Current Market Conditions of Nike
Nike, Inc., one of the world’s leading seller of athletic footwear and apparel was incorporated in 1968 and since then has grown immeasurably with a market capitalization of $83.6 billion and a brand value of $19 billion as of 2014 and a huge presence in 190 countries.. Several market conditions have impacted Nike’s growth and will continue to do so as it journeys through the future in an even more competitive industry.
Currently, the key players in the athletic footwear and apparel industry are Adidas, Reebok and Puma. Until recently, new entrants in the market have emerged, namely Under Armour and Lululemon Athletica. The sports apparel industry growth rate is expected to register approximately a four percent rise from 2012 to 2019 due to the growing concern for fitness, the economic prosperity in the Asia Pacific and Latin American countries, the rise in the popularity of women's sports apparel and the growing demand for more fashionable and comfortable sportswear. However, despite the forecasted growth in the industry, Nike will still be faced by stiff competition from the local and niche players in the market, as well as from counterfeit manufacturers. It should be noted that there are few barriers to entry in the industry where Nike belongs.
Nike shoes and apparel follow the theory of the price elasticity of demand, it being considered as elastic. The reason behind this is that there are many available close substitutes in the market, so much so, that if Nike increases the price of its rubber shoes, people may choose to buy an Adidas or a Reebok. It is therefore important that before increasing its prices, Nike should think about it carefully else, it may mean lost sales for them, of course, not considering the Nike loyalists.
With regards to Nike’s cost structure, it is observed that the selling, general and administrative expenses have risen because of the company’s investment in retail through bricks-and-mortar and online stores. Furthermore, it is forecasted that these costs will continue to rise as the company moves toward digital infrastructure and an increase in event-driven promotions and overhead. Another cost factor that affects Nike’s manufacturing expenses is the labor cost. Although Nike’s manufacturing is outsourced, it is projected that the cost of labor will increase in the countries where their manufacturing operations are located. The manufacturing network of Nike consists of 700 factories in 42 countries. The rise in the labor cost is due in part to stricter regulatory requirements concerning the safety standards of the factories. It is a challenge, therefore for Nike to continue its lean manufacturing thrusts for better labor productivity.
A growth opportunity for Nike is in the area of technology. To ensure its long-term profitability, Nike needs to increase its investment in e-commerce sales. It should strive to enhance the digital experience of its customers through the use of various platforms like social media and the development of digital sports products. Moreover, Nike should strengthen its R&D to come up with new designs in their footwear and apparel that will set them apart from the competition. They should come up with innovative manufacturing techniques to lower its production cost; thus, being able to price its products competitively.
Another economic consideration which affects Nike’s profitability is the currency factor. Unlike its new rivals, Lululemon and Under Armour, Nike, with its greater exposure to overseas markets, is not immune to global challenges such as currency fluctuations. A slowdown in the economies of its other markets may cause significant disruptions in its profitability. The overseas market, however are not without benefits for Nike. For one, some of its foreign sales, are subjected to lower tax rates.
Like any other company, Nike faces a plethora of opportunities and threats. But considering that it has survived the past challenges the environment has posed for them, one believes that Nike can strongly face its rivals as it continues to capitalize on its strengths and sustain its competitive advantage.
References
Soni, P. (2014a, December 2). NIKE’s manufacturers: Future cost-side headwinds. Retrieved from Market Realist Web site: http://marketrealist.com/2014/12/nikes-manufacturers-future-cost-side-headwinds/
Soni, P. (2014b, December 2). An overview of NIKE’s supply chain and manufacturing strategies. Retrieved from Market Realist Web site: http://marketrealist.com/2014/12/overview-nikes-supply-chain-manufacturing-strategies/
Soni, P. (2014c, December 2). Where Nike stands in the brand stakes. Retrieved from Market Realist Web site: http://marketrealist.com/2014/12/nike-stands-brand-stakes/
Team, T. (2013, May 13). Why Nike will outpace the Sports apparel market's growth. Retrieved from forbes.com: http://www.forbes.com/sites/greatspeculations/2013/05/13/why-nikes-growth-will-outpace-the-sports-apparel-markets/#3223a92e6fb6
