With a net profit of just under two billion dollars in 2018, Nike is truly a leader in the footwear and sports apparel markets. Nike’s popular catchphrase “Just Do It” and powerful celebrity endorsements have made the sportswear giant a household name across much of the world, as we explained in our PESTLE analysis of Nike.
In this article, we’ll be conducting a SWOT analysis of Nike, where we look at the Strengths, Weaknesses, Opportunities, and Threats influencing their business. That will give us a balanced insight into Nike’s future possibilities, and help us better understand their current and future business decisions.
Like most big companies, Nike has a number of strengths. Needless to say, the most important strengths are Nike’s powerful brand and low product cost.
Strong Core Brand
The Nike brand itself is one of the strongest — if not the strongest — names in the entire sportswear industry. Across much of the world, Nike is one of the first companies that come to the public’s mind when they think hip, sporty footwear. Overall, this extremely powerful core brand is one of Nike’s biggest strengths, and you can bet that helps them rake in billions in additional revenue every year.
Diverse Brand Portfolio
Although the Nike brand itself is incredibly strong, the company has a diverse brand portfolio beyond that. Most notably, this brand portfolio includes Converse as well as dozens of other Nike-centric sub-brands such as Nike Shox, Nike Blazers, and Nike Tiempo. This suggests that Nike has its foundations well spread across the footwear industry, allowing it to painlessly weather changes in preference.
Low Product Cost
As many of Nike’s products are manufactured in developing South East Asian countries such as Indonesia and Thailand, Nike has extremely low labor costs. What’s more, Nike also uses relatively inexpensive materials for many of its shoes. Together, these two factors — labor cost and material cost — allow Nike to manufacture its footwear for extremely low prices.
As you’d expect, Nike does indeed have some weaknesses. It’s dependent on the US market, its manufacturers, and the footwear industry.
Dependence on US Market
In 2018, over 40% of Nike’s revenue came from the US market. As you can imagine, this demonstrates a huge dependence on the US market as part of Nike’s business model. If American tax or legal policies were to change, in any way affecting Nike’s ability to sell on the US market, that would significantly hurt the sportswear giant’s profits.
Despite the low cost associated with manufacturing products abroad, there are indeed downsides to doing so. For one, manufacturing abroad requires you either to set up dedicated manufacturing operating in your chosen country or to outsource your work to existing manufacturers. Nike has chosen to do the latter, which means that their products aren’t always top quality.
Although Nike is relatively diversified within the footwear industry itself, Nike has not diversified itself much across other industries. Although the footwear industry is probably here to stay, Nike may consider broadening their horizons.
Nike has a growing market in all senses, thanks to healthier consumers and wealthier countries. This presents a few new opportunities.
There are only more and more people in this world, and many of them (especially in developed countries) are becoming gradually more active. Together, these two factors compound to create a constantly growing footwear market. If played correctly, Nike should be able to capture much of the business of this growing market, allowing the company to further grow its profits.
As countries across the world become wealthier and wealthier, citizens in developing countries have more disposable income. In areas such as South East Asia, growing disposable incomes present an opportunity for new markets in which to sell products. If Nike is able to market themselves in these emerging markets, they could grow their reach and reduce dependence on the US market.
In many Western countries, there is a growing trend of knowing where products have come from and how the environment and workers have been treated. This presents another opportunity for Nike. If they are able to brand themselves as a responsible manufacturer of sportswear goods, they may be able to increase their market penetration among more ethically and environmentally conscious consumers.
For threats, Nike has to look at all directions: tax, market competition, and product counterfeiting.
Like many other big companies, Nike has its tax strategies optimized down to the dollar. This has for many years allowed Nike to avoid paying large amounts of tax, even on its billion dollar profits. However, there is growing controversy about the amount of leeway large organizations are afforded when it comes to tax matters, and their freedom to pay low amounts of tax may one day come to a close. This would afford Nike significantly smaller net profits.
Nike is competing in the fiercely competitive sports apparel market, with other big names such as Adidas, PUMA, and Reebok ready to pounce on any new opportunities. As such, Nike needs to tread extremely carefully to ensure it isn’t replaced by one of these, or — somewhat less dramatically — doesn’t lose out on potential revenue.
Like many valuable branded goods, Nike apparel is subject to large amounts of counterfeiting. Counterfeit Nike goods are available everywhere — even on the internet. Nike needs to develop a strategy to ensure that the counterfeiting of their goods doesn’t affect their core business model, perhaps by taking legal action against counterfeiters or with a clever marketing campaign that encourages consumers to buy the real thing.
SWOT Analysis of Nike: Final Thoughts
Nike is a giant organization competing in a tough market, but it’s doing incredibly well. With its extremely powerful brand and low costs, Nike has been able to net several billions of dollars on an annual basis. Unfortunately, Nike is very much dependent on the US market and is little diversified beyond the footwear and sports apparel markets. Nike needs to watch out for threats associated with these weaknesses, and others such as tax clampdowns or counterfeiting. Thankfully, Nike has several opportunities for growing its business, including making the most of the rapidly expanding sportswear market.
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