Introduction to Business

History of the Company:
Two men – Phil Knight1 and Bill Bowerman2, founded Nike. Bill Bowerman was a track coach at the University of Oregon and Knight was a runner under him.
Phil Knight first earned a bachelor’s degree in business administration from the University of Oregon. Then after a year in the U.S Army Transportation Corps, he earned a master’s degree in business administration from Stanford University. It was after this, while travelling to Japan that Knight had the idea of starting a business to import running shoes. German products dominated the American market, and Knight wanted to break that monopoly. He came up with the company Blue Ribbon Sports3, the forerunner of Nike. Back in America, he and Bowerman each pledged five hundred dollars to the new company.

Phil Knight formed a partnership with a Japanese firm Onitsuka Tiger. The first batch of 200 shoes arrived in America in December of 1963. Knight distributed these shoes at local and regional track meets while Bowerman designed footwear. At this time, Knight was a CPA at Coopers & Lybrand. He shifted to Price Waterhouse & Co. a year later and stayed there till 1967.
Soon the Blue Ribbon Sports Company had its first employee, Jeff Johnson4 who was a former competitor of Knight’s. The name Nike5 was based on the Greek goddess of victory. At this point of time relations broke down between Onitsuka and Nike. A company called Nisso Iwai allowed Nike to subcontract its own shoe line. Steve Prefontaine6, a running prodigy, became the first major track athlete to wear Nikes. Nike now had revenue of 3.2 million dollars.(Jeff Porter  et al.)
A year later Nike opened its first manufacturing facility at Exeter in New Hampshire. In 19797world head quarters were opened at 3900 S.W Murray Blvd in Beaverton, Oregon.
In 1980 Nike went public with two million shares of common stock. Six years later Nike had revenue of 1.07 billion dollars. Since then Nike has grown to the company it is today picking up along the way John McEnroe, Pete Sampras, Monica Seles, Michael Jordan, Andre Agassi, Shane Warne, Maria Sharapova, Venus and Srena Williams, major sports stars who endorsed and continue to endorse Nike.
The Nike logo:
Today the Nike logo8 is so famous that in most instances the name of the company is not required. It can be identified simply by its logo. Carolyn Davidson9 created the logo in 1971.
Product Lines:
Nike has three primary product lines: footwear, apparel and equipment.10
In footwear Nike Air is the major product line. The technology was developed by Nike to provide cushioning for athletes according to the Nike website. Max Air, the next step in impact cushioning, uses big air to provide maximum protection from impact. Zoom Air is all about performance and manoeuvrability. Nike Shox is made to cushion against high levels of impact but also to be responsive.
Nike apparel has many innovative lines such as Clima-FIT, nikesphere dry and nikesphere thermal for the comfort of athletes in all conditions. The equipment from Nike includes eyewear, timing devices and other technical products such as heart rate monitors.
A market niche is one part of the market that a company specialises in. For Nike this niche initially started out as footwear for athletes. It then expanded to include other sports such as basketball, golf and tennis. Further expansion led to the apparel and now the technology product lines. In keeping with Bill Bowerman’s view that anyone with a body is an athlete, Nike’s market includes people in the demographic range fourteen to thirty.

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Marketing Strategy:
Nike recently announced its marketing strategy, reported by Reuters. The company’s strategy will be to focus giving consumers a premium experience, which will be built on innovation in their products, positioning themselves as brand leaders and elevating their retail presence. Nike also wants to increase its direct-to-consumer business by means of inline stores, factory outlets and e-commerce.  According to company CEO and President they count the ability to connect with their customers as their greatest competitive edge.11

Nike’s competitors include a long list of companies but for purposes of analysis Reebok and Adidas may be considered the primary competitors.12 According to an analysis carried out at DePaul University, Nike holds approximately thirty percent of the market followed by Adidas at fifteen percent and Reebok at eleven percent. The product line of Nike and Reebok do not differ widely. However Reebok’s financial position is slipping, which is reflected in their declining stock price and falling sales. One reason for this could be the lack of advertising on Reebok’s part. While Nike’s ‘Just Do It’ is recognizable the world over, Reebok’s ‘Are you Feeling It?’ is not even close. But Reebok is still a tough competitor for Nike because of the high levels of brand loyalty it commands.
Financial Highlights:
Nike has shown growth in sales over past five years at a rate of approximately ten percent according to Reuters. The earnings per share and the dividend have grown by almost twenty percent. According to Steven Van Dusen Nike’s current market share is 47 percent in the domestic footwear industry with sales of $ 3.77 billion.13
Fortune puts Nike at the number one position in innovation and at second position in quality of products and services. The company is also the most admired in the apparel industry. Fortune 500 ranks it at 163 in 2006, up from a rank of 173 last year.

Nike as an Investment:
Assuming one invested ten thousand dollars in Nike stock, the performance of the share is as follows as reported by Reuters:
Price Performance
Actual (%)
4 Weeks
13 Weeks
26 Weeks
52 Weeks

With the price rising steadily after an initial dip, investment in Nike is a good option. Also the company’s sound marketing strategy and the brand loyalty afforded to it by its customers make it an ideal investment.
Price & P/E History
Calendar Year
High P/E
Low P/E
Year End P/E

As is seen from the above data from Reuters, the price to earnings ratio has gone steadily down which means that with increasing prices the earnings have gone up correspondingly in order for the ratio to decrease.14
As per Bhaskar Chitraju, currently, Nike Inc is usually traded on average 1.79 million times daily. Nike Inc has a market capital of $26.79 billion, with its Earnings Per Share estimated to be $5.28.15
It is NIKE’s promising future that is the main reason why this company remains a good investment for the SMIP portfolio.  With plans to expand in golf, skateboarding and soccer, NIKE
is reaching more and more global consumers.(Soo Mi Thompson)
Stock Performance over Six Months:

From this chart provided by Reuters, it is seen that the Nike stock listed as NKE on the New York Stock Exchange has shown a steady rise with time.
According to the website marketing teacher the strengths of Nike are that it is a very competitive organisation; it has no factories; and it is a global brand. The weaknesses are that the company heavily depends on the footwear products and since the retail sector is very price sensitive it is highly risky.
Over the following 35 years, NIKE grew from a part-time job for Phil Knight into the world’s
dominant athletic footwear and apparel company by following a consistent and logical strategy:
to capitalize on the importance of sports in people’s lives and to be identified with competition
and victory in consumers’ minds. (Stanford)

1.      America’s Most Admired Companies 2007 (2007), Fortune
2.      Analysis of Nike, Inc. (2000), Kim Enderle et al, Depaul University, Chicago
3.      Financial Highlights, Reuters
4.      Fortune 500 (2006)
5.      NIKE Inc. Outlines Strategies for Global Growth (2007), Reuters
6.      Nike Product Technology
7.      Nike Stock Performance (2006), Reuters
8.      Reuters (2007)
9.      Steven Van Dusen  The Manufacturing Practices of the Footwear Industry: Nike vs. the Competition
10.  Bhaskar Chitraju  Nike Stock
11.  SWOT Analysis Nike, Inc
12. Jeff Porter, Mark Harris Gavin Young Nike
13.  Stanford University Paper Nike-Channel Conflict
14.  Soo Mi Thompson Analyst Report Nile Inc,
Foot notes :
Page 2 footnote 1: Phil Knight who loved running and began the revolution of sports clothing industry is a qualified MBA from Stanford University.
Page 2 footnote 2: Bill Bowerman was an Olympic track coach at the 1972 Olympics.
Page 2 footnote 3: While speaking to the people at Onitsuka Phil Knight at one point had to pretend he owned a company. On the spur of the moment he came up with the name Blue Ribbon Sports.
Page 2 footnote 4: Jeff Johnson was the one who came up with the name Nike.
Page 2 footnote 5: Nike came to stand for a medium of achievement between men and gods in battle and in other human endeavors.
Page 2 footnote 6:  Steve Prefontaine, the all time greatest American runner was coached by Bill Bowerman
Page 2 footnote 7: When the company headquarters were opened in Beaverton all the record holders in the 800m to 10,000m track events were using Nike shoes.
Page 3 footnote 8: The Nike logo is known as the Nike Swoosh. It represents the wings that the goddess Nike was depicted with, which some say stand for victory.
Page 3 footnote 9: The creator of the logo Carolyn Davidson was paid thirty five dollars for her effort.
Page 3 footnote 10: In 1991 the company purchases Tetraplastics which was used for evelopment of theAirSolehoes.
Page 3 footnote 11: In 1990 Nike opened their first retail store called NiekTown which educates the customers on the goals and objectives of the companies products.
Page 4 footnote 12: Competitors of Nike Inc include Adidas, Deckers Outdoor Corporation, The Stride Rite Corp, Quiksilver Inc, Skechers USA, K-Swicc Inc, Steven Madden, Everlast Worldwide, Callaway Golf Company, and Under Armour Inc.
Page 4 footnote 13: Nike has been manufacturing throughout the Asian region for over twenty five years and there are over 500,000 people today directly engaged in the production of their products.
Page 5 footnote 14: Nike has a beta of 0.57, now this means that Nike stock is quite stable to volatility in regards to the stock market.
Page 5 footnote 15: Nike started the year on January 3rd at $97.67, and had a good drop on January 26th when the stock dropped to years lowest for $95.20. Nike Stock has been steadily increasing since then.

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