4-2 Milestone 2 SWOT Analysis

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QSO-415 Trends in Operations Management 4-2 Draft of SWOT Analysis (Section III) March 26, 2023 Leif Dyer

SWOT Analysis for Nike, Inc. Strength Nike’s principal business activity is the design, development, and worldwide marketing and selling of athletic footwear, apparel, equipment, accessories, and services. Nike is the largest seller of athletic footwear and apparel in the world. (NIKE, Inc., 2022). With a market capitalization of $175B, it was ranked the 54 th largest public company in the world in Dec 2022 (Neufeld, 2022). In 2022, Nike reported revenues of $46.7 billion. The Company's reportable operating segments for the Nike Brand are North America; Europe, Middle East & Africa (EMEA); Greater China; and Asia Pacific & Latin America (APLA) (NIKE, Inc., 2022). Among

5 leading competitors, Nike has a 43.7% market share in the global sportswear segment (Wallstreetzen, 2022). As of May 31, 2022, Nike had approximately 79,100 employees worldwide, including retail and part-time employees. Nike’s company culture is shaped by a Code of Ethics and Maxims that promote an emotional commitment and inspire engagement. Nike recognizes the value of creating diverse teams and is committed to diversity, equity, and inclusion as part of a strategy to attract talent whose perspectives and contributions resonate with the community it serves. Nike does not own any manufacturing sites and achieves profitability in part to an investment in low-cost manufacturing in countries where the wage structure is favorable to high-profit margins. Manufacturing innovations and technology also mitigate labor and material costs. Its sustainability focus and commitment to reducing its carbon footprint are appealing to many consumers and also reduce manufacturing costs. Nike collaborates with myriad iconic sports figures to promote its brand and it sponsors professional and collegiate sports teams worldwide. Innovative design that highlights superior functionality and quality caters to the needs of the athlete to improve performance. According to Nike, if you have a body, you are an athlete. This all-inclusive marketing concept embraces the entire global community. Through innovative marketing campaigns like ‘Just do it’ as well as the Swoosh logo, positive associations of empowerment, community, and winning are inextricably linked to the brand. Weakness

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While low-cost manufacturing is a strength, the associative allegations of unethical labor practices including forced labor, child labor, unfair wages, and unsafe working conditions mar the reputation of Nike as a champion of human rights. Nike continues to combat reports of unethical labor practices among its contracted manufacturers and enforces training and alignment to strict performance guidelines. Nike has been accused of gender discrimination by various female employees as well as sexual harassment and inequities in pay. Nike footwear is supplied by 120 factories in 11 countries. Nike relies upon a concentrated source base of contract manufacturers to supply a significant portion of footwear products. Among four manufacturers that each supply more than 10% of Nike footwear, a significant adverse effect on operations could result if those factories are unable to perform (NIKE, Inc., 2022). Collectively, China, Vietnam, and Indonesia produce over 95% of Nike footwear. Additionally, the materials sourced for Nike footwear and apparel are sourced near the factories. Finding alternative sources for raw materials would be problematic should supply chain disruptions occur. While Nike is a global organization, revenue is heavily dependent upon U.S. consumers. 40% of sales revenue was generated in the U.S., and 60% internationally. The U.S. makes up only 4.2% of the global population. Opportunity The Covid Pandemic provoked more customers to explore the digital sales experience. Nike’s Consumer Direct Strategy aims to increase sales to consumers via e-commerce which can potentially alleviate the need for more brick-and-mortar locations and improve profitability. 58% of 2022 sales revenue came from wholesale transactions (NIKE, Inc., 2022). Severing

some of its wholesale and large retail relationships will give Nike more marketing and pricing control. There is also an opportunity to improve the sales mix of its product offerings. 66% of revenue was generated from footwear (NIKE, Inc., 2022). There is an apparent opportunity to generate more revenue from apparel and equipment offerings. As populations continue to grow and as emerging markets develop, so does demand. Nike has the opportunity to take advantage of expanding and emerging markets and reduce its dependency upon the U.S. for revenue. Specifically, revenue from Greater China (where Nike products are produced) declined by 9% from the previous year. Nike has made a commitment to sustainability and through its Move to Zero initiative, aims to operate facilities with 100% renewable energy by 2025 and operate with net-zero emissions. There is an opportunity to continue to exploit technology and innovation in manufacturing, distribution, and design to reach this goal. The range of products that Nike offers has grown since its humble beginnings, but there is an opportunity to expand beyond footwear and explore more creativity and innovation in apparel, accessories, and equipment. AI that supports athletic performance goals (electronics and apps) could be added to Nike’s product offerings. Threat Because Nike is a consumer products company, the relative popularity, and availability of various sports and fitness activities, as well as changing design trends, affect the demand. Failure to accurately forecast consumer demand could lead to excess inventories or inventory shortages, which could result in decreased operating margins, reduced cash flows, and harm to the business. This is a continuing risk.

Changes to trade policies and tariff and import/export regulations may adversely affect Nike’s financial condition. Any negative resentment toward the U.S. as a result of political unrest acts of war or economic and political uncertainties could adversely affect the business. (NIKE, Inc., 2022). Various economic factors threaten Nike’s profitability. Nike’s success is contingent upon economic conditions that support consumer discretionary spending. Economic decline, inflation, and volatility can materially impact the production, distribution, and subsequent sale of Nike products in addition to foreign exchange rates which impact the ability of independent manufacturers to finance the purchase of raw materials needed to produce Nike products. There is intense competition in the athletic footwear, apparel, and equipment industry. Adidas, ASICS, Li Ning, Puma, Under Armour, and others constantly vie for market share through product offerings that take advantage of new technologies, trends, and customer preferences. Nike also competes with other companies for the production capacity of contract manufacturers that produce their products. In addition, Nike and their contract manufacturers compete with other companies and industries for raw materials used in their products (NIKE, Inc., 2022). All competitive behavior threatens Nike’s overall performance in the industry. T he volume of international trade in counterfeit products was estimated to be $464 billion in 2019—2.5% of total international trade. The industry with the most counterfeit seizures was footwear, followed by clothing. This is a significant concern because Nike’s worldwide popularity and high demand for its products have made it the most counterfeited brand in the world (PGupta0919, 2017). Because manufacturing is outsourced, controlling counterfeits is challenging. According to research (PGupta0919, 2017) 63% of the world’s counterfeited seizures originate from China. Counterfeits threaten Nike’s brand image, infringe on Nike’s

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intellectual property rights and potentially contribute to significant revenue losses. Unsuccessful protection of intellectual property rights and mitigation of counterfeit sales could shift consumer preferences and weaken the Nike brand.

References Neufeld, D. (2022, December 26). Ranked: The 100 Biggest Public Companies in the World . Visual Capitalist. https://www.visualcapitalist.com/biggest-public-companies-in-the- world-2022/ NIKE, Inc. (2022, July 21). Inline XBRL Viewer . Www.sec.gov. https://www.sec.gov/ix?doc=/Archives/edgar/data/320187/000032018722000038/nke- 20220531.htm PGupta0919. (2017, October 19). The Rise of Counterfeiting and Its Effects on Nike . Soapboxie; Soapboxie. https://soapboxie.com/economy/The-Rise-of-Counterfeiting-and-Its-Effects- on-Nike Wallstreetzen. (2022). NIKE Statistics - NIKE Facts, Stats, Trends & Data (2021) | WallStreetZen . Www.wallstreetzen.com. https://www.wallstreetzen.com/stocks/us/nyse/nke/statistics#3-market-share

4-2 Milestone 2 SWOT Analysis

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