Sneakers War

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OUM MBA Marketing Management

SNEAKER WARS 2007
Nike never lacks for boldness. The Beaverton sneaker goliath recently offered the German National Soccer Federation $778 million to sponsor its national soccer team for 10 years in an audacious move to rattle its German rival adidas and long-time sponsor of the German team. Nike's new chief executive, Mark Parker, upped the boldness quotient again on Feb. 6, when he outlined an ambitious plan to grow revenues by $8 billion in five years. In his first major initiative since inheriting the top spot (Chief Executive) in January, 2006, Parker explained to investors at Nike's annual analyst conference how the company aims to grow to $23 billion in global revenue by 2011. The comprehensive long-term strategy calls for reshaping the management structure; redefining Nike's relationship with its fast-changing, digitally driven consumer; and adding 100 new company stores worldwide in three years. "We're fundamentally changing the way we organize the company," Parker said. "Nike is as hungry and as driven as we've ever been before and becoming more focused and more competitive." While analysts and investors applauded much of Nike's new strategy, some questioned whether the company could actually do it. After all, revenues would need to rise 53% over five years, or average about 9% a year, to reach the target of $23 billion. It's going to be challenging to achieve $8 billion in new sales without turning around slumping sales in Europe, Japan, and the U.S. basketball market -- a crucial $3 billion to $3.5 billion market segment. "I think it's going to be tough for them," said John Shanley, financial analyst for Susquehanna Financial. "Basketball, for example, is shrinking in terms of sales. They have 96% of the market share in the $100 or more price point. How do you get high single-digit growth when you already have more than 96% of the market?" Nike executives fell short in offering specific details to some of these questions and focused more on painting a broader picture of the new strategy. They stressed a multi-pronged approach that includes reorganizing the Nike brand into six main athletic divisions -- running, basketball, soccer, women's fitness, men's training, and sport culture -- that are expected to generate 75% of the brand's growth. The company had previously divided the brand into three segments: footwear, apparel, and equipment. Growth is also expected to come from emerging markets and potential acquisitions. But Nike Brand President Charlie Denson said the company can reach the $23 billion target without new acquisitions. As for new markets, China is expected to become Nike's second biggest market behind the U.S., potentially chalking up $1 billion in sales. Nike is building a strategy for growth across China that will foster new connections with Chinese youth, a market share plan designed to reap benefits far beyond the Beijing Olympics next year, top executives said last week. By tapping into swelling consumerism, label consciousness and new social freedoms among China's youth, Nike hopes to cement and expand its current position as the leading athletic footwear and apparel brand in the world's most populous country, currently the company's fourth-largest market. With about $600 million in current annual sales, Nike believes China has the potential to be the company's second-largest market behind the United States with revenue of $1 billion within five years. The company estimates some 50 million Chinese youth play basketball. "We think our opportunity there is to connect more deeply with local culture," Parker said, explaining Nike's overall China strategy. Parker said Nike will create products and retail and digital experiences designed to resonate with wired, hip and willing-to-spend Chinese youth living in different cities and regions. "Ultimately, that's going to be our best foundation for growth going forward," Parker said. China is a prime component in the...
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