Nike PESTEL Analysis

Nike is the world’s largest athletic shoe manufacturer. It’s also one of the most successful, generating over $30 billion in revenue in each of the last four years.

As a global company, Nike’s growth depends on a suite of macro external factors.

Table of Contents

Understanding the Nike PESTLE analysis

Political

The United States is a core market for Nike, with the company having a large consumer base in the country. Nike also has a large manufacturing base in China and also has a presence in Vietnam, Indonesia, and Thailand.

Trade tensions between the United States and China threatened to increase tariffs on footwear by as much as 25%. To mitigate this problem, the company has sought to diversify its supply chain geographically.

Economic

Like most companies, Nike is vulnerable to a downturn in the economy. During the GFC in 2008 and the COVID-19 pandemic, global revenue dropped significantly as stores closed and discretionary income plummeted.

The pandemic in particular has highlighted Nike’s dependence on physical stores to make money. In response, the company has sought to strengthen its eCommerce arm. But the company may struggle because its staple products of shoes and apparel are difficult to size online.

Social

The past few decades have seen the rise of the so-called sneakerhead culture, created in part by basketball and the growth of hip hop music. Some estimate that the sneaker resale market alone is valued in the billions of dollars.

Nike capitalized on this trend early, partnering with Michael Jordan to promote a line of shoes that were not only functional but also collectible.

Technological

Technology is a major disrupter in most industries. Sports apparel is no different.

Nike’s dedicated R&D facility, dubbed the Nike Sport Research Lab, has produced a multitude of innovative and market-leading products.

One such example is Nike Fit, which uses machine learning, data science, and artificial intelligence to scan consumer’s feet and find the best fitting shoes.

Legal

Nike is no stranger to legal battles. Invariably, these battles are fought with major competitors over proprietary shoe or apparel technology.

Indeed, Nike has had a long and public battle with Adidas over patent infringements. Sketchers is another competitor that has been sued by the company for imitating patented designs.

Environmental

Once associated with sweatshops and negative environmental impact, Nike has made great progress in rebranding itself as more environmentally responsible.

The company has pledged to use 100% renewable energy by 2025. It is also planning to phase out single-use plastic bags and has designed a line of eco-friendly shoes and apparel made from recycled plastic.

Key takeaways:

Nike is the largest and perhaps most well-known athletic shoe company in the world. However, a reliance on the U.S market makes it vulnerable to tariff hikes and deteriorating US-China relations.
Nike owes a large part of its success to the sneaker culture. Through high-profile endorsements, Nike shoes are not only innovative and functional but also collectible.
Nike has been involved in several legal battles with competitors such as Adidas and Sketcher over patented technology.

Key Highlights

Understanding the Nike PESTLE Analysis:
- Political:
  - Nike heavily relies on the United States as a core market and has a substantial consumer base there.
  - The company has manufacturing facilities in China, Vietnam, Indonesia, and Thailand.
  - Trade tensions between the U.S. and China led to potential tariff increases on footwear, prompting Nike to diversify its supply chain across different regions.
- Economic:
  - Economic downturns like the Global Financial Crisis (GFC) in 2008 and the COVID-19 pandemic significantly impacted Nike’s global revenue due to store closures and reduced discretionary spending.
  - The pandemic highlighted Nike’s dependence on physical retail stores, prompting efforts to strengthen its eCommerce presence. However, challenges arise due to the nature of sizing shoes and apparel online.
- Social:
  - The rise of sneakerhead culture, influenced by basketball and hip-hop, has led to a valuable sneaker resale market.
  - Nike capitalized on this trend early by partnering with Michael Jordan to create a line of shoes that are not just functional but also collectible.
- Technological:
  - Nike’s dedicated R&D facility, the Nike Sport Research Lab, has driven innovation in its products.
  - Notable technological advancements include Nike Fit, which employs machine learning and data science to accurately size and fit shoes for consumers.
- Legal:
  - Nike has been involved in legal battles with major competitors over proprietary shoe and apparel technologies.
  - A notable case is the longstanding patent infringement battle with Adidas. Competitors like Skechers have also faced legal action for imitating patented designs.
- Environmental:
  - Nike has transformed its image from associations with sweatshops and environmental impact to a more environmentally responsible brand.
  - The company aims to use 100% renewable energy by 2025 and has plans to phase out single-use plastic bags.
  - Eco-friendly products, including shoes and apparel made from recycled plastic, demonstrate Nike’s commitment to sustainability.
Key Takeaways:
- Nike’s global prominence and success are influenced by various external factors outlined in the PESTLE analysis.
- While the company’s reach is extensive, its reliance on the U.S. market and the intricacies of U.S.-China relations make it susceptible to tariff fluctuations and geopolitical tensions.
- The popularity of sneaker culture has played a significant role in Nike’s success, fostering demand for both innovative and collectible footwear.
- Legal battles with competitors underscore the importance of proprietary technology protection in the athletic apparel industry.
- Nike’s transformation toward environmental responsibility showcases the company’s commitment to sustainable practices and aligns with changing consumer values.

Related to Nike

Who Owns Nike

The Knight family owns Nike. Indeed, the top individual shareholder is Travis A. Knight, son of Philip Knight, co-founder of Nike, with a 7% stake in Class A stocks and a 2.7% stake in Class B stocks. On the other hand, the Knight family also controls the company tightly through their Trusts and an LLC called Swoosh (the Nike logo’s shape is a “swoosh”). Through individual shares, Swoosh LLC, and Travis Knight’s irrevocable trust, the Knight family controls over 97.1% of Class A and 21.4% of Class B stocks.

Nike Business Model

Nike follows a wholesale strategy combined with a very strong direct distribution. The company makes money primarily from footwear. As of 2022, over 62% of revenues came from footwear and 29% from apparel. The most successful Nike brand is the Jordan Brand, which in 2022 generated $5.2 billion in revenue. Nike is the master of demand creation and generation through its influencer campaigns, where athletes become an inspiration for everyday people.

Nike Strategy

Nike leverages both a wholesale and direct distribution strategy. Indeed, while still in 2022, most sales come from wholesale distribution, in reality, since 2020, Nike has been ramping up its direct distribution through its NIKE stores and e-commerce platform (SNKRS).

Nike Revenue

Nike generated most of its revenue from footwear. Indeed, in 2022, Nike generated over $29 billion in revenue from footwear, over $13.5 billion in apparel, $2.35 billion in equipment, and over $1.6 billion from the Converse brand.

Nike Financials

Nike generated over $47.7 billion in revenue and over $6 billion in net profits in 2022, compared to over $44.5 billion in revenue and almost $5.8 billion in 2021.

Nike Mission Statement

Nike’s vision is “To bring inspiration and innovation to every athlete in the world.” At the same time, its mission statement is to “do everything possible to expand human potential. We do that by creating groundbreaking sports innovations, by making our products more sustainably, by building a creative and diverse global team, and by making a positive impact in communities where we live and work.”

Nike SWOT Analysis

Nike Competitors

Jordan Business Model

Jordan follows a demand generation business model, where its iconic brand works as a propeller for the sale of its footwear and apparel, that in 2022 generated more than $5 billion in revenue for Nike or more than 10% of its total revenue.

Converse Business Model

Converse is an independent brand part of Nike’s family of brands. Indeed, Converse generated $2.35 billion in revenue in 2022. And like Nike, it follows an heave Wholesale distribution strategy, where most of its sales are made, through footwear. However, Converse follows also a direct distribution approach where it sells directly via its monobrand stores.

Organizational Structure Case Studies

Airbnb Organizational Structure

Airbnb follows a holacracy model, or a sort of flat organizational structure, where teams are organized for projects, to move quickly and iterate fast, thus keeping a lean and flexible approach. Airbnb also moved to a hybrid model where employees can work from anywhere and meet on a quarterly basis to plan ahead, and connect to each other.

eBay Organizational Structure

eBay was until recently a multi-divisional (M-form) organization with semi-autonomous units grouped according to the services they provided. Today, eBay has a single division called Marketplace, which includes eBay and its international iterations.

IBM Organizational Structure

IBM has an organizational structure characterized by product-based divisions, enabling its strategy to develop innovative and competitive products in multiple markets. IBM is also characterized by function-based segments that support product development and innovation for each product-based division, which include Global Markets, Integrated Supply Chain, Research, Development, and Intellectual Property.

Sony Organizational Structure

Sony has a matrix organizational structure primarily based on function-based groups and product/business divisions. The structure also incorporates geographical divisions. In 2021, Sony announced the overhauling of its organizational structure, changing its name from Sony Corporation to Sony Group Corporation to better identify itself as the headquarters of the Sony group of companies skewing the company toward product divisions.

Facebook Organizational Structure

Facebook is characterized by a multi-faceted matrix organizational structure. The company utilizes a flat organizational structure in combination with corporate function-based teams and product-based or geographic divisions. The flat organization structure is organized around the leadership of Mark Zuckerberg, and the key executives around him. On the other hand, the function-based teams based on the main corporate functions (like HR, product management, investor relations, and so on).

Google Organizational Structure

Google (Alphabet) has a cross-functional (team-based) organizational structure known as a matrix structure with some degree of flatness. Over the years, as the company scaled and it became a tech giant, its organizational structure is morphing more into a centralized organization.

Tesla Organizational Structure

Tesla is characterized by a functional organizational structure with aspects of a hierarchical structure. Tesla does employ functional centers that cover all business activities, including finance, sales, marketing, technology, engineering, design, and the offices of the CEO and chairperson. Tesla’s headquarters in Austin, Texas, decide the strategic direction of the company, with international operations given little autonomy.

McDonald’s Organizational Structure

McDonald’s has a divisional organizational structure where each division – based on geographical location – is assigned operational responsibilities and strategic objectives. The main geographical divisions are the US, internationally operated markets, and international developmental licensed markets. And on the other hand, the hierarchical leadership structure is organized around regional and functional divisions.

Walmart Organizational Structure

Walmart has a hybrid hierarchical-functional organizational structure, otherwise referred to as a matrix structure that combines multiple approaches. On the one hand, Walmart follows a hierarchical structure, where the current CEO Doug McMillon is the only employee without a direct superior, and directives are sent from top-level management. On the other hand, the function-based structure of Walmart is used to categorize employees according to their particular skills and experience.

Microsoft Organizational Structure

Microsoft has a product-type divisional organizational structure based on functions and engineering groups. As the company scaled over time it also became more hierarchical, however still keeping its hybrid approach between functions, engineering groups, and management.

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