From their iconic “swoosh” logo to their equally iconic range of footwear, Nike, Inc. is one of the most easily recognizable activewear brands in the world. But how did the company achieve such wild success? Let’s take a look through the Nike SWOT analysis to figure out how the brand came to dominate the sportswear market and carve out a place for itself in contemporary sports culture.
A Brief Look at Nike, Inc.
While probably best known for its range of iconic footwear, most notably the Jordans brand of sneakers, Nike, Inc. is also a leading brand in other sports gear such as activewear, sports equipment, and wearable fitness tech. The company is undoubtedly successful in these areas, being the most valuable sports apparel company in the world, with a net worth of $189.5 billion in 2023. It is also indisputably one of the most successful brands in the world, with a brand value of $33 billion.
Nike directly employs over 79,000 people and indirectly employs countless others through its over 600 offshore factory partnerships. It is a truly multinational company, offering its products to over 170 countries, through more than a dozen unique brands, which each have a distinctive brand image and cater to a specific customer base.
Nike business model is famous for finding the perfect balance between fashion and functionality when it comes to their products, making them quite popular among both athletes and non-athletes alike. With this in mind, this article seeks to examine the strengths, weaknesses, opportunities, and threats to the brand.
Here, there are some of the advantages the Nike company has over its competitors.
Nike Possesses Strong Brand Equity
Aside from the fact the Nike brand is one of the most recognizable identities in the business world, it also commands strong brand equity. In simple terms, brand equity is defined as the commercial value enjoyed by a company based on the social perception of its products or services by consumers.
There are three main components to brand equity; brand loyalty (how likely users are to stick with the brand), brand awareness (how well-known the brand and its products are), and brand association (how people feel about the brand). All these are key areas where the company has a strong comparative advantage over competitors.
Through an audacious — yet carefully weighted — marketing strategy, Nike has been able to position itself as one of the leading figures representing the cultural identity of the current generation. The brand has also been able to cultivate a reputation associated with innovation, quality, and a liberal ideological stance concerning critical contemporary issues, such as racism, LGBTQ+ rights, and body positivity.
The Brand Enjoys an Enormous Market Share
Very few brands enjoy the proportion of market share that Nike does. The company has consistently dwarfed its top competitors — such as Adidas, Puma, and ASICS — in terms of both revenue and raw sales. This is especially evident in the U.S. market, where Nike is by far the most popular sports apparel brand, especially when it comes to footwear.
Another positive indicator of the strength of the brand is the fact that unlike many of its competitors, it has seen its revenue grow consistently in the past few years. The Nike company made a total annual revenue of $46.71 billion in 2022, representing an almost 5% increase from its total revenue in 2021.
Low-Cost Manufacturing Is a Key Part of Its Business Strategy
One of the reasons that Nike has been able to maintain its profitability over the years is that it has invested heavily in low-cost manufacturing. It achieved this by outsourcing virtually every aspect of the product manufacturing process to countries that have a favorable wage structure, such as China, the Philippines, Vietnam, Indonesia, and Taiwan.
Another factor that keeps costs low and profit margins high is the fact that Nike does not own any of the factories where these goods are produced. These outsourcing companies are simply given strict guidelines and protocols concerning the quality and production process for Nike products. The company has also significantly invested in various innovations and technologies that help reduce labor cost and material costs.
Effective branding and marketing are the key pillars of any successful company. However, Nike has taken this to a whole different level. Through the smart use of celebrity endorsements (which will be discussed next), iconic catchphrases, the Nike “swoosh” logo, and commercials such as the worldwide-famous ‘Just Do It’ campaign, as well as their ability to align the brand with positive associations such as innovation, stylishness, maximum performance, winning, self-empowerment.
Nike has also been able to successfully leverage social media to reach out to a broader audience of potential customers. This is because the core demographic they market to are young people between the ages of 15 to 45 years old who are highly active on a variety of social media platforms. This explains why the company is one of the most expensive brands in the world, with a brand value estimated to be about $33 billion in 2022.
Iconic Celebrity Endorsements
From the iconic Michael Jackson Pepsi commercial to David Beckham’s $160 million deal with Adidas in 2003, major corporations have long been aware of the advantage of leveraging celebrity popularity and influence to promote their products. Nike is well-known for running one of the most successful celebrity endorsement campaigns in recent history, closely associated with famous athletes and non-athletes like Michael Jordan, Rafael Nadal, Bella Hadid, Cristiano Ronaldo, and Maria Sharapova.
There are several ways the company has used its brand ambassadors to further its brand value and promote its brand image. For example, Nike ran a highly successful collaboration with basketball legend Michael Jordan to create an iconic line of sneakers known as the Air Jordan. The partnership was wildly successful, and the Air Jordan brand generated a revenue of over $5 billion for Nike in 2022.
Nike also takes advantage of the public image of its various ambassadors concerning a wide range of contemporary issues. This allows the brand to position itself positively as a champion of social justice, equity, and inclusiveness. For example, the brand supported the Black Lives Matter movement in a widespread campaign against institutional racism in America using the slogan “Don’t Do It” and featuring prominent African-American celebrities such as Colin Kaepernick, LeBron James, and Serena Williams.
A Range of Successful Side Brands
Despite what most people think, the Nike brand is not the sole brand of Nike, Inc (although it is by far its most successful). They also support a range of successful side brands such as Converse, Jordans, Umbro, Hurley, Nike Golf, and Cole Haan.
The probable reason behind the success of these brands is the ability of the Nike corporation to apply the same principles which helped build up its primary brand to other divisions, while still allowing them to support unique identities and develop a unique following with its organic customer base.
For example, Cole Haan is primarily a luxury brand, Converse markets a wide range of lifestyle apparel that caters to a younger generation significantly associated with skating culture, and Umbro is mainly popular in the UK and markets itself as primarily a soccer brand (which is understandable since that is by far the most popular sport in the region).
Getting Rid of Retailers
Nike has made headlines over the past few years for gradually cutting ties with its major retailers, which include department stores, brick-and-mortar stores, and sporting goods specialists. The company does not operate a significant chain of dedicated retail outlets and therefore has mainly used third-party businesses to market its products to customers.
By promoting direct-to-consumer sales, they have greater control over customer experience, pricing, profit margins, and brand image. They have achieved this by increasing their e-commerce presence, as well as launching a suite of apps that allow customers to purchase their goods directly from the brand.
A Successful E-commerce Platform
Many successful brands have followed a gradual shift away from the traditional brick-and-mortar system towards online retail and e-commerce. Nike is certainly not one to be left behind, as its e-commerce section has seen steady growth over the past few years. Direct-to-consumer sales represented almost 40% of the total sales in 2021, with a brand revenue of $16.4 billion within that same fiscal year.
However, the company is not satisfied with this achievement. Their short-term goal is to achieve 60% direct-to-customer sales by the year 2025, further cutting out the need for retail outlets and allowing them to increase their profit margins further and have greater control over product prices.
Impressive R&D Department
Nike is more than just a company that sells sports footwear. They are also considered drivers of innovation with regard to sports apparel and equipment. The company is well known for outspending its closest competitors in this area. In fact, it has introduced some of the most iconic developments in competitive sportswear, making it a favorite for many top athletes.
One of the secrets behind the success of the company in research and development is the fact that it all sources its low-cost manufacturing process. This allows the company to focus on high-value activities such as R&D as well as branding and marketing.
The Company Enjoys a High Market Valuation
Nike is the most valuable sportswear company in the world and also one of the most valuable companies in the world, with a market capitalization of $189 billion. This allows the company to attract a variety of investors as well as enjoy low-interest loans. It also increases consumer confidence in both the products and its stock, therefore allowing the brand to drive growth further.
Here, there are some of the potential internal threats to the success of Nike, Inc.
Controversial Labor Practices
As we mentioned earlier, one of the key factors behind the success of Nike was the low-cost manufacturing process. One of the primary reasons behind this is the fact that their products are produced in countries that have relatively cheaper wage structures. However, several reports published in the late 1990s indicated that in the process, the company might have been involved in unethical labor practices such as poor working conditions, long working hours, and abysmal pay.
The company has made some effort to remedy this situation by establishing a Fair Labor Association and Code of Conduct in 1991. It also performed health and safety audits of over 600 of its factories in the early 2000s. Since 2005 the company has also published annual reports of the safety conditions in labor practices of its factories all around the world to boost transparency. While this has gone some way in improving consumer confidence in the company, the stain of the scandal still lingers with Nike to this day.
The Brand Is Over-dependent on the U.S. Market
While Nike may be correctly seen as a global brand, careful analysis shows a significant portion of its revenue comes from the U.S. market. Well, this may not necessarily be a bad thing, it can be likened to placing all your eggs in one basket. This is because it leaves the company vulnerable to market shocks or economic downturns within the U.S. market.
Worrying Financial Indicators
While Nike is still by far the most valuable sports apparel company in the world, recent worrying financial trends have been brought to the spotlight. One of them is the steadily increasing long-term debt profile of the company. Nike’s long-term debt stood at about $8.9 billion in 2022, a 5.21% decline from the previous year but more than twice what it was just three years prior and nearly forty times its value ten years ago.
Even with these figures, the Nike debt burden is still quite sustainable at its current rate of growth. However, it becomes worrisome when you consider the fact that the company’s profit margins have steadily declined over the past few years while those of similar competitors such as Adidas have been increasing. Investors might want to keep a close eye on these two factors, as they may be signs of potential financial woes within the company.
Unfavorable Relationship With Retailers
We have already discussed the relationship between Nike and third-party retailers, and how it has tried over the years to reduce its dependence on its services. While it has made considerable strides towards this, a majority of its revenue still comes through these outlets. This, therefore, exposes the company to some of the disadvantages associated with this strategy, such as lower profit margins, as well as less control over their branding and customer experience.
Another issue that the company faces with the use of third-party retailers is the sale of counterfeit products. These substandard goods still bear the Nike logo and therefore cause significant harm to the brand image. If the company operated with exclusive Nike retail outlets, it would have much better control over these factors.
Their Revenue Stream Is Over-dependent on Their Line of Footwear
In the modern business world, specialization is definitely an advantage. However, businesses must avoid the mistake of becoming overly dependent on a narrow range of products or services. The Nike brand offers a wide range of sports-related products, but over 60% of the revenue comes solely from their sales of footwear.
Similar to being overly dependent on a single market, being overly dependent on a single product leaves you vulnerable if significant shocks were to affect the sale of this product. This could include supply chain issues, negative brand associations, or even a fall in the popularity of the brand.
The Company Is Slowly Cultivating the Image of a Luxury Brand
Despite its beginning as a humble sports apparel company, Nike, through a series of popular collaborations with high-fashion brand names — such as Louis Vuitton, Sacai, and Jacquemus — has carefully cultivated the image of a high-end luxury brand.
While this may help the company open up its customer base to wealthier clientele who can afford more expensive products, it also runs the risk of alienating its traditional customer base. This is becoming evident in the prices the brand charges for some of its designer products, such as the $8000 Nike Air Force One Vlone, $18,000 Nike Air Jordan 4 Retro Eminem “Encore,” and the Solid Gold Ovo Air Jordan owned by hip-hop artist Drake which was purchased for a mind-boggling $2 million.
Reduced Quality Control
One of the disadvantages of outsourcing your manufacturing process is that you have reduced control over the quality of your products. While Nike is certainly a brand that pays close attention to this fact and is well-known for the quality of their product, even they are not immune to this flaw. Outsourcing can also increase the risk of the market being flooded with counterfeit Nike products.
Here, there are some opportunities the company can capitalize on to improve its branding and revenue.
Investing in New Markets
Nike still has room to expand its role as a global market by making inroads into new markets, such as increasing their presence in Europe, Africa, and Asian markets outside of China. Not only will this significantly increase their revenue, but it will also reduce their over-reliance on their North American market.
Another way they can invest in new markets is by diversifying their product range. Even though the company is dominant in the sportswear industry, they are far from the market leader when it comes to women’s sportswear. This is a potentially untapped market that could create billions of dollars worth of revenue.
Increasing Their Product Range
Another area the brand could look into is investing in sports technology, such as wearable sports gear like smartwatches and other forms of digital sports technology. They could also invest in promoting their other sports products besides footwear.
There are several strategies the company has adopted to achieve this by exposing customers to a wider range of their products through dedicated Nike product outlets such as NikeTown, and Nike stores, as well as various retail outlets belonging to their subsidiaries. This can help them market their less popular items, such as sports equipment.
Tapping Into the Future
We have already discussed the efforts that Nike has made to increase its online presence, as well as improve the proportion of its direct-to-customer sales. However, there are other ways the company can improve its online revenue.
One of these is by introducing artificial intelligence into their e-commerce activities. Nike seems to be taking a step in this direction through their acquisition of the Boston-based predictive analytics company Celect. The goal of this technology is to use predictive algorithms to determine which products and apparel a particular user will be most interested in and where they can purchase it from.
Another way the company has attempted to expand into newer technologies is by investing in the Metaverse. They have done this by acquiring the virtual reality company RTFKT. RTFKT is a virtual reality company responsible for creating a range of virtual products such as sneakers, NFTs, and other forms of collectibles. The company attracted the attention of Nike when it sold $3.1 million worth of virtual Nike sneakers in just seven minutes.
Introducing Anti-counterfeiting Technology and Methods
Counterfeit products are one of the greatest dangers to a brand obsessed with quality control, such as Nike. Therefore, it is understandable that the brand has introduced a wide range of methods and technologies to battle this threat.
Some of these include liaising closely with local and international law enforcement agencies, creating a platform that allows users to report counterfeit Nike products, promoting direct-to-consumer sales through a range of dedicated stores and online retail services, as well as collaborating with large e-commerce platforms such as Amazon who unfortunately market a large number of counterfeit Nike products.
Investing in Sustainability
A growing number of consumers are more environmentally conscious and would like to see similar attitudes from the brands which they patronize. In line with this threat, Nike has taken steps to ensure that its company embodies these values, and one of these steps was to promote the use of recycled and sustainable materials in its products.
For example, the company introduced a new collection that was aimed at reducing its carbon footprint by 75% when compared to the other products. The company has also started encouraging customers to recycle used apparel as well as return old footwear to the company for refurbishment.
Here, there are a few external threats to the success of the Nike company.
Counterfeit Nike Products
As mentioned earlier, counterfeit products reduce the trust customers have in brand quality and create a negative brand image. Counterfeiting is a serious issue and is believed to have made up about 2.5% of international trade in 2019 (roughly $464 billion). This is especially important for Nike because the brand is one of the most counterfeited in the world, with footwear being one of the most commonly faked products.
Aside from the effects counterfeiting has on brand image, it also leads to significant losses in revenue. This is because many customers may seek out counterfeit products, as they are typically cheaper than the originals. Some reports have shown that Nike loses as much as 10% of its annual revenue to counterfeit products.
Competition From Other Sports Brands
Nike is undoubtedly significantly ahead of other sporting wear companies such as Adidas, Reebok, Under Armour, and Puma. However, some of these companies, such as Adidas, command a significant market share and pull in revenue that is indeed threatening Nike’s continued dominance of the industry.
Another threatening issue is the fact that Adidas has been consistently growing at a faster pace than Nike over the past few years. Adidas has grown at an impressive 17.6% since 2015, while Nike has only managed to achieve a growth rate of 6.8% in that same time. Adidas has also taken a page from the Nike playbook by investing heavily in attracting some big-name celebrities such as David Beckham, Novak Djokovic, and Pharrell.
High Profile Patent Disputes
As one of the market leaders in terms of research and development, Nike fiercely protects its intellectual property, such as patents. Therefore, it was certainly newsworthy when the company got into a series of legal battles with its nearest competitor Adidas over accusations of patent infringement related to the Nike Flyknit technology.
In response, Adidas filed several cases of its own, arguing that it had also committed patent infringements by copying several of Adidas’ designs and technology. Both companies eventually agreed to drop the cases and settle out of court. However, the scandal did leave a lasting mark on both of their reputations and exposed the level of intellectual property theft within the industry.
International Trade Tensions
As an international brand, Nike is exposed to the nuances of trade agreements, embargoes, protectionism, as well as trade tensions. This is especially important now due to the heightened tensions between the United States and China, with the latter being the largest buyer of Nike products in Asia and one of the most significant markets outside the U.S.
Animal Abuse Scandal
Nike has always been a company that has done its best to place itself on the right side of contemporary issues, such as those involving race, gender, and sexual orientation. However, the company has found itself embroiled in an animal rights scandal due to its use of kangaroo skin for the manufacture of its pineapple products.
Animal rights advocates have argued that this contributes significantly to the reduction of the population of kangaroos and even drives the regional kangaroo population toward extinction. Advocates have encouraged Brent to seek alternative leather sources, such as vegan leather.
Its Competitors Are Investing More Heavily in Advertising
In absolute terms, Nike spends more than its closest competitor Adidas on advertising, having spent approximately $3.8 billion on advertising in 2018 (less than 10% of its total revenue), while Adidas spent $3.5 billion (representing roughly 14% of its total revenue) in that same year.
This shows that Nikes’ competitors are investing more heavily in advertising in an attempt to carve out a larger market share. Even though Mikey still has the upper hand as far as branding and marketing are concerned, to maintain its advantage, they need to focus on matching the efforts of its rivals.
The iconic swoosh, the memorable commercials in the wide range of celebrity endorsements. Nike is undoubtedly a brand that’s hard to ignore and revels in its place in the spotlight. The company has mastered the art of utilizing effective branding and marketing strategies to promote its brand image and enhance sales. They have thoroughly dominated the sports apparel industry for decades, and it does not seem like the company is poised to relinquish this position anytime soon.