Competitive Intelligence for Nike Inc.

22:799:601:68 SC ANALYTICS MS

Taha Saeed

Student at Rutgers University

February 20th, 2024

Company and Industry Justification

• One of the reasons I wanted to look at Nike was because it is a very well known company among many consumers. The company has a very large global footprint, recognizable products and is competing with a number of household brands such as Adidas, Puma, Under Armour and others.

• In more recent news, Nike this week announced that they plan to cut approximately 2% of their global workforce or about 1600 jobs according to the WSJ. 

• As for the industry, I am very interested in seeing how the consumer goods industry is doing in the post-pandemic world. This is especially prevalent given how much inflation is still affecting Americans today.

Industry Analysis

• Enterprise Distribution

• Industry Classification

• Supply Chain Mapping

• Industry Trend Analysis

• Concentration and Competition Intensity

Enterprise Distribution

• California and New York have the highest number of enterprises from this industry.

• Oregon has the highest revenue and operating income, most likely due to Nike Inc.

• California, New York, and Colorado come behind Oregon.

Industry Classification

• Nike is positioned in the Consumer Discretionary sector. Its industry is Textiles, Apparel, and Luxury Goods. This is important because while footwear is an important part of Nike's business, the company also has a very large product collection of other apparel wear.

• Its biggest competitors in the USA by Revenue are V.F. Corporation, PVH Corp., and Tapestry Incorporated. As shown in the navigator, Nike is considerably much larger than the others in the industry. 

Supply Chain Mapping

• Raw mineral and textile suppliers make up the bulk of the industry's suppliers

• Customers are largely distributors, apparel retail, and department stores

Industry Trend Analysis

• Total Revenue has stayed more or less the same for a number of years for the industry. Total net income however suffered a significant drop in 2020, likely due to the Covid-19 pandemic. It has since recovered and even surpasses pre-pandemic levels.

• Operating income and the proportion of profitable enterprises show a similar pattern. Some steady growth and then a drop in 2020 before steadily climbing back up. The pandemic seems to have hurt this industry especially hard but it seems to have recovered in the years since.

• Growth seems to be a much different story. Both revenue and net income growth seem to be decreasing in the post-pandemic world. Operating income and the number of growing enterprises show the same thing. Bottom line, the industry is struggling to grow in a post-COVID world.

Concentration and Competition Intensity

• Nike seems to be a dominant player in the industry. Before the pandemic it represented a little less than half of the industry. After the pandemic it has continued to garner market share from its competitors. Given the industry has had little overall growth this might mean that Nike's gain meant its rivals' loss. 

• Companies such as Under Armour and Ralph Lauren have not seen much change. V.F. Corp and Tapestry seems to be battling Nike for its share of industry revenue. This can also be seen as Nike has increased its net income compared to those companies.

• Nike currently represents 65% of the industry's revenue in 2022!

Competition Positioning Analysis

• Revenue vs Cost and Net Income vs Total Cost

• Profit Frontier and Liability Asset Ratio vs ROA

• Enterprise Ranking

• KPI Examination

Revenue vs Cost and Net Income vs Total Cost

• In regards to both revenue and cost, Nike is performing much better than its competitors. This might have to do with the fact that Nike's products are in much higher demand. Its clothing and footwear can be worn for both athletes and ordinary individuals.

• Nike's marketing has also been very successful in generating buzz around its products. Having exclusive contracts with some of the world's greatest athletes is an invaluable asset for a company like Nike.

• It also has much better net income than its competitors with a significant gap. Nike likely outsources a great percentage of the actual manufacturing in areas with cheaper labor and material costs in order to achieve such high net incomes.

• Something to note is that Nike, while enjoys higher revenues and net income, also spends significantly more than its competitors in the industry.

Profit Frontier and Liability Asset Ratio vs ROA

• Nike is the only firm in the industry that has revenues greater than $50 billion. Many firms in the industry have much smaller revenues compared to the Oregon based company.

• In terms of profitability, the company is very stable compared to its competitors. In during the pandemic, Nike only saw a small decline in revenue. What is interesting is Crocs. It came out of the pandemic with growth in net margins, operating margins, and ROA. It was performing much better than all of the other companies. Especially like PVH and Under Armour.

• Nike is also the best performing company in the industry when it comes to ROA and Liability Asset ratio. Much better than its peers who have a greater liability asset ratio compared to Nike. Is this because Nike does not have many assets in the first place?

Enterprise Ranking

• Not surprising, Nike outperforms all of its competitors when it comes to revenue generation. Consumers like the company's products and so it benefits from higher sales.

• This is not perfect however as the company also outspends all of its competitors. It spends more than all of the others combined!

KPI Examination

• Nike has a low level of gross margin, 0.459, which puts it slightly outside of the first quartile in the industry. It does however have a very good ROA and ROIC. Both standing at 0.149 and 0.226 which makes it into the 80th percentile.

• Its current asset ratio is at a very impressive 2.629 which makes the company very liquid in the short-term and its liability asset ratio is at 0.621 so the company has more debt than assets. This could prove problematic if the rate continues.

• Its total revenue growth rate is not very good. It is 0.048 which might indicate it has trouble growing. Its operating income growth rate actually decreased and is at -0.038. The company actually had less money to continue running operations.

• On a brighter note, SG&A costs as a percentage of revenue is very low, 0.082. Nike spends much less than its competitors in this area which might leave it more room to fund other areas of its business.

Enterprise Diagnosis

• Strengths and Weaknesses

• Value Driver Analysis

• Breakdown Analysis

Strengths and Weaknesses

• At first glance it might seem clear that Nike has a many key strengths. It has recognizable products, exclusive contracts with star athletes, strong marketing budget, significant amounts of money, and a low SG&A expense. 

• However there are problems that are rising. The industry as a whole has been slow to recover from the pandemic and increased inflation in the US might make it more difficult for Nike to sell its products. The revenue growth rate for the company has been disappointing and it seems to be increasing its debt levels.

Value Driver Analysis

• Nike has a much longer Cash Conversion Cycle than initially expected. While its net margins are impressive, Crocs is doing much better as it has a lower CCC and better margins on its products.

• Crocs and other industry competitors also have a greater deal of financial leverage than Nike. This could be problematic in the long term as these companies could use this leverage to further fund and develop themselves to make them worthwhile competitors to Nike, especially Crocs. Nike would have to figure out a solution either by investing in itself through cash or taking out more debt. 

• In regards to revenue growth, Ralph Lauren and Crocs have shown incredible growth recently, growth that Nike has not been able to replicate. In the long term, Crocs and other industry competitors could seriously pose a challenge to Nike if it doesn't find a solution to growth. Perhaps the company is still to risk averse as it hasn't increased its costs either.

Breakdown Analysis

• Nike has higher than average COGS at around 54%. It is followed closely by Sketchers and Crocs. It also has a very low SG&A expense, the lowest in the industry and might be a contributing factor to its respectable net income figures. 

• It has more cash and cash equivalents than the industry average and maintains the industry average in both PPE and inventory. These might be areas where it could make improvements. While it is performing better than Ralph Lauren and Sketchers, it has nearly double the inventory, on a percentage basis, than Crocs.

• The company's breakdown between current and noncurrent liabilities and equity seems to be almost even between the three. Crocs is unusual however in that the company has a great deal of its liabilities in the form of noncurrent liabilities, almost 70%! It might have taken out long-term debt in order to finance further expansion in the industry. Again, Nike should be very careful of Crocs' quick rise in the industry. 

Summary

• Nike Inc. is an enterprise favored by consumers all over the world for its quality products in clothing and footwear, impeccable marketing, and strong competition. However it is facing problems that are both unique to itself as well as problems associated with the industry as a whole.

• The industry as a whole is still attempting to recover from the Covid-19 pandemic, and Nike is finding it hard to grow itself. The company is incredibly reliant on the US market for a bulk of its revenue but with inflation still in the minds of many Americans, a general slowdown in the industry is certain. While it is still performing better than most, other companies such as Crocs are attempting to take advantage of the unique market conditions with their lower priced products. 

• Nike must seriously work on reducing its inventory and use more of their PPE to generate profits. The company should consider other aspects of growth and determine which products have the best chance at returning profits. This will lead to some growth in its costs but it appears that Nike is acting too conservatively in a very competitive and fast paced industry. The company has increased its liabilities but has not shown much returns.

• The CEO has signaled that the company will be focusing on its running and women segments as well as its Jordan brand in order to increase growth after the company announced 1600 layoffs.