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Nike, Inc. Strategic Analysis 2009

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

2 OVERVIEW HISTORY FINANCIAL TRENDS 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

3 HISTORY

4 MAJOR MILESTONES 1970- The Swoosh first appears on a football/soccer cleat called the Nike. 1978- Tennis "bad boy" John McEnroe is signed by Nike to an endorsement contract. 1989- Nike enters the European football market Nike wins Advertiser of the Year at the Cannes Advertising Festival. 1996- Nike signs Tiger Woods 1999- Bill Bowerman, co-founder of Nike, dies on Dec. 24 at age 88. 2002- Nike purchases Hurley International 2003- Nike acquires once-bankrupt rival Converse for $305 million 2004- Phil Knight steps down as CEO and President of Nike, but continues as chairman 2005- Nike Signs Tennis Pro Rafael Nadal. 2006- Nike and Apple release the Nike+iPod sports kit 2008- Nike sells its Nike Bauer hockey equipment division & purchases Umbro.

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

6 CURRENT MISSION STATEMENT
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.

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

8 PROPOSED MISSION STATEMENT
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). 1. 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

9 EXTERNAL ASSESSMENT

10 POSITIONING MAP High Performance Low Price High Price Low Performance

11 Critical Success factors
CPM MATRIX NIKE ADIDAS PUMA Critical Success factors Weights Rating Weighted Score 0.0 to 1.0 1 to 4 Advertising 0.10 3 0.30 4 0.40 0.20 Product Quality 0.08 0.32 0.24 2 0.16 Price Competitiveness 1 Management 0.06 0.18 0.12 Financial Position Customer Loyalty 0.05 0.15 Global Expansion Market Share Brand 0.09 0.36 0.27 Endorsement Deals Portfolio Diversification Product Placement Research & Development Totals 1.00 3.35 3.13 1.57

12 OPPORTUNITIES 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

13 THREATS 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.

14 EFE MATRIX External Opportunities
1.  Creating sportswear that would incorporate recycled materials from their own production lines and other places. 0.05 3 0.15 2.      Promotion as a fashionable wear, not just sportswear. 0.06 2 0.12 3.      Growing segment of the female athletes. 0.08 0.24 4.      International expansion into emerging markets – e.g. India 4 0.48 5.      Additional marketing of existing products to appeal to new demographic groups. 0.07 0.14 6.      Develop new alliances with companies that are respected regarding social responsibility. 1 7.      Brand reorganization by market regions External Threats 1.      High competitive industry 0.56 2.      Failure to respond to market trends in timely manner could greatly affect financial position. 0.09 0.36 3.      Production of counterfeit goods, and generic products. 4.      Negative public perception created by environmental, child labor, contracted manufacturing issues, and sponsored athletes. 0.27 5.      International currency changes could decrease profits. 6.      Federal Trade regulations in dealing with foreign manufactures. Totals 1.00 3.03

15 INTERNAL ASSESSMENT

16 Eric D. Sprunk Vice President Global Footwear
ORGANIZATIONAL CHART Philip H. Knight Chairman of the Board CEO and President Mark G. Parker 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 Chief Administrative officer Bernard F. Pliska Corporate Controller Trevor Edwards Vice President Global Brand & Category Management President Nike Brand Charles D. Denson President Affiliates Lewis L. Bird III John Slusher Global Sports Marketing Eric D. Sprunk Vice President Global Footwear

17 (In millions, except per share data)
2009 INCOME STATEMENT Year Ended May 31 (In millions, except per share data) 2009 2008 2007 Revenues $ 19,176.10 $ 18,627.0 $ 16,325.9 Cost of sales $ 10,571.70 $ 10,239.6 $ ,165.4 Gross margin $ 8,604.40 $ ,387.4 $ ,160.5 Selling and administrative expense $ 6,149.60 $ ,953.7 $ ,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) $ $ (0.9) Income before income taxes $ 1,956.50 $ ,502.9 $ ,199.9 Income taxes (Note 9) $ $ $ Net income $ 1,486.70 $ ,883.4 $ ,491.5 Basic earnings per common share (Note 12) $ $ $ Diluted earnings per common share (Note 12) $ $ $ Dividends declared per common share $ $ $

18 LIABILITIES AND SHAREHOLDERS’ EQUITY
2009 BALANCE SHEET May 31, 2009 2008 (In millions) ASSETS Current assets: Cash and equivalents $ 2,291.10 $ 2,133.90 Short-term investments $ 1,164.00 $ Accounts receivable, net (Note 1) $ 2,883.90 $ 2,795.30 Inventories (Notes 1 and 2) $ 2,357.00 $ 2,438.40 Deferred income taxes (Note 9) $ $ Prepaid expenses and other current assets $ $ Total current assets $ 9,734.00 $ 8,839.30 Property, plant and equipment, net (Note 3) $ 1,957.70 $ 1,891.10 Identifiable intangible assets, net (Note 4) $ $ Goodwill (Note 4) $ $ Deferred income taxes and other assets (Notes 9 and 18) $ $ Total assets $ 13,249.60 $ 12,442.70 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt (Note 8) $ $ Notes payable (Note 7) $ $ Accounts payable (Note 7) $ 1,031.90 $ 1,287.60 Accrued liabilities (Notes 5 and 18) $ 1,783.90 $ 1,761.90 Income taxes payable (Note 9) $ $ Total current liabilities $ 3,277.00 $ 3,321.50 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) $ Shareholders’ equity: Common stock at stated value (Note 11): Class A convertible — 95.3 and 96.8 shares outstanding $ Class B— and shares outstanding $ Capital in excess of stated value $ 2,871.40 $ 2,497.80 Accumulated other comprehensive income (Note 14) $ $ Retained earnings $ 5,451.40 $ 5,073.30 Total shareholders’ equity 8693.1 7825.3 Total liabilities and shareholders’ equity

19 2009 FINANCIAL RATIOS Liquidity Ratios Current 2.97 Quick 2.25
Leverage Ratios Debt to total assets 0.06 Debt to equity 0.09 Long-term debt to equity 0.05 Times-interest-earned ratio 61.06 Activity Ratios Fixed Assets Turnover 9.8 Total Assets Turnover 1.45 Inventory Turnover 8.14 Profitability Ratios Gross profit margin  0.45 Operating profit margin 0.13 Net profit margin 0.08 Return on assets 0.11 Return on equity 0.17 Price-earnings ratio 18.83 EPS 3.03 Growth Ratios 3 Years Sales Growth% Net Income Growth% Earnings per share Growth% Dividends per share Growth%

20 FINANCIAL TRENDS Date Sales EBIT DEPRECIATION TOTAL NET INCOME
LONG TERM DEBT May-09 19.18 Bill 1.96 Bill Mill 1.49 Bill Mill May-08 18.63 Bill 2.50 Bill Mill 1.88 Bill Mill May-07 16.33 Bill 2.20 Bill Mill Mill May-06 14.95 Bill 2.14 Bill Mill 1.39 Bill Mill May-05 13.74 Bill 1.86 Bill Mill 1.21 Bill Mill

21 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. Diverse portfolio Successful advertising campaigns. Customer loyalty Strong financial position Strong international presence

22 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 contractors Anti-globalization groups Price sensitivity of products

23 IFE MATRIX Internal Strengths
Recognized brand name – Swoosh is ubiquitous 0.10 4 0.40 Strong in research and development – innovative product development 0.07 3 0.21 Strong marketing campaign - sponsors top athletes. Marketing practices enables them to expand the athletic market 0.09 0.36 A very professionally competitive company 0.08 0.24 Diverse portfolio Successful advertising campaigns Customer loyalty 0.06 0.18 Strong financial position Strong international presence 0.4 Internal Weaknesses Products are highly priced 2 0.12 Revenues are still mostly dependent upon footwear sales 0.05 History for violations of minimum wages, child labor and over times in its manufacturing countries. Little control over quality of products from 3rd party contractors 1 Anti-globalization groups 0.04 Price sensitivity of products Totals 1.00 3.10

24 STRATEGIC ASSESSMENT

25 SWOT MATRIX WT Strategy
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. - 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. - 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. ST Strategy 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 SPACE MATRIX ES average -1.29 CA average -1.43 IS average 5.29
Financial Strength rating is 1 (worst) to 6 (best) Ratings 1 Liquidity 6.0 2 Leverage 3 Working capital 4 Return on assets 4.0 5 Return on equity 6 Price per earnings 7 Earnings per share 5.0 Industry Strength FS Total 37.0 Profit potential Extent Leveraged Economies of scale Growth potential Financial stability Resource utilization Diverse Portfolio Environmental Stability rating is -1 (best) to -6 (worst) IS Total Price range of competing products -2.0 Competitive pressure Ease of exit from market -1.0 Successful and recognized advertising Endorsement agreements Price elasticity of demand Risk involved in business Competitive advantage ES Total -9.0 Market share Global presence Strong investor reputation Technological innovation Product life cycle Customer loyalty Control over suppliers and distributors -3.0 CS total -10.0 ES average -1.29 CA average -1.43 IS average 5.29 FS average X Coordinate 3.86 Y Coordinate 4.00 Strategy ->>>> Aggressive

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

28 BCG MATRIX II I III IV Stars Question Marks Dogs Cash Cow
High Low +25 +20 II I +15 Stars Question Marks +5 (4) 11% (3) 17% (1) 35% IGR (2) 37% -5 Cash Cow Dogs -15 III IV -20 -25 Low Divisions Revenue % Revenue Profits % Profits RMSP IG Rate% (1) U.S. 6,542.9 39% 837.2 35% 1 1.20% (2) AMEA 5,512.2 33% 877.1 37% -2.20% (3) Asia Pacific 3,322.0 20% 394.6 17% 2.70% (4) Americas 1,284.7 8% 263.6 11% Total 16,661.8 100% 2,372.5

29 IE MATRIX EFE I F E High 3-4 Medium 2-2.99 Low 1-1.99 Strong 3-4
Average Weak I F E

30 MATRIX ANALYSIS Alternative Strategies IE SPACE GRAND BCG Count
Forward Integration x 4 Backward Integration Horizontal Integration Market Penetration Market Development Product Development Related Diversification 2 Unrelated Diversification 1 Horizontal Diversification Joint Venture Retrenchment Divestiture Liquidation

31 Prod/Recycle/Materials Add. Sports Accessories
QSPM Market Expansion Prod/Recycle/Materials Add. Sports Accessories Key factors Weight AS TAS External 1 to 4 Create products from recycled materials 0.1 3 0.3 2 0.2 4 0.4 Promotion as a fashionable wear, not just sportswear. 0.07 0.21 1 0.14 Growing segment of the female athletes 0.08 - International expansion into emerging markets - India 0.12 0.48 0.24 Add. marketing of existing prod - appeal to new groups New alliances with co. respected for social responsibility 0.06 0.18 Brand reorganization by market regions High competitive industry 0.32 0.16 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 1.0 Internal Recognized brand name – Swoosh is ubiquitous Strong in research and development/innovation 0.09 0.36 0.27 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 0.05 0.15 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 4.95 3.75

32 RECOMMENDATIONS 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 OBJECTIVES 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.

34 STRATEGIC IMPLEMENTATION

35 PROJECTED INCOME Year Ended May 31 Projected 2009 2010
(In millions, except per share data) Revenues $ 19,176.10 $ 19,463.74 Forecasted 1.5% revenue increase. Cost of sales $ 10,571.70 $ 10,730.28 1.5% increase. Gross margin $ 8,604.40 $ 8,733.47 Selling and administrative expense $ 6,149.60 $ 6,351.95 3.3% 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) $ (9.50) Other (income) expense, net (Notes 17 and 18) $ (88.50) Income before income taxes $ 1,956.50 $ 2,429.52 Income taxes (Note 9) $ $ Based on 24% from 2009 Net income $ 1,486.70 $ 1,846.43 Basic earnings per common share (Note 12) $ $ Diluted earnings per common share (Note 12) $ $ Dividends declared per common share $ $

36 PROJECTED BALANCE SHEET
Year Ended May 31, Projected 2009 2010 ASSETS Current assets: Cash and equivalents $ 2,291.10 $ 2,163.80 Minus $ in investment. Short-term investments $ 1,164.00 Accounts receivable, net (Note 1) $ 2,883.90 $ 2,976.18 3.2% previous Inventories (Notes 1 and 2) $ 2,357.00 $ 2,628.00 Influenced by the cricket line Deferred income taxes (Note 9) $ Prepaid expenses and other current assets $ $ Total current assets $ 9,734.00 $ 10,104.38 Property, plant and equipment, net (Note 3) $ 1,957.70 $ 1,972.70 Plus $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 $ 13,249.60 $ 13,617.04 LIABILITIES AND SHAREHOLDERS’ EQUITY Current liabilities: Current portion of long-term debt (Note 8) $ $ Notes payable (Note 7) $ $ Accounts payable (Note 7) $ 1,031.90 $ 1,051.50 Accrued liabilities (Notes 5 and 18) $ 1,783.90 Income taxes payable (Note 9) $ $ Total current liabilities $ 3,277.00 $ 3,307.30 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) $ Shareholders’ equity: Common stock at stated value (Note 11): Class A convertible — 95.3 and 96.8 shares outstanding $ Class B— and shares outstanding $ Capital in excess of stated value $ 2,871.40 $ 2,995.40 Accumulated other comprehensive income (Note 14) $ Retained earnings $ 5,451.40 $ 5,665.83 Total shareholders’ equity $ 8,693.10 $ 9,031.53 Total liabilities and shareholders’ equity

37 PROJECTED FINANCIAL RATIOS
2009 Projected 2010 Liquidity Ratios Current  2.97 3.06 Quick 2.25 2.26 Leverage Ratios Debt to total assets 0.06 Debt to equity 0.09 Long-term debt to equity 0.05 0.04 Times-interest-earned ratio 48.55 65.66 Activity Ratios Fixed Assets Turnover 9.8 9.87 Total Assets Turnover 1.45 1.43 Inventory Turnover 8.14 7.41 Profitability Ratios Gross profit margin  0.45 Operating profit margin 0.1 0.12 Net profit margin 0.08 Return on assets 0.11 0.14 Return on equity 0.17 0.20 Price-earnings ratio 18.83 17.83 EPS 3.03 3.20 Growth Ratios 3 Years 1 Year Sales Growth% 1.50 Net Income Growth% 24.20 Earnings per share Growth% 4.23 Dividends per share Growth% 2.04

38 EVALUATION

39 Primary Responsibility
BALANCED SCORECARD Area of Objectives Measure Time Expectation Primary Responsibility Customers 1. Customer satisfaction Customer and online surveys Quarterly Managers/ Marketing 2. Customer Loyalty Product and purchasing reviews. Memberships and number of returning and new customers. Marketing 3. Accessibility Open more stores in various countries. Biannually- Annually Managers/Employees 1. Improve working conditions Increase in productivity, employee surveys. CEO 2. Improve employee training Increase in productivity and overall operating efficiency Human Resources Community/Social Responsibility 1. Business Ethics Endorse positive role model athlete`s. Increase promotion of sports and wellness. Annually 2. Environmentally Friendly Recycle materials, improve reputation and customer perspective. Biannually 3. Community involvement Run local sports camps, community/ city events- increase customer awareness. Regional Managers Operations/ Processes 1. Improve Brand Image Increase in sales and customer recommendations. 2. Product Innovation Number of new stores, products and marketing CEO/ Marketing 3. Market Penetration Number of stores and sales in new/ other countries Financial 1. Reduce Cost of production Decrease in production expenses. CFO 2. Increase Revenue Increase in annual sales

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41 SOURCES Datamonitor.com – UMFK library sites https://materials.proxyvote.com/Approved/654106/ /AR_44240/HTML2/default.htm Strategic Management Concepts and Cases 13th Edition. Fred R. David.

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