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Jarryd Phillips, Jermaine West, Spencer Jacoby, Othniel Hyliger, Steven Pelletier Nike, Inc. Strategic Analysis 2009.

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Presentation on theme: "Jarryd Phillips, Jermaine West, Spencer Jacoby, Othniel Hyliger, Steven Pelletier Nike, Inc. Strategic Analysis 2009."— Presentation transcript:

1 Jarryd Phillips, Jermaine West, Spencer Jacoby, Othniel Hyliger, Steven Pelletier Nike, Inc. Strategic Analysis 2009

2 2 HISTORY MAJOR MILESTONES CURRENT VISION & MISSION STATEMENTS PROPOSED VISION & MISSION STATEMENTS EXTERNAL ASSESSMENT POSITIONING MAP CPM MATRIX OPPORTUNITIES & THREATS EFE MATRIX INTERNAL ASSESSMENT ORGANIZATIONAL CHART 2009 INCOME STATEMENT 2009 BALANCE SHEET CURRENT FINANCIAL RATIOS FINANCIAL TRENDS STRENGTH & WEAKNESSES IFE MATRIX STRATEGIC ASSESSMENT SWOT MATRIX SPACE MATRIX GRAND STRATEGY MATRIX BCG MATRIX IE MATRIX MATRIX ANALYSIS QSPM RECOMMENDATIONS OBJECTIVES STRATEGIC IMPLEMENTATION PROJECTED INCOME STATEMENT PROJECTED BALANCE SHEET PROJECTED FINANCIAL RATIOS EVALUATION BALANCED SCORECARD SOURCES QUESTIONS

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4 1970- The Swoosh first appears on a football/soccer cleat called the Nike Tennis "bad boy" John McEnroe is signed by Nike to an endorsement contract Nike enters the European football market Nike wins Advertiser of the Year at the Cannes Advertising Festival Nike signs Tiger Woods Bill Bowerman, co-founder of Nike, dies on Dec. 24 at age Nike purchases Hurley International Nike acquires once-bankrupt rival Converse for $305 million Phil Knight steps down as CEO and President of Nike, but continues as chairman Nike Signs Tennis Pro Rafael Nadal Nike and Apple release the Nike+iPod sports kit Nike sells its Nike Bauer hockey equipment division & purchases Umbro. 4

5 "To bring inspiration and innovation to every athlete in the world" If you have a body, you are an athlete. 5 Nike co-founder Bill Bowerman

6 To lead in corporate citizenship through proactive programs that reflect caring for the world family of Nike, our teammates, our consumers, and those who provide services to Nike. 6

7 To equip every athlete with products that combine performance, quality, and fashion. 7

8 At Nike, we desire to deliver superior products to customers and athletes that are both safe and dependable (1, 2 and 6). Our well trained employees and experienced executives will ensure a competitive advantage for our markets, growth for the company, and profits for our shareholders (5). Our commitment to social responsibility and the communities in which we operate will ensure business relationships and alliances for the future and a perception of concern with our stakeholders (6, 8). We will continue to utilize innovation and technology to provide our employees with the best possible work environment while adapting to the many changes in the global market (3, 4, 7, and 9) Customers 2. Products or services 3. Markets 4. Technology. 5. Concern for survival, growth, and profitability 6. Philosophy 7. Self-concept 8. Concern for public image 9. Concern for employees

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10 10 High Performance Low Performance High Price Low Price

11 NIKEADIDAS PUMA Critical Success factors WeightsRating Weighted ScoreRating Weighted ScoreRating Weighted Score 0.0 to 1.01 to 4 Advertising Product Quality Price Competitiveness Management Financial Position Customer Loyalty Global Expansion Market Share Brand Endorsement Deals Portfolio Diversification Product Placement Research & Development Totals

12 1.Creating sportswear that would incorporate recycled materials from their own production lines and other places. 2.Promotion as a fashionable wear, not just sportswear. 3.Growing segment of the female athletes. 4.International expansion into emerging markets – e.g.. India 5.Additional marketing of existing products to appeal to new demographic groups. 6.Develop new alliances with companies that are respected regarding social responsibility. 7.Brand reorganization by market regions 12

13 1.High competitive industry 2.Failure to respond to market trends in timely manner could greatly affect financial position. 3.Production of counterfeit goods, and generic products. 4.Negative public perception created by environmental, child labor, contracted manufacturing issues, and sponsored athletes. 5.International currency changes could decrease profits. 6.Federal Trade regulations in dealing with foreign manufactures. 13

14 14 External Opportunities 1. Creating sportswear that would incorporate recycled materials from their own production lines and other places Promotion as a fashionable wear, not just sportswear Growing segment of the female athletes International expansion into emerging markets – e.g. India Additional marketing of existing products to appeal to new demographic groups Develop new alliances with companies that are respected regarding social responsibility Brand reorganization by market regions External Threats 1. High competitive industry Failure to respond to market trends in timely manner could greatly affect financial position Production of counterfeit goods, and generic products Negative public perception created by environmental, child labor, contracted manufacturing issues, and sponsored athletes International currency changes could decrease profits Federal Trade regulations in dealing with foreign manufactures Totals

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16 16 Philip H. Knight Chairman of the Board Mark G. Parker CEO and President Gary M. Destefano President of Global Operationsitle Hans van Alebeek Vice President, Global operations & Technology Donald W. Blair Vice President and CFO David J. Ayre Vice President Global Human Resoursces Ronald D. McCray Vice President Chief Administrative office r Bernard F. Pliska Vice President Corporate Controller Trevor Edwards Vice President Global Brand & Category Management Charles D. Denson President Nike Brand Lewis L. Bird III President Affiliates John Slusher Vice President Global Sports Marketing Eric D. Sprunk Vice President Global Footwear

17 Year Ended May 31 (In millions, except per share data) Revenues $ 19, $ 18,627.0 $ 16,325.9 Cost of sales $ 10, $ 10,239.6 $ 9,165.4 Gross margin $ 8, $ 8,387.4 $ 7,160.5 Selling and administrative expense $ 6, $ 5,953.7 $ 5,028.7 Restructuring charges (Note 16) $ $ - Goodwill impairment (Note 4) $ $ - Intangible and other asset impairment (Note 4) $ $ - Interest income, net (Notes 1, 7 and 8) $ (9.50) $ (77.1) $ (67.2) Other (income) expense, net (Notes 17 and 18) $ (88.50) $ 7.9 $ (0.9) Income before income taxes $ 1, $ 2,502.9 $ 2,199.9 Income taxes (Note 9) $ $ $ Net income $ 1, $ 1,883.4 $ 1,491.5 Basic earnings per common share (Note 12) $ 3.07 $ 3.80 $ 2.96 Diluted earnings per common share (Note 12) $ 3.03 $ 3.74 $ 2.93 Dividends declared per common share $ 0.98 $ $

18 18 May 31, (In millions) ASSETS Current assets: Cash and equivalents $ 2, $ 2, Short-term investments $ 1, $ Accounts receivable, net (Note 1) $ 2, $ 2, Inventories (Notes 1 and 2) $ 2, $ 2, Deferred income taxes (Note 9) $ $ Prepaid expenses and other current assets $ $ Total current assets $ 9, $ 8, Property, plant and equipment, net (Note 3) $ 1, $ 1, Identifiable intangible assets, net (Note 4) $ $ Goodwill (Note 4) $ $ Deferred income taxes and other assets (Notes 9 and 18) $ $ Total assets $ 13, $ 12, LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt (Note 8) $ $ 6.30 Notes payable (Note 7) $ $ Accounts payable (Note 7) $ 1, $ 1, Accrued liabilities (Notes 5 and 18) $ 1, $ 1, Income taxes payable (Note 9) $ $ Total current liabilities $ 3, $ 3, Long-term debt (Note 8) $ $ Deferred income taxes and other liabilities (Note 9) $ $ Commitments and contingencies (Notes 15 and 18) $ - Redeemable Preferred Stock (Note 10) $ 0.3 Shareholders’ equity: Common stock at stated value (Note 11): Class A convertible — 95.3 and 96.8 shares outstanding $ 0.1 Class B— and shares outstanding $ 2.7 Capital in excess of stated value $ 2, $ 2, Accumulated other comprehensive income (Note 14) $ $ Retained earnings $ 5, $ 5, Total shareholders’ equity Total liabilities and shareholders’ equity

19 Liquidity Ratios Current 2.97 Quick2.25 Leverage Ratios Debt to total assets0.06 Debt to equity0.09 Long-term debt to equity0.05 Times-interest-earned ratio61.06 Activity Ratios Fixed Assets Turnover9.8 Total Assets Turnover1.45 Inventory Turnover8.14 Profitability Ratios Gross profit margin 0.45 Operating profit margin0.13 Net profit margin0.08 Return on assets0.11 Return on equity0.17 Price-earnings ratio18.83 EPS3.03 Growth Ratios3 Years Sales Growth% Net Income Growth% Earnings per share Growth% Dividends per share Growth%

20 DateSalesEBITDEPRECIATIONTOTAL NET INCOMELONG TERM DEBT May Bill1.96 Bill Mill1.49 Bill Mill May Bill2.50 Bill Mill1.88 Bill Mill May Bill2.20 Bill Mill1.49 Bill Mill May Bill2.14 Bill Mill1.39 Bill Mill May Bill1.86 Bill Mill1.21 Bill Mill 20

21 1.Recognized brand name – ‘Swoosh’ is ubiquitous 2.Strong in research and development – innovative product development 3.Strong marketing campaign - sponsors top athletes. Marketing practices enables them to expand the athletic market. 4.Diverse portfolio 5.Successful advertising campaigns. 6.Customer loyalty 7.Strong financial position 8.Strong international presence 21

22 1.Products are highly priced 2.Revenues are still mostly dependent upon footwear sales 3.History for violations of minimum wages, child labor and over times in its manufacturing countries. 4.Little control over quality of products from 3 rd party contractors 5.Anti-globalization groups 6.Price sensitivity of products 22

23 23 Internal Strengths Recognized brand name – Swoosh is ubiquitous Strong in research and development – innovative product development Strong marketing campaign - sponsors top athletes. Marketing practices enables them to expand the athletic market A very professionally competitive company Diverse portfolio Successful advertising campaigns Customer loyalty Strong financial position Strong international presence Internal Weaknesses Products are highly priced Revenues are still mostly dependent upon footwear sales History for violations of minimum wages, child labor and over times in its manufacturing countries Little control over quality of products from 3rd party contractors0.051 Anti-globalization groups Price sensitivity of products Totals

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25 25 SO Strategy - S1, O2, O3: The swoosh is so well known that recycled materials and fashionable lines of clothing would definitely create a whole new dimension for Nike. - S3, O3, O4: With some of the most recognizable and followed athletes globally, expanding into places like India and forming alliances with different kinds of sports leagues will be a viable strategy to expand. - S5, O6, O7: Use the company`s successful competitiveness and alliances to reorganizing the brand name and appeal to new/ different demographic groups. WT Strategy - W3, W5, T4, T5: Due to Nike`s history of low labor wages to the thousands of factory workers, a recession may spell the end of many jobs and the production of many more important products. Improving the working conditions and pay of its factory workers is an ideal strategy to prevent such circumstances. ST Strategy - S3, S9, T1, T2: Nike is well known for some of the athletes that it endorses, as well as its international presence, which will help maintain and attract customers even if there are high prices and challenging economic times, as long as it remains at the forefront of market trends. - S6, S7, T3: The quality of material throughout Nike`s diversified portfolio, may be able to help combat counterfeit goods and generic products. Especially now that many consumers associate cost with quality. WO Strategy - W1, W2, O1, O2:Creating sportswear and even fashionable wear from recycled materials, would be an opportunity to sell products at a lower cost. - W4, O4: Use 3rd party contractors to manufacture cheap/ lower cost products in order to appeal to the group of consumers who end up buying generic products, because official merchandise is too expensive.

26 26 Financial Strengthrating is 1 (worst) to 6 (best)Ratings 1 Liquidity6.0 2 Leverage6.0 3 Working capital6.0 4 Return on assets4.0 5 Return on equity4.0 6 Price per earnings6.0 7 Earnings per share5.0 Industry Strength rating is 1 (worst) to 6 (best)FS Total Profit potential6.0 2 Extent Leveraged5.0 3 Economies of scale5.0 4 Growth potential5.0 5 Financial stability6.0 6 Resource utilization5.0 7 Diverse Portfolio5.0 Environmental Stabilityrating is -1 (best) to -6 (worst)IS Total Price range of competing products Competitive pressure Ease of exit from market 4 Successful and recognized advertising 5 Endorsement agreements 6 Price elasticity of demand 7 Risk involved in business Competitive advantagerating is -1 (best) to -6 (worst)ES Total Market share 2 Global presence 3 Strong investor reputation 4 Technological innovation 5 Product life cycle Customer loyalty 7 Control over suppliers and distributors-3.0 CS total-10.0 ES average-1.29 CA average-1.43 IS average5.29 FS average5.29 X Coordinate3.86 Y Coordinate4.00 Strategy ->>>>Aggressive

27 27 Rapid Market Growth Slow Market Growth Weak Competitive Market Strong Competitive Market Quadrant II Quadrant III Quadrant I Quadrant IV o Market Development o Market Penetration o Product Development o Forward Integration o Backward Integration o Horizontal Integration o Related Diversification

28 DivisionsRevenue% RevenueProfits% ProfitsRMSPIG Rate% (1) U.S.6, % %11.20% (2) AMEA5, % %1-2.20% (3) Asia Pacific3, % %12.70% (4) Americas1,284.78% %11.20% Total16, %2, % Low High Low IGR Stars Question Marks Cash Cow Dogs (2) 37% (1) 35% (3) 17% (4) 11% I II III IV

29 29 High 3-4 Medium Low Strong 3-4Average Weak EFEEFE I F E

30 Alternative StrategiesIESPACEGRANDBCGCount Forward Integrationxxxx4 Backward Integrationxxxx4 Horizontal Integrationxxxx4 Market Penetrationxxxx4 Market Developmentxxxx4 Product Developmentxxxx4 Related Diversification xx 2 Unrelated Diversification x 1 Horizontal Diversification Joint Venture Retrenchment x1 Divestiture x1 Liquidation x1 30

31 31 Market ExpansionProd/Recycle/MaterialsAdd. Sports Accessories Key factors WeightASTASASTASASTAS External 1 to 4 Create products from recycled materials Promotion as a fashionable wear, not just sportswear Growing segment of the female athletes International expansion into emerging markets - India Add. marketing of existing prod - appeal to new groups New alliances with co. respected for social responsibility Brand reorganization by market regions High competitive industry Failure to respond to market trends in timely manner Negative public perception Federal Trade regulations with foreign manufactures International currency changes could decrease profits Production of counterfeit goods, and generic products total should be 1.01 Internal 1 to 4 Recognized brand name – Swoosh is ubiquitous Strong in research and development/innovation Strong marketing campaign/sponsors top athletes Diverse portfolio Successful advertising campaigns Customer loyalty Strong financial position Strong international presence Products are highly priced Revenues still mostly dependent upon footwear sales Violations for wages and child labor in manuf. countries Little control over quality of prod. from 3rd party contract Anti-globalization groups Price sensitivity of products total should be

32 32 Invest $500 million in India that will increase revenue by 4.5% through product development, market development, and market penetration in the next 3 years. Open a new Nike Super store in each of India’s largest cities: Mumbai, Delhi, and Bangalore at $5 million per store. Invest $235 million in R&D and manufacturing contracts over the next 3 years. Invest $220 million on marketing and advertisement over the next 3 years. Sign an endorsement bat sponsorship deal with Sachin Tendulkar, India’s biggest cricket star to a multi-year contract. The terms include apparel, footwear, and his own name brand. The deal is worth $30 million over 3 years.

33 To continue being the world leader in sports equipment and apparel. To complete brand reorganization within market regions that will lower cost of sales. To create sportswear that would incorporate recycled material. To develop new alliances with companies who are well respected regarding social responsibility. To invest in additional marketing of existing products that will appeal to new demographic groups. To promote products as fashion wear, not just sportswear. 33

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35 35 Year Ended May 31Projected (In millions, except per share data) Revenues $ 19, $ 19, Forecasted 1.5% revenue increase. Cost of sales $ 10, $ 10, % increase. Gross margin $ 8, $ 8, Selling and administrative expense $ 6, $ 6, % increase from previous year. Restructuring charges (Note 16) $ $ - Goodwill impairment (Note 4) $ $ Intangible and other asset impairment (Note 4) $ $ - Interest income, net (Notes 1, 7 and 8) $ (9.50) Other (income) expense, net (Notes 17 and 18) $ (88.50) Income before income taxes $ 1, $ 2, Income taxes (Note 9) $ $ Based on 24% from 2009 Net income $ 1, $ 1, Basic earnings per common share (Note 12) $ 3.07 $ 3.20 Diluted earnings per common share (Note 12) $ 3.03 $ 3.16 Dividends declared per common share $ 0.98 $ 1.00

36 36 Year Ended May 31, Projected ASSETS Current assets: Cash and equivalents $ 2, $ 2,163.80Minus $ in investment. Short-term investments $ 1, Accounts receivable, net (Note 1) $ 2, $ 2, % previous Inventories (Notes 1 and 2) $ 2, $ 2,628.00Influenced by the cricket line Deferred income taxes (Note 9) $ Prepaid expenses and other current assets $ $ Total current assets $ 9, $ 10, Property, plant and equipment, net (Note 3) $ 1, $ 1,972.70Plus $15 million for three new stores. Identifiable intangible assets, net (Note 4) $ Goodwill (Note 4) $ $ Deferred income taxes and other assets (Notes 9 and 18) $ $ Total assets $ 13, $ 13, LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt (Note 8) $ $ 6.90 Notes payable (Note 7) $ $ Accounts payable (Note 7) $ 1, $ 1, Accrued liabilities (Notes 5 and 18) $ 1, Income taxes payable (Note 9) $ $ Total current liabilities $ 3, $ 3, Long-term debt (Note 8) $ $ Less portion of $32.0 Deferred income taxes and other liabilities (Note 9) $ $ Commitments and contingencies (Notes 15 and 18) $ - Redeemable Preferred Stock (Note 10) $ 0.30 Shareholders’ equity: Common stock at stated value (Note 11): Class A convertible — 95.3 and 96.8 shares outstanding $ 0.10 Class B— and shares outstanding $ 2.70 Capital in excess of stated value $ 2, $ 2, Accumulated other comprehensive income (Note 14) $ Retained earnings $ 5, $ 5, Total shareholders’ equity $ 8, $ 9, Total liabilities and shareholders’ equity $ 13, $ 13,617.04

37 2009Projected 2010 Liquidity Ratios Current Quick Leverage Ratios Debt to total assets0.06 Debt to equity0.09 Long-term debt to equity Times-interest-earned ratio Activity Ratios Fixed Assets Turnover Total Assets Turnover Inventory Turnover Profitability Ratios Gross profit margin 0.45 Operating profit margin Net profit margin Return on assets Return on equity Price-earnings ratio EPS Growth Ratios3 Years1 Year Sales Growth% Net Income Growth% Earnings per share Growth% Dividends per share Growth%

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39 39 Area of ObjectivesMeasureTime ExpectationPrimary Responsibility Customers 1. Customer satisfactionCustomer and online surveysQuarterlyManagers/ Marketing 2. Customer LoyaltyProduct and purchasing reviews. Memberships and number of returning and new customers. QuarterlyMarketing 3. AccessibilityOpen more stores in various countries.Biannually- AnnuallyMarketing Managers/Employees 1. Improve working conditionsIncrease in productivity, employee surveys.QuarterlyCEO 2. Improve employee trainingIncrease in productivity and overall operating efficiency QuarterlyHuman Resources Community/Social Responsibility 1. Business EthicsEndorse positive role model athlete`s. Increase promotion of sports and wellness. AnnuallyCEO 2. Environmentally FriendlyRecycle materials, improve reputation and customer perspective. BiannuallyCEO 3. Community involvementRun local sports camps, community/ city events- increase customer awareness. BiannuallyRegional Managers Operations/ Processes 1. Improve Brand ImageIncrease in sales and customer recommendations. QuarterlyCEO 2. Product InnovationNumber of new stores, products and marketing QuarterlyCEO/ Marketing 3. Market PenetrationNumber of stores and sales in new/ other countries AnnuallyMarketing Financial 1. Reduce Cost of productionDecrease in production expenses.AnnuallyCFO 2. Increase RevenueIncrease in annual salesAnnuallyCFO

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41 _10-K.pdfhttp://investors.nikeinc.com/Theme/Nike/files/doc_financials/AnnualReports/2009/docs/Nike_2009 _10-K.pdf set=incomeStatement&period=A¤cy=nativehttp://investing.businessweek.com/research/stocks/financials/financials.asp?ticker=NKE:US&data set=incomeStatement&period=A¤cy=native Datamonitor.com – UMFK library sites https://materials.proxyvote.com/Approved/654106/ /AR_44240/HTML2/default.htm Strategic Management Concepts and Cases 13 th Edition. Fred R. David. 41

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