Nike – Globalizing the Sportswear Industry
1. Evaluate Nike’s business strategy. Does Nike have a sustainable competitive advantage?
According to the text, there are four cornerstones in Nike’s strategy: 1) Deepening its relationship with customers. There are some obvious ways of having a “deep relationship” with customers such as taking into consideration results of various enquiries or following current trends like many companies do. Nike does that, too. But apart from that it really has tight relations with its customers. For example, Nike was one of the first companies that introduced the opportunity to customize its products according to every client’s individual tastes and preferences, called “NIKEiD”. Nike also has the widest of all the three companies (adidas-Saloman and Reebok) range of products. It offers sportswear for football, soccer, tennis, basketball players, skateboarders, snowboarders and etc. and enables people to choose what is necessary for each of them. Thanks to all the abovementioned the company has millions of loyal customers all over the world, for whom Nike has become a part of a lifestyle. 2) Delivering superior, innovative products to the marketplace. A good example of how Nike does that is one of the most innovative products in the industry, if not the most one, is Nike Air Max. Sports shoes with large air cushioning unit at the heel, which is visible from the side of the midsole, were one of the Nike’s best selling units. 3) Making the company’s supply chain a competitive advantage, through operational discipline and excellence. This is probably the answer to the question whether or not Nike has a sustainable competitive advantage. The “futures” ordering program, which is the distinguishing feature of Nike (adidas-Saloman and Reebok don’t have an analog), allows retailers to order goods in advance at a set period and at a fixed price, so the outlets will never be short on Nike’s products. The goods themselves are made in factories located in the third-world countries, with supervisors who control the quality of the goods. 4) Accelerating growth through focused execution.
2. Evaluate Nike’s financial performance through May 31, 2004. How does Nike compare to Reebok and adidas-Saloman.
Nike has been performing very well from 1999 to 2004. Its net sales have increased by 40% since 1999, and net income doubling during the 6-year period (from 451 in 1999, to 945 in 2004 making the growth rate 109%). What is also very important the operating income percentage has been increasing which means that the company has been operating more efficiently, optimizing its costs.
If we compare Nike to adidas-Saloman and Reebok, we can see that overall it has been outperforming both companies during the whole period. It has been much more stable in terms of sales growth, not to mention that in 2004 Nike’s net sales (12,253) where twice the sales of adidas-Salomon (6,478) and 4 times the sales of Reebok (3,785). This accounts for Nike developing more consistently and sequentially. Nike has also been more efficient which is proven by larger operating income percentage throughout 6 years. In terms of ROS, ROA and ROE coefficient adidas-Salomon is pretty close to Nike, during some years even outperforming the American giant. Reebok, on the other hand, has been lagging behind, which is clearly reflected in the ROS, ROA and ROE coefficient figures during 1999 and 2000 (0.4%, 0.7%, 2.1% in 1999 vs. adidas-Salomon’s 4.3%, 6.6&, 33.5% and Nike’s 5.1%, 8.6%, 13.5%)
3. Using a free cash-flow approach, what is your assessment of Nike’s stock value? Is Nike worth $88 per share or more?
First of all we have to calculate Nike’s WACC.
|Risk Free Rate |4,5% |
|Beta levered |0,90 |
|Equity Risk Premium |5,0% |
|Cost of Equity...