Nike, The Innovation Machine

1. Helixa
16,
rue
Brey
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75017
Paris
Crea7ve
Commons
License
August
2012
v
1

2. Why Nike?
§ Nike is the global largest athletic brand retailer
The company has delivered a +19% CAGR in revenues over the last 33 years…from 1978 to 2011; to
reach $21b in 2012
§ Nike has developed a leadership strategy outperforming its competitors both in
footwear and apparel
“At Nike, we are leaders. When we fail is when we are followers.” Tinker Hatfield, VP of Innovation
Nike has maintained a clear leadership position since the 1980s outrivaling top sportswear companies
and fashion leaders
§ Nike is consistently reinventing the way of retailing and branding thanks to innovation
and resilience
“Sports created Nike, but design and innovation made it grow.” Mark Parker, CEO
Nike focuses on connecting with the consumer emotions and developing ways to turn transactional
relationships into experiences: both online and offline, locally and globally. To achieve this ambition,
Nike rests on a deep innovation pipeline
2

3. 1 INTRO: Nike at a glance
2 Nike, a top brand with outstanding results
3 Strengthening its leadership position consistently
4 … by being pioneer, innovative and resilient
5 Nike is facing multiple challenges
3

4. Nike Inc.’s History Timeline
Net Sales top $21 billion
Global expansion, including a strong growth in China,
2012 2006 Nike signs Brazilian football superstar Ronaldinho
Nike sales top $3 billion 1991 Late Nike hit by allegations of sweatshop
1990 labour
Niketown:
the 1st home to a new 1990
retail-as-theatre experience, Nike signs basketball
1984 superstar Michael Jordan
BRS officially changes its name to Nike and in 1980, Nike
takes over from Adidas, capturing more than 50% of US 1979
market share 1973 Steve Prefontaine becomes Nike’s first endorser
BRS launches its own Nike shoe under the famous Knight and Johnson open the first BRS retail store in Santa
“Swoosh” giving birth to Nike Brand 1971 1966 Monica, California.
Knight approaches Jeff Johnson to sell shoes for BRS. Bill Bowerman and his University of Oregon runner Phil
Johnson starts selling T-shirts as well
1965
1962 Knight form Blue Ribbon Sports (BRS) to distribute athletic
shoes.
4

5. Nike Inc. Key Figures,
The largest apparel & footwear company in the world
HEADQUARTERS Beaverton, Oregon (The United States)
§ Net sales: $20,9 bn § Net profit: $2,1 bn
2011 KEY FIGURES § Operating profit: $2,8 bn (10% of net sales)
(13% of net sales) § Employees: 38 000
§ The U.S: 36% of net revenues § Asia Pacific: 14%
GLOBAL PRESENCE § Europe: 23% § Others: 27%
Nike, Inc. (Nike), incorporated in 1968, designs, develops and markets athletic footwear,
apparel, equipment and accessories primarily under the Nike brand
Sources: Nike Annual report / 2011 figures
5

6. The Acquisition Timeline:
Nike’s wholly-owned Affiliates Brands
2002
Acquires Hurley devoted to 2008
action sports and youth Sells Starter for $60
1994 lifestyle footwear, apparel million 2013
Acquires Canstar and accessories 2004 Nike to sell Umbro and
(Bauer Parent) for $400 Acquires Starter for Cole Haan to focus on
million $43 million its core brands
1985 2013
1988 1998
Acquires Cole Haan, a Nike Golf established 2007
NYC-based luxury shoes, Acquires Umbro for $630
2003 million, a Manchester- 2008
handbags, accessories &
Acquires Converse, the based soccer brand Sells Bauer Hockey for
coats brand, for $80
classic and retro-style shoe $200 million
million
brand (founded in 1908) for
$305 million with sales
growing 20% per year from
$200 million to $1 billion in FY
2011 under Nike’s ownership
to date
Sources: Jefferies / 2011 figures
6

7. Nike Brand is the strongest brand
of Nike Inc. brand portfolio
5475 M$
Footwear (55%) § $18.0 b Nike’s sales
Apparel (26%) § 86% of Nike Inc sales
Equipment (5%) NIKE BRAND
1013 M$
2881 M$
§ $2.9 b Affiliates’ sales
§ 14% of Nike Inc sales
Others
11 493 M$ § $1.1 b Converse’s sales
$20.9 B +19% CAGR 756 $343M
2011 SALES (1978-2011) STORES Web Sales (2%)
Sources: Nike Annual report / 2011 figures
7

8. Nike brand’s global expansion:
China & Emerging markets are the two fastest growing geographic segment
Europe
Western Europe: 21%
US of Nike sales
North America: 42% (-2% vs.2010)
of Nike sales Central & Eastern: Asia
(+13% vs.2010) 6% of Nike sales Greater China: 11%
(+4% vs.2010) of Nike sales
(+18% vs.2010)
Japan:
4% of Nike sales
(-13% vs.2010)
Others
Emerging Markets:
15% of Nike sales
(+24% vs.2010)
Roughly 42% of Nike Brand’s sales is coming from the U.S. and 27% from Europe. Growth
should be more heavily weighted to developing regions, with particular strength coming
from Greater China and emerging markets
Sources: Nike’s Annual Report
8

9. 1 INTRO: Nike at a glance
2 Nike, a top brand with outstanding results
3 Strengthening its leadership position consistently
4 … by being pioneer, innovative and resilient
5 Nike is facing multiple challenges
9

10. Nike Inc.’s
exceptional growth in 33 years
25,0 10,0
Revenues (USD in billion)
Net income (USD in billion)
9,0
Compound Annual Growth Rate CRISES 20,9
20,0 8,0
CAGR Revenue:
1978-2011: 19% 7,0
1990-2000: 15%
Turnover (USD in billion)
1978-2002: 23%
15,0 2002-2011: 9% CAGR Revenue 6,0
Net income (USD in billion)
2007-2011: 6% 78-11: +19%
BOYCOTT 5,0
10,0
10,0 4,0
CHILD LABOR & SWEATSHOP
3,0
2,1
5,0 2,0
3,0
0,7 1,0
1,2
0,3
0,7
0,0 0,0
1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Nike, Inc. (Nike) has grown at a rate of 19% year-to-year over the past 33 years despite the
strong impact of Nike’s sweatshops controversy
and the financial crises. Nike’s net income represents 10% of net sales in 2011
Sources: Nike’s Annual Report – The Promise and Perils of Globalization: the case of Nike by Locke
10

11. 1 INTRO: Nike at a glance
2 Nike, a top brand with outstanding results
3 Strengthening its leadership position consistently
4 … by being pioneer, innovative and resilient
5 Nike is facing multiple challenges
11

12. In the late 1990s, Nike already dominated its
competitors…
GLOBAL ATHLETIC FOOTWEAR MARKET SHARE
from 1991 to 1999
40% BOYCOTT
35%
35% 32%
30%
30% 27%
25%
24%
25% 23% 23%
20%
16%
14%
15%
10%
10%
10%
10%
10%
9%
10%
5%
0%
1991 1992 1993 1994 1995 1996 1997 1999
Since displacing Adidas in the early 1980s and Reebok in the early 1990s, Nike has become
the largest and most important athletic shoe brand in the world.
A clear soaring of Nike since 1994
Sources: HBS Case #9-299-084 "Nike, Inc.: Entering the Millennium, March 31,1999 and Footwear News, December 27, 1999
12

13. …And Today, Nike Inc. is still the No. 1 sportswear company
Sales $20.9 bn FY11
EBIT (% sales) FY11: 13%
Sales $17.3 bn FY11 Net income (% sales) FY11: 10% Sales $3.8 bn FY11
EBIT (% sales) FY11: 8% EBIT (% sales) FY11: 11%
Net income (% sales) FY11: 5% Net income (% sales) FY11: 10%
* In 2006, Adidas acquired Reebok for $3.8 billion
25,0 10,0
Nike’s sales
20,9 9,0 CAGR 06-11: +7%
EBIT
20,0 19,2 19,0 8,0
18,6 CAGR 06-11: +6%
17,3
Net income & EBIT (USD $billion)
16,3 7,0 Net income
16,0
15,2 15,0 CAGR 06-11: +9%
15,0 15,0
15,0 13,7 13,3 6,0
Adidas’ sales
CAGR 06-11: +5%
Turnover (USD $billion)
5,0
EBIT
10,0 4,0 CAGR 06-11: +2%
7,8 2,8
2,5 Net income
2,4 3,0
2,1 2,1 2,1 CAGR 06-11: +6%
1,9
5,0 1,4 3,4 1,5 1,3 3,8 2,0
1,2 3,5 3,5 3,1 1,2 3,4
0,8 3,0
Puma’s sales
0,7 CAGR 06-11: +2%
0,5 0,5 0,5 0,4 0,4 0,4 1,0
0,2
EBIT
0,0 0,0 CAGR 06-11: -2%
NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM NKE ADI PUM
Net income
2005 2006 2007 2008 2009 2010 2011 CAGR 06-11: -3%
13

14. A Strong Marketing Spend: a distinct advantage in an industry that is
heavily reliant on sports endorsements
ANNUAL DEMAND CREATION PEER COMPARISON ($
AND % OF SALES FY11)
Nike has entered into endor-
3,0 16% sement agreements with some of
2696 the most famous athletes in the
13,4%
14% world, such as basketball icon
2,5
Marketing %net sales (USD, million)
11,4% Michael Jordan, golf legend Tiger
Marketing Spend (USD, million)
11,2%
12% Woods, Swiss tennis phe-nomenon
2,0 1771 Roger Federer, and Brazilian
10% soccer super-star Ronaldinho, etc.
1,5 6,5% 8%
5,7%
6%
1,0
3,4%
539 4%
0,5 384
231 168 2%
0,0 0%
Nike Adidas VF Corp. PVH Ralph Under
Lauren Amour
Nike invests heavily in brand-building efforts
by spending $2.7B on demand creation
(marketing, sponsorship…) with help from its
advertising partner, Wieden+Kennedy
In FY11, Nike had $4.4 bn of endorsement obligations outstanding.
Sources: Company data and Morgan Stanley Research 2012
14

15. 1 INTRO: Nike at a glance
2 Nike, a top brand with outstanding results
3 Strengthening its leadership position consistently
4 … by being pioneer, innovative and resilient
5 Nike is facing multiple challenges
15

16. Pioneer &
Innovative
16

17. An historic product Innovation pipeline…
2012 Flyknit upper technology is introduced
2012 Nike‘s FuelBand is launched
FLYKNIT FUELBAND PRO COMBAT 2009 Pro Combat performance apparel is launched
2008 Nike‘s Lunar foam is launched and Nike Flywire technology
LUNAR FLYWIRE 2006 Nike+ is launched (currently 6 million members)
2006 Air Max 360 (new method of creating Air-Sole units)
2005 Nike Free is launched
NIKE + NIKE FREE
2002 Nike introduces its first golf clubs
2000 Nike unveils its Shox technology
NIKE SHOX AIR TRAINER HIGH SHOE
1987 The Air Trainer High shoe and the Air Max shoe
Air Force 1, the first Nike basketball shoe to incorporate Nike
1982 Air cushioning
AIR FORCE 1 AIR MAX SHOE 1979 the Tailwind, the first running shoe with Nike Air
1978 The first Air-Sole units are created (Nike Air cushioning)
NIKE TAILWIND WAFFLE TRAINER
1974 The Waffle trainer is introduced
Sources: Company reports and JMS Research – May 2012
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18. …With (R)evolutionary Platforms that keep
product pipeline full
Nike Free Nike Air Max Nike Lunar Nike Flyknit
Launched: 2005 2006 2008 2012
Innovative sole featuring siping Air platform that features Max Ultra-lightweight composite Revolutionary upper
(deep slices) that allow for a Air – a new design utilizing air foam – 30% reduced weight construction made from a single
more natural movement that throughout the midsole versus previous materials strand of yard (entire shoe
resembles bare feet. weighs 5.6 oz)
Estimated: $500M Business Estimated: $750M - $1B Estimated: $1B Business Estimated opportunity: $1B+
Sources: Company reports and JMS Research – May 2012
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19. …Even in Apparel, Nike is taking performance
to another level
Nike Dri-FIT Nike Pro Combat Nike HyperElite
Launched: 1991 2009 2012
Lightweight, moisture wicking apparel Football-specific apparel featuring Lightweight (shorts weigh only 5
and accessories cooling, warmth, and/or built-in ounces) and breathable basketball
(tops, bottoms, hats) protection technology apparel made of recycled materials
Nike aims to serve athletes across apparel segments with compelling choices for competing
(Elite), training (Everyday), and leisure (Lifestyle)
Sources: Company reports and JMS Research – May 2012
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20. The first to use digital technology for
products to elevate the brand
Nike ID Nike + Nike FuelBrand
Launched: 2000 2006 2012
Allows customers to design Sensor based technology and 3-axis gyroscopic wristband that
personalized and custom-built integrated social “ecosystem” that allows for real-time tracking of daily
footwear, clothing, and gear allows for movement tracking movement
Nike is positioning as a vanguard for premium athletic/consumer products.
The Brand tries to establish deeper connections with the consumer
Sources: Company reports and JMS Research – May 2012
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21. Focus:
Nike, the pioneer of Mass Customization
SPECIAL ORDERS MASS CUSTOMIZATION
1859 Nov. 1999 April 2000 2002 2006 2008 2008 2011
Mi Adidas was launched in April 2000
&Ms
d “Design
y
”
Bespoke
d Burberr
your Own
ched My M
E launche
Shoe Barb an
ecue
Y launche
n
me
nched Mo
ngoli
Monogram
un
nched Mo
M&M’s la
CONVERS
BURBERR
ITTON lau
Louis Vuitton’s Special
Orders Department for
PUMA lau
unique cutomers Nike ID (web first, then in store)
LOUIS VU
NikeID co-creation platform
brought in over $100 million in
revenue for the fiscal year of 2009
Nike Inc. dedided to bring Mass Customization to the web in November 1999… Then
accessed in select physical branches. Nike was the first to make substantial profits
employing mass customization
Sources: The “mi adidas” Mass Customization Initiative by Pr. R.W. Seifert (IMD) 29.05.2006
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22. The co-creation of value through customers’ experiences
§ Customers need no longer be mere passive recipients of value propositions offered by firms. They are
now informed, connected and networked…
§ ...Leading firms are then responding by engaging their customers in the co-creation of value
§ Co-creative interactions are an emerging strategy for value creation. By engaging with informed,
connected, and networked customers around the globe, the shoe company Nike has found a new source
of value
Nike’s Co-creation Examples
Joga.com was in effect a thematic community that enabled individuals to share personal and
collective soccer experiences (videos downloaded over 32 million times). With over one million fans
participating in this innovative brand building effort, Nike had a unique opportunity to learn directly
from its customers
NikeID provided software tools to co-design and customize the shoe. Nike can tap into the
collective creativity of its customer base. NikeID co-creation platform brought in over $100 million
in revenue for the fiscal year of 2009
The Nike+ co-creation platform capitalizes firstly on the connection between running and music.
The combination of innovative, mobile technology, online communities (currently 6 million
members) and athletic gear expands the field for co-creation
Nike is Building a Co-creative Organization to Generate New Strategic Assets through
Valuable Engagement Experiences
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23. A revolution in its relationship with customers (1/2)
« Nike is becoming a company that
isn't just focused on products…
…but is focused on products and
services »
Stefan OLANDER, Nike's VP
of Digital Sport
PRODUCT SERVICES
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24. A revolution in its relationship with customers (2/2)
« Before the product was the end
point of the consumer
experience…
…now it is the starting point »
Stefan OLANDER, Nike's VP of
Digital Sport
PRODUCT SERVICES EXPERIENCES
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25. Nike is always one step ahead, including on
the Internet
Nike Foot Locker Adidas
Launched: 1999 2000 2006
Nike.com FootLocker / LadyFootLocker.com ShopAdidas.com
NikeStore.com KidsFootLocker.com Miadidas.com
NikeID.com Eastbay.com / Footaction.com Reebok.com
ChampsSports.com / CCS.com Shop.adidasGolf.com
§ 2011 Web Sales: $343M § 2011 Web Sales: $457M § 2011 Web Sales: $78M
(2% of Nike brand’s net sales) (8% of group’s net sales) (1% of Adidas group’s net sales)
§ CAGR 2004-2011: +28% § CAGR 2004-2011: +12% § CAGR 2004-2011: +21%
§ Monthly Unique Visitors: 4,1M § Monthly Unique Visitors: 2,6M § Monthly Unique Visitors: 0,9M
§ Monthly Visits: 7,5M § Monthly Visits: 8,0M § Monthly Visits: 2,6M
§ Total SKUs on Web: 30 000 § Total SKUs on Web: 80 000 § Total SKUs on Web: 6 000
Sources: Internet Retailer – June 2012
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26. Among the first of the major sportswear brands
to embrace Social Media
9,3M fans 458 665 Followers
8,0M 279 216
1 7,4M 1 245 766
1,1M 64 077
0,6M 58 358
SOCIAL PRESENCE
IN CHINA
SOCIAL PRESENCE
IN RUSSIA
Nike uses social media with the most relevant ones in each country: Facebook and Twitter in
the US, in China with Weibo, Ren Ren, QQ, and in Russia Vkontakte..which supports Nike’s
position as tech-led, early adopting and youthful
Sources: Facebook and Twitter data 06/2012
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27. Distribution channel: One of the first owned retail stores
within Sport industry…
U.S. stores non-U.S. Total
Nike factory stores 150 243 393
Nike stores 16 50 66
NIKETOWNs 9 3 12
57% of 43%
total revenues
OWNED RETAIL STORES § 1966: The first Blue Ribbon Sports retail store opened in California
§ 1990: The first Flagship NIKETOWN store opened in downtown Portland
Compared to
§ 1986: First Flagship Ralph Lauren shop in NYC
§ 1999: First Flagship Foot Locker store in NYC
§ 2001: First Adidas Originals store
BRANDED RETAIL
COLLABORATIONS
In FY15, Nike expects to exceed $5,5 billion in DTC sales, on 850 owned stores for the Nike
brand across concepts and more than 300 affiliate stores.
DTC= $3,2B in revenue in FY11 (in-line stores (+12%), factory stores (+15%) and e-commerce (+25%)
Sources: Business week Nike: It's Not A Shoe, It's A Community – july 2006
27

28. China : a first mover
Represents 10% of Nike Inc’s Sales & 15% of Profits
CHINA REVENUES ($ BILLION): NIKE & ADIDAS VS. CHINESE
BRANDS
0,0
2
0,0
2010E China Revenues ($B)
1,4
0,0 1,3
0,9 Kobe endorsement Nike in QQ.com
0,0
0,5
0,0 0,3
§ Nike is the market leader in China, home to 1.3 billion people,
0,0 300 million basketball fans
Nike Adidas Li Ning Anta Peak Puma
§ Having been in China since the 1980s, its first-mover advantage
has allowed the company to dominate its competition,
generating $2.3B in sales in FY11 (11% of Nike Inc’s revenue;
+18% vs. 2010), vs $1.3B at adidas and less than $500M at Puma
§ Given its position and strength in sports relevant to the Chinese
consumer (particularly golf and basketball), Nike will continue
to capitalize on growth potential
§ Nike has Kobe Bryant, the most popular basketball player in
China
Nike is far and away the largest athletic brand in
the Chinese market.
Sources: AlphaWise (July 2011), Morgan Stanley Research 2012 – Jefferies Estimates and company data
28

29. …and also Resilient
Nike finally took the lead to become sustainable
29

30. A Heavy Burden…
1970 Mid 1980s 1990s
§ Nike opened up its own shoe § Rising of US wages, closing of Nike § A series of public relations
factories in Maine and New US Factory and outsourcing nightmares, involving:
Hampshire manufacturing to Asia ü Underpaid workers in Indonesia
§ At the same time, it also began to § 1982: 86% of Nike’s athletic footwear
ü Child labor in Cambodia and
cultivate potential suppliers in came from Korea and Taiwan Pakistan
Korea, Thailand, China and Taiwan. § Then, it opened up manufacturing
ü Poor working conditions in
plants in Indonesia, China and China and Vietnam
Vietnam
§ Anti-Nike campaign and the film of
§ Already in the early 1980s, Nike had
Michael Moore The Big One (1998)
been criticized for sourcing its revealed the deplorable conditions
products in factories/countries of Nike’s suppliers
where low wages, poor working
conditions and human rights § Nike described as “sweatshops”
problems
Sources: Richard M. Locke (2001) The Promise and Perils of Globalization: The Case of Nike
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31. …Many Challenges to Face
CONSUMER
BOYCOTT
LEGISLATION
COMPANY
PRESSURES
IMAGE
NGOs
ATTACK
COMPETITORS
NIKE
31

32. Nike’s Response… forced to be the first-
mover
Mid 1980s 1990s Late 1990s
BLIND SPOTS COMPLIANCE TRANSPARENCY
§ At first, Nike managers refused to § 1992: Nike formulated a Code of § Nike has increased monitoring of its
accept any responsibility for the conduct for its suppliers (minimalist suppliers : SHAPE inspection
various labor and environmental/ and not fully enforced) § Nike suppliers are regularly audited
health problems found at their § Introduction of the Safety, Health, by external firms like Ernst and
suppliers’ plants Attitudes of management, People Young, PWC,…
§ According to Nike… Workers at Investment and Environment § Relations with international and
these factories were not Nike program (SHAPE) Non-Profit Organizations
employees, and thus Nike had no § Nike has increased the minimum age ü Involved in the UN Global
responsibility towards them of footwear factory workers to 18 Impact
and to 16 in apparel, equipment ü Founded Global Alliance for
(1998) Workers and Communities
ü Active in the Fair Labor
§ New staff and Training by creating
Association
several new departments:
ü Labor Practices (1996) § « Transparency 101 » program
ü Nike Environmental Action
Team (1993)
Sources: Richard M. Locke (2001) The Promise and Perils of Globalization: The Case of Nike
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33. ...Reflected in Its offering:
Nike sustainable innovations
Recycle shoes with Nike Trash Talk,
Nike « Reuse a shoe » a basketball shoe made from
manufacturing waste
Sources: Nikeinc.com
33

34. Some of its latest remarkable sustainable
initiatives…
2012
The 2012 National Team Kit Nike’s most Flyknit: a revolutionary upper A strategic partnership with DyeCoo
environmentally-friendly construction made from a single strand Textile Systems B.V., a Netherlands-
of yarn that is extremely lightweight based company that has developed and
Kits are made with made with at least built the first commercially available
96% recycled polyester, each jersey is Flyknit’s aim: waterless textile dyeing machines.
made using an average of 7 plastic - To cut labor costs and production time
bottles. Each short is made using an (less waste, reduced labor)
average of 6 recycled plastic bottles— To increasing profit margins and
adding up to 13 plastic bottles per kit opportunities for personalization
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35. Integrating Sustainability into its Game Plan
...Nike rethinks its Value Chain
NIKE INC. CURRENT VALUE CHAIN FINAL GOAL: FULLY CLOSED-LOOP
Plan, Design, Make, Move, Sell, Use, Reuse Cradle-to-Cradle model
1.
Using
the
fewest
possible
materials
3.
Allowing
them
to
be
recycled
into
new
product
or
safely
2.
Designed
for
easy
disassembly
SUSTAINABILITY PILLARS returned
to
nature
at
ü Creating a portfolio of sustainable materials the
end
of
their
life
ü Prototyping and scaling sustainable sourcing
and manufacturing models
ü Igniting and driving market transformation
ü Creating digital services revenue
Sources: Nikeinc.com – Cradle-to-Cradle
35

36. Strategic Innovation to reinvent businesses
In a constantly changing world, To build such strategies, Helixa has
companies can no longer do business devised a series of new tools and
in the same way as in the past. Indeed, proceeds by combining creativity
companies now have to steer a course with analysis to imagine for its
through a world where everything is clients what has as yet never seen
changing at a high speed . It is forcing light of day.
them to rethink their strategic choices With its wealth of experience in such
along completely different lines. Those sectors as luxury goods, media,
firms able to rapidly identify disruptive retailing, chemistry, energy and
innovation and take up adequate internet and given its design thinking
strategies can gain the upper hand inspiration, Helixa can offer highly
on competitors and become the next effective tailor-made solutions.
winners. Helixa’s team mixes engineers,
strategists and designers.
36

37. For more information,
contact us:
16, rue Brey
Paris 17ème
development@helixa.com
(+33)1 45 72 55 89
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37