customer Type 525.000 $230078 520,000 $15.000 S10.000 59.082 $5,000 50+ Wholesale Customers Direct Consumer Source: Based on Nike's 2017 Form /OK. Adidas (www.adidas-group.com) Headquartered in Herzogenaurach, Germany, Adidas was founded in 1949 and operates over 2,800 stores. Adidas owns Reebok, TaylorMade, and CCM Hockey products. Adidas reported $54 billion USD in 2016 with net income of 1.3 billion. Adidas is the largest sportswear manu facturer in Europe and the second largest in the world, behind Nike. In 2015, professional bus ketball player James Harden left Nike for Adidas, reportedly signing a 13-year contract worth $200 million. Adidas's strategic plan is very similar to Nike's both companies use product development followed by heavy marketing, signing teams and players across almost all sports to market and promote their products. Foot Locker (FL) Headquartered in New York City, Foot Locker's stock price soared between 2012 and 2017 in creasing around 300 percent despite revenues only increasing 15 percent, and operating income declining 12 percent over the same time period. Founded in 1879, the company operates nearly 3,500 stores and employs 15,000 full time workers across the United States, Europe, Australia, New Zealand, and Canada. However 80 percent of company sales come from the U.S. Also, 70 percent of Foot Locker's inventory for sale is Nike merchandise. Foot Locker uses the store-in-a-store concept used by many retailers where they have 217 House of Hoops shops offering premium basketball products. Foot Locker also offers Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and Kid's Foot Locker store Foot Locker sells Nike products along with other brands. With Nike's forward integration strategy of opening their own retail stores and selling online, they directly compete with Foot Locker and all other merchants that sell Nike products at the retail level. There are 62 franchised Foot Locker stores in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany EXHIBIT 7 Nike's Competitor Comparison Nike Under Armour Adidas $ Market Cap 106.5B 5.78 54.48 #Employees 74.400 6,500 55,414 Revenue 34.350M 4,825M 24.113M Gross Margin 70 466 499 Net Income 4,240M 257M 1.271M SEPS Ratio 2.31 032 4.25 SPE Ratio 28.34 38.34 32.06 Note: Numbers for Adidas were converted into USD assuming 1 Euro = $1.25. Source: Based on information at a variety of sources 525 CASE 20 NIKE, INC-2018 Under Armour (UA) Headquartered in Baltimore, Maryland, Under Armour (UA) was founded in 1996 by a former University of Maryland football player who desired a t-shirt that would whisk away perspiration rather than yet so sy wet. The company has grown to be one of the most sought after brands among athletes around the world, being worn by some of the largest American college football and European soccer teams. Colleges such as the Maryland Terrapins, Auburn Tigers, South Carolina Gamecocks, and many more have contracts with UA to outfit their teams. English soccer team Tottenham Hotspur, Grock team Aris F.C. and Mexican club Deportivo Toluca F.C all are outfitted by UA. Mega stars such as Tom Brady. Cam Newton, Bryce Harper, Michael Phelps, and many more, all sponsor and market VA products currently or at one time. Under Armour was one of the pioneers to produce the compression and performance work out year and in 2017 introduced bloceramic materials in their sleepwear line of clothing that is supposed to reduce inflammation. The firm reported revenues of $4.8 billion in 2016 up from 3.9 billion in 2015. However, the firm's stock price dropped 75 percent from the high in 2015 to the low in 2017. Under Armour is well known for its partnership with PGA golfer Jordan Spieth. who recently launched his own golf sboe, "Spieth One." The company is also widely known for its partnership with NBA star Stephen Curry, who is considered to be the face of Under Armour's footwear line." Just like Nike and Adidas, Under Armour's strategy is to pursue prod. uct development and follow up with heavy marketing. External Issues Athletic Shoe Stores The athletic shoe store industry in the United States generates over $1 billion in revenue, annually with growth around 3 percent expected through 2022. The industry is fragmented with over 3,000 businesses, many small mom-and-pops, with the two top players, Foot Locker and Nike, accounting for 32 and 18 percent of sales, respectively. Unlike many retail outlets, the industry is healthy and growing since more and more consumers worldwide are becoming more health conscious. In addi tion, a growing trend referred to as athleisure grew over 40 percent between 2009 and 2016, where consumers are increasingly wearing athletic apparel in every day settings, including at work. Many work environments are calling workers back to the office and requiring increased levels of dress code, so it remains to be seen if the athleisure industry can continue to grow at such a rapid pace. Online athletic shoe merchants are also growing, and, as athletic apparel becomes more popular, department stores that tend to offer business casual clothing are increasing their athletic shoe store spaces. In contrast to most clothing categories where women are the primary custom ers, men account for nearly 60 percent of athletic shoe sales, with women and children both around 20 percent. The industry enjoys a fairly even distribution of sales volumes from varying age groups, but customers under age 35 account for about 75 percent of sales. The total footwear market in the United States is worth $65 billion, but the fastest growing seg. ment of this industry is athletic footwear. Chine supplies over 70 percent of all shoes sold in the U.S. Athletic and Sporting Goods Athletic and sporting goods industry accounts for over $8 billion in U.S. revenue annually, but experienced a negative growth rate around 3 percent between 2010 and 2017. Moving forward, the growth rate is expected to improve to upwards of percent through 2022. The main driver of revenue is golf-related equipment, accounting for nearly 50 percent of industry revenues, followed by playground equipment, and fishing tackle and equipment around 7 percent each. Other types of sports equipment make up the remaining 36 percent. Football, soccer, basketball and other products attribute little to overall industry revenues, but this is not totally surprising considering just how equipment intensive sports like golf and fishing can be. Apparel and shoes are not considered in the industry. Nike controls around 9 percent of the industry revenues in the U.S, with rival fimm Calloway Golf owning 5 percent Technology In 1996, Under Armour started offering compression apparel that helped to regulate body tem perature and keep athletes warm in the cold and cool in the heat. Today, firms are becoming more advanced by adding computer technology to their products. Many firms are now experimenting 527 CASE 20 NIKE, INC-2018 trend. Additionally, the report points out that the Asia-Pacific region is expected to be the fastest growing region. Market research firm Euromonitor International reports that sales of sportswear, which includes items such as yoga pants and activewear, is growing faster than any other apparel or footwear category. Specifically, both sports-inspired footwear and apparel is growing at about 10 percent and 6 percent annually. Regarding the growth of sportswear apparel and footwear across regions, emerging markets such as India and Thailand are growing fastest, but even core markets such as the United States are also producing significant sports-inspired growth. A few new firms that Nike is monitoring in the sportswear industry include RYU Apparel Inc. (TSX: RYU.V) that produces urban athletic apparel. Founded in 2005, RYU's financial re- sults for the 6 months ended June 30, 2017 included revenues in the second quarter of 2017 of S641,231, 113 percent higher than revenue of $300,773 during the same period in 2016. RYU continues to show a balanced ratio of apparel sales between men and women at 46 percent and 54 percent, respectively. By reaching an underserved gap in the industry for men, and develop ing the Beautiful Tough brand positioning that's resonating with women, RYU currently derives 17 percent of revenue from e-commerce with a target of reaching 30 percent by the end of 2018. Nike is also monitoring Lululemon Athletica, Inc. (NASDAQ: LULU), an athletic apparel company for yoga, running, and training. Lulu creates transformational experiences for people to live happy, healthy, fun lives. Seemingly new companies arise all across the globe cach month, desiring a piece of Nike's market share, so Nike needs a clear strategic plan moving forward. - PART II (1 Page) Analyze One Ethical Problem/Issue NIKE Has Now (or Had Before) Why this is an ethical problem/issue for NIKE Did NIKE handle this ethical problem/issue properly? Can NIKE do better, in your opinion, to resolve this problem/issue? PART III (1 Page) Analyze One NIKE Global Strategy What is this global strategy? You can start this part of the report with "One of the NIKE global strategies is ... Does this global strategy make sense? Are there anyways to improve this strategy? www.nike.com, NKE Headquartered in Beaverton, Oregon, Nike is a large sports apparel company providing apparel to athletic clubs, universities, fitness-minded people, and many others. Most products are de- signed for specific athletic activities, but many people wear the products for casual purposes. In addition to apparel and shoes, Nike sells sports bags, eyewear, watches, bats, gloves, and many other types of equipment. The firm also owns the Hurley and Converse brands. Nike has always been famous for hiring star athletes to market their brands, the company has three athletes, Michael Jordan, LeBron James, and Cristiano Ronaldo, signed to life-time endorsement deals. Jordan, from 1993 through 2016, was paid over $475 million from Nike even though Jordan re- tired from professional sports in 2003. Nike has over 70,000 full-time employees, operates 384 U.S.-based stores and 758 interna- tional stores. Nike reported 2017 revenues and net income of about $34 billion and $4 billion, respectively, both figures increasing nicely from the prior year. However, for Nike's second quarter (02) of fiscal 2018, revenues for the Converse division of Nike were $408 million, down 4 percent, due to faltering sales in North America. Nike's net income for Q2 2018 decreased 9 percent to $767 million. For both Q1 and Q2 of fiscal 2018, the company's footwear sales declined 5 percent and the company's equipment sales dropped 8 percent in North America. Thus, rival companies are cating into Nike's financial performance in the United States. However, outside North America, Nike is doing really well, growing both revenues and not income in double digits. For fiscal 2018, Nike's revenues rose 6 percent to $36.4 billion, up 4 percent. For fiscal 2018, NIKE Brand sales to wholesale customers increased 2 percent while NIKE Direct revenues grew 12 percent to $10.4 billion, due primarily to a 25 percent increase in digital commerce sales, the addition of new stores, and 4 percent growth in comparable store sales. For fiscal 2018, Nike's revenues for Converse were $1.9 billion, down 11 percent, as growth in Asin was more than offset by declines primarily in North America. For fiscal 2018, the company's net income de- creased 54 percent to $1.9 billion. Nike needs a clear strategic plan going forward, especially to revitalize its businesses in North America Copyright by Fred David Books LLC, written by Forest R. David. History Bill Bowerman and Phil Knight founded Nike in 1964 as Blue Ribbon Sports and changed the name to Nike in 1971. The name comes from the Greek goddess of victory who was named Nike. Phil Knight was a University of Oregon track athlete and his coach was Bill Bowerman. Nike went public in 1981. Nike originally manufactured shoes in the United States but exited the U.S. manufacturing market in 1984. Nike's trademarks such as "Just Do It" and the Swoosh logo are well known worldwide. Phil Knights stepped down as chairman of Nike in 2016. Over the years, Nike has acquired many companies, including Cole Haan in 1988, Bauer Hockey in 1994. Hurley International in 2002, Converse in 2003, Umbro in 2008but then began divesting companies, including Bauer Hockey in 2008, Umbro in 2012, and Cole Haan in 2013. Nike still today pays top athletes top dollar in many sports to use, promote, and advertise their technology, design, trademarks, logo, and products. Nike's first professional athlete en dorser was Romanian tennis player Ilie Nastase, soon followed by track star Steve Prefontaine Michael Jordan signed on with Nike in 1984, followed by numerous others such as Spike Lee and Mars Blackmon. 520 STRATEGIC-MANAGEMENT CASE ANALYSIS Vision/Mission Nike does not appear to have a formal vision statement. Nike's mission (paraphrased) is "to inspire and facilitate every athlete in the world to achieve greatness." Internal Issues Organizational Structure Nike does not make its organizational chart public but likely a division-by-product or division- by-region type structure would work well since the company reports revenues and operating profits both by product (footwear, apparel, and equipment) and by region (North America, Western Europe, China, and Japan). However, the existing executive titles do not match well with either of these reportable segment scenarios. EXHIBIT 1 Nike's Top Executives and Organizational Chart 0 11 12 I. Mark Parker, Chairman, President and CEO of Nike, Inc 7. A Miller, Vand Corporate Secretary 1 Anty Caution, EV, C & Nilesh Sharan, VP Investor Relations and mature 3. Hilary Kane EVP. Chief Administrative Officer and earn Comel Cris Auton, VP Core Controller 4. Monique Matheson, EVP Global HR 10. Sim Scholefield, Chief Information Officer 5. John Slusher, EVP Global Sports Marketing 11. Michael Spitam. Peid of Categories and Product 6. Et Spunk. Chief Operating Omer 12. Trevor Bwan President, Nike Bled Source: Based on company documents Current Strategies Nike has built an empire based on product development followed by heavy marketing. Nike offers products in most major sports played worldwide and hires professional athletes to market their products, even signing Michael Jordan, LeBron James, and Cristiano Ronaldo to lifetime endorsement contracts. Nike has pald Jordan over $475 million in endorsements and the deals with James and Ronaldo are valued as much as $1 billion. The $1 billion number may seem high, but estimates are Ronaldo's social media presence alone generated $475 million in value for Nike in 2016. Another stady concluded that Ronaldo generates around $175 million for his sponsors annually, which is seven times what Stephen Curry, the second top-revenue generating wthlete for sponon. Based on data in 2016, of the 15 top athlete endorsement deals, Nike owns 11, with rival Adidas responsible for 3, and Nian accounting for one with their relation ship with Dwayne Wade. Nike also has deals with many professional teams around the world to be the sole supplier of their uniforms Nikeuses social media heavily, especially with the NikePlus membership, which is free. Nike offers two applications that include Nike Run Club and Nike Training Club used on mobile de vices and Apple Watch, whereby users can track their progress through running or cross training programs. Nike has a partnership with Apple where the Nike logo appears on select Apple watches, Nike benefits by tracking tons of data on workouts from users across the world. In addi- tion to using the apps for free, customers earn Nike Puel points whereby they can purchase items at discounts on Nike's website and even purchase products not yet available to the public in stores Nike recently introduced the Air Tech Challenge, a strategy whereby the company offers ten nis shoes with synthetic leather stabilizers, and better heel cashioning, all in a lighter shoe. Two . 521 CASE 20 NIKE, INC-2018 new running shoes developed by Nike are Free Flyknit and Free Hyperfeel. The firm also has a new pair of self-lacing shoes called the HyperAdapt 1.0. Manufacturing Nike produces 97 percent of its products through contractors in overseas markets, with Vietnam China, and Indonesia accounting for 44, 29. and 21 percent, respectively. In total, 127 footwear factories in 15 different nations supply Nike, with no single factory responsible for more than 8 percent of total footwear sales. Nike is supplied by over 369 apparel factories in 37 different countries, with the largest supplier accounting for 13 percent of revenues. Like shoe production, virtually all Nike apparel is manufactured outside the United States with China, Vietnam, and Thailand as the three largest suppliers of apparel. With the Trump administration's incentives to reshore manufacturing back to the United States, Nike has announced plans to build additional manufacturing plants in America. Presently, the company has 8 manufacturing facilities in the United States, accounting for about 8 percent of the company's total manufacturing output. Nike is very transparent about its manufacturing of footwear, appurel , and equipment. Simply click on the website http://manufacturingmap nikeine .com/" to see the company's manufacturing facilities worldwide by country, Finance Nike's fiscal year ends on June 30. Nike had an excellent fiscal 2017 with revenues up 6 per cent and net income up nearly 13 percentas indicated in Exhibit 2. However, Nike received a tax benefit in 2017 or either reduced a tax burden from 2016, helping to partially explain the larger jump in net income than in revenues. Nike's overseas revenues and profits are increas ing nicely, but its North American financial results revealed in the company's segment data are problematic Exhibit 3 reveals a strong balance sheet for Nike with relatively little goodwill or intangibles and a current ratio around 3.0. Despite increasing net income by 5500 million in fiscal 2017 to $4.2 billion, notice on Exhibit 3 that Nike's retained earnings dropped 4 percent in 2017, explained partly through $1.1 billion in dividend payments, but also by an anomaly called "deferred compensation revealed on the company's cash flow statement. It is very unusual for any company to have some amount of net income, pay less in dividends than that set income and then have its retained earnings to decrease on the balance sheet Segment Data Being very transparent, Nike reports revenues in several different categories. The two principle brands owned by Nike are Nike and Converse Converse accounts for only 6 percent of revenues Men account for about 57 percent of Nike revenues, followed by women with 26 percent, and kids account for 17 percent of revenues. Revenues from all three groups are growing around 5 Percent Change 6.105 9.389 2.285 EXHIBIT 2 Nike's Income Statements (in millions USD) Income Statement 531/16 531/17 Revenues $32,376 $34,350 Cost of Goods Sold 17.405 19,038 Grow Profit 14.971 15.312 Operating Expenses 10,469 10,565 EBIT 4502 4.79 Interest Expenie 19 4.600 This 863 646 Nos Recurring Events 140 196 Net Income 3.760 4.240 0.90 210.53 4.62% -25.145 40.00% 12.77% Source: Based on 2017 Anal Report and other company data 4 of 9 GEMENT CASE ANALYSIS Percent Change 135 139 3677 5.055 1.150 75 135 1999 155 95 EXHIBIT 3 Nike's Balance Sheets (in millions USD) Balance Sheet 5/31/16 5/31/17 Amets Cash and Short Term Investments 55.457 56.179 Accounts Receivable 3.341 Inventory 4838 Other Current Assets 1.489 Total Current Assets 15.025 16,061 Property Plant & Equipment 3320 Goodwill 131 19 Intangibles 281 283 Other Long-Term Assets 2,787 Total Assets 21,379 212.99 Liabilities Accounts Payable 2.191 2,048 Other Current Liabilities 3.167 Tulumen Lisbilities 3358 Long-Term Debe 1.993 3.471 Other Long-Term Liabilities 1.770 1.900 Total Liabilities 9.121 10,832 Equity Common Stock 3 3 Retainings 4.151 3.979 Treasury Stock 0 Paid in Capital & Other . Total Equity 12.358 12.407 Total Liabilities 21,379 23.359 Source: Based ce 2017 Report and company data - 25 89 195 09 NA NA 8,104 9 es and guilty percent annually. Three of Nike's top-revenue generating brands including sportswear, running and the Jordan brand account for 30, 19. and 11 percent of revenue, respectively. Sport enjoyed a 14 percent revenue gain in 2017 and the Jordan brand enjoyed a 13 percent increase in revenues from 2016, both coming off double-digit revenue growth the prior year as well The lowest revenue generating brands include Nike Basketball and Women's Training, each representing 4 percent of revenues, followed by Action Sports and Golf, each representing 2 per cent of revenues. The three lowest revenue generating brands discussed above all experienced declining revenue in 2017, with golf's revenues falling 18 percent, and the other three brands mentioned revenues falling between 6 and 9 percent. Each of the four wone performing areas suffered revenue drops from 2015 to 2016 as well with golf reporting another 18 percenter coue drop during this time period. Moving forward, it will be important for Nike to decide how to allocate resources across these product lines Nike is in the retail business, having forward integrated over the years. Nike operates 384 factory stores in the United States and 758 factory stores outside the US. Exhibit 4 reveals per enues and EBIT for Nike (not including Converse) in 2017. Canada accounted for 54 percent of all revenue in 2017. China generated the most EBIT per dollar of revenue received, followed by North America Central & Eastern Europe, followed by Western Europe, generate significantly lower EBIT for every dollar of revenue, compared to other parts of the world. Both regions in Europe also suffered from a 16 percent drop in their respective EBIT contribution for 2017, Exhibit 4 reveals that Nike revenues in all markets in fiscal 2017 experienced a net positive enue change in 2017 with Japan and China experiencing 17 and 12 percent revenue growth and North America only growing revenue by 3 percent. EXHIBIT 4 Nike's Worldwide Revenues and EBIT (in millions USD) Geographic Region Revenues EBIT North America $15.216 $3.875 Western Europe $6,211 $1.203 China $4.237 $1,507 Emerging Markets $3.995 $816 Central & Eastern Europe $1,487 $244 Japan $1,014 $224 Totals $32,160 7,869 Source: Based on Nike's 2017 Form TOK. Exhibit 5 reveals Nike's revenues by product type. Footwear is far and away the largest revenue-generating segment of Nike, representing 66 percent of 2017 sales. Both footwear and apparel sales were up 6 percent in 2017, but equipment sales were down 5 percent. Notable 2017 changes in revenue by region and product type are as follows: apparel sales up 15 percent in Western Europe; footwear and apparel sales each up 13 percent in China and 17 and 21 percent respectively in Japan, footwear sales up 11 percent in emerging markets. The largest loser on a percentage basis was equipment sules in North America, that were down 10 percent in 2017 as this division across all nations continues to struggle for Nike. Exhibit 6 reveals Nike (not including Converse) revenues by customer type: wholesale customers account for 72 percent of 2017 revenues. Wholesale customers include Foot Locker, Dick Sporting Goods, and other merchants that purchase and sell Nike products, while direct-to- consumer includes Nike stores and online sales. Competitors Nike is the largest seller of athletic footwear, apparel, and equipment in the world, but there are aggressive rival firms, including Adidas, Under Armour, New Balance, and Puma, along with a few others in the production of athletic gear. In addition, as a forward integrated company, Nike competes with retail stores such as Foot Locker and other shoe retailers who ironically also sell Nike products. Nike represents nearly 50 percent of the whole athletic sportswear industry based on market capitalization on U.S. stock markets, followed by V.F. Corp at 14 percent. U.S. based Under Armour only represents 2.5 of the industry. Exhibit 7 gives a quick glimpse at Nike compared to two rival firms. Note that Nike is far larger than Under Armour and Adidas combined. EXHIBIT S Nike's Revenues by Product Type Nike Reveries by Product Type Equipment 4% Apparel 3046 Footw.car 9 EXHIBIT 6 Nike's Revenues by Customer Type (in millions USD) Nike Revenues by Customer Type 525.000 $230078 520,000 $15.000 S10.000 59.082 $5,000 50+ Wholesale Customers Direct Consumer Source: Based on Nike's 2017 Form /OK. Adidas (www.adidas-group.com) Headquartered in Herzogenaurach, Germany, Adidas was founded in 1949 and operates over 2,800 stores. Adidas owns Reebok, TaylorMade, and CCM Hockey products. Adidas reported $54 billion USD in 2016 with net income of 1.3 billion. Adidas is the largest sportswear manu facturer in Europe and the second largest in the world, behind Nike. In 2015, professional bus ketball player James Harden left Nike for Adidas, reportedly signing a 13-year contract worth $200 million. Adidas's strategic plan is very similar to Nike's both companies use product development followed by heavy marketing, signing teams and players across almost all sports to market and promote their products. Foot Locker (FL) Headquartered in New York City, Foot Locker's stock price soared between 2012 and 2017 in creasing around 300 percent despite revenues only increasing 15 percent, and operating income declining 12 percent over the same time period. Founded in 1879, the company operates nearly 3,500 stores and employs 15,000 full time workers across the United States, Europe, Australia, New Zealand, and Canada. However 80 percent of company sales come from the U.S. Also, 70 percent of Foot Locker's inventory for sale is Nike merchandise. Foot Locker uses the store-in-a-store concept used by many retailers where they have 217 House of Hoops shops offering premium basketball products. Foot Locker also offers Lady Foot Locker, Champs Sports, Footaction, Runners Point, Sidestep, and Kid's Foot Locker store Foot Locker sells Nike products along with other brands. With Nike's forward integration strategy of opening their own retail stores and selling online, they directly compete with Foot Locker and all other merchants that sell Nike products at the retail level. There are 62 franchised Foot Locker stores in the Middle East and South Korea, as well as 15 franchised Runners Point stores in Germany EXHIBIT 7 Nike's Competitor Comparison Nike Under Armour Adidas $ Market Cap 106.5B 5.78 54.48 #Employees 74.400 6,500 55,414 Revenue 34.350M 4,825M 24.113M Gross Margin 70 466 499 Net Income 4,240M 257M 1.271M SEPS Ratio 2.31 032 4.25 SPE Ratio 28.34 38.34 32.06 Note: Numbers for Adidas were converted into USD assuming 1 Euro = $1.25. Source: Based on information at a variety of sources 525 CASE 20 NIKE, INC-2018 Under Armour (UA) Headquartered in Baltimore, Maryland, Under Armour (UA) was founded in 1996 by a former University of Maryland football player who desired a t-shirt that would whisk away perspiration rather than yet so sy wet. The company has grown to be one of the most sought after brands among athletes around the world, being worn by some of the largest American college football and European soccer teams. Colleges such as the Maryland Terrapins, Auburn Tigers, South Carolina Gamecocks, and many more have contracts with UA to outfit their teams. English soccer team Tottenham Hotspur, Grock team Aris F.C. and Mexican club Deportivo Toluca F.C all are outfitted by UA. Mega stars such as Tom Brady. Cam Newton, Bryce Harper, Michael Phelps, and many more, all sponsor and market VA products currently or at one time. Under Armour was one of the pioneers to produce the compression and performance work out year and in 2017 introduced bloceramic materials in their sleepwear line of clothing that is supposed to reduce inflammation. The firm reported revenues of $4.8 billion in 2016 up from 3.9 billion in 2015. However, the firm's stock price dropped 75 percent from the high in 2015 to the low in 2017. Under Armour is well known for its partnership with PGA golfer Jordan Spieth. who recently launched his own golf sboe, "Spieth One." The company is also widely known for its partnership with NBA star Stephen Curry, who is considered to be the face of Under Armour's footwear line." Just like Nike and Adidas, Under Armour's strategy is to pursue prod. uct development and follow up with heavy marketing. External Issues Athletic Shoe Stores The athletic shoe store industry in the United States generates over $1 billion in revenue, annually with growth around 3 percent expected through 2022. The industry is fragmented with over 3,000 businesses, many small mom-and-pops, with the two top players, Foot Locker and Nike, accounting for 32 and 18 percent of sales, respectively. Unlike many retail outlets, the industry is healthy and growing since more and more consumers worldwide are becoming more health conscious. In addi tion, a growing trend referred to as athleisure grew over 40 percent between 2009 and 2016, where consumers are increasingly wearing athletic apparel in every day settings, including at work. Many work environments are calling workers back to the office and requiring increased levels of dress code, so it remains to be seen if the athleisure industry can continue to grow at such a rapid pace. Online athletic shoe merchants are also growing, and, as athletic apparel becomes more popular, department stores that tend to offer business casual clothing are increasing their athletic shoe store spaces. In contrast to most clothing categories where women are the primary custom ers, men account for nearly 60 percent of athletic shoe sales, with women and children both around 20 percent. The industry enjoys a fairly even distribution of sales volumes from varying age groups, but customers under age 35 account for about 75 percent of sales. The total footwear market in the United States is worth $65 billion, but the fastest growing seg. ment of this industry is athletic footwear. Chine supplies over 70 percent of all shoes sold in the U.S. Athletic and Sporting Goods Athletic and sporting goods industry accounts for over $8 billion in U.S. revenue annually, but experienced a negative growth rate around 3 percent between 2010 and 2017. Moving forward, the growth rate is expected to improve to upwards of percent through 2022. The main driver of revenue is golf-related equipment, accounting for nearly 50 percent of industry revenues, followed by playground equipment, and fishing tackle and equipment around 7 percent each. Other types of sports equipment make up the remaining 36 percent. Football, soccer, basketball and other products attribute little to overall industry revenues, but this is not totally surprising considering just how equipment intensive sports like golf and fishing can be. Apparel and shoes are not considered in the industry. Nike controls around 9 percent of the industry revenues in the U.S, with rival fimm Calloway Golf owning 5 percent Technology In 1996, Under Armour started offering compression apparel that helped to regulate body tem perature and keep athletes warm in the cold and cool in the heat. Today, firms are becoming more advanced by adding computer technology to their products. Many firms are now experimenting 527 CASE 20 NIKE, INC-2018 trend. Additionally, the report points out that the Asia-Pacific region is expected to be the fastest growing region. Market research firm Euromonitor International reports that sales of sportswear, which includes items such as yoga pants and activewear, is growing faster than any other apparel or footwear category. Specifically, both sports-inspired footwear and apparel is growing at about 10 percent and 6 percent annually. Regarding the growth of sportswear apparel and footwear across regions, emerging markets such as India and Thailand are growing fastest, but even core markets such as the United States are also producing significant sports-inspired growth. A few new firms that Nike is monitoring in the sportswear industry include RYU Apparel Inc. (TSX: RYU.V) that produces urban athletic apparel. Founded in 2005, RYU's financial re- sults for the 6 months ended June 30, 2017 included revenues in the second quarter of 2017 of S641,231, 113 percent higher than revenue of $300,773 during the same period in 2016. RYU continues to show a balanced ratio of apparel sales between men and women at 46 percent and 54 percent, respectively. By reaching an underserved gap in the industry for men, and develop ing the Beautiful Tough brand positioning that's resonating with women, RYU currently derives 17 percent of revenue from e-commerce with a target of reaching 30 percent by the end of 2018. Nike is also monitoring Lululemon Athletica, Inc. (NASDAQ: LULU), an athletic apparel company for yoga, running, and training. Lulu creates transformational experiences for people to live happy, healthy, fun lives. Seemingly new companies arise all across the globe cach month, desiring a piece of Nike's market share, so Nike needs a clear strategic plan moving forward