Adidas versus Puma. Nike versus Under Armour. Not
many markets are as competitive as the sportswear industry. Having the best shoe design, greatest
athletes and most efficient supply chain - there is a reason that the race for the market leader
has been many times referred to as 'sneaker wars'. But the point is: the battle is long decided.
There is no question who the number one is. Nike’s value is more than
twice the market cap of Adidas, Puma and Under Armour combined.
And not just since yesterday. The company from Oregon has been
dominating its competitors since the 90s. How did Nike manage to displace the
German sportswear giants Adidas and Puma? What strategy kept them on top for decades
and what have they planned for the future? We take a deeper look into the strategy of
the strongest sports brand in the world. For a long time the sportswear market
was dominated by German brands. Adidas and Puma were the big names, had all
the resources and know-how and it didn't look like this would change very soon.
But Phil Knight had a different idea. After graduating from the University of
Oregon, he enrolled at Stanford for an MBA. Being a competitive runner himself, he followed
his interests and wrote a paper with the title "Can Japanese Sports Shoes Do to German
Sports Shoes What Japanese Cameras Did to German Cameras?,". His ambition was
to import high-quality and low-cost running shoes from Japan, where labor
was cheaper, into the American market. And that’s exactly what he
did. After his graduation, he traveled to Japan and met with Onitsuka
Tiger, the company that would later launch ASICS. Impressed by the quality and low cost
of their running shoes, Knight managed to secure the distribution rights for the western
United States and ordered his first samples. When Knight finally received the first
shoes after more than a year of waiting, he mailed two pairs to his former track coach
Bill Bowerman at the University of Oregon, hoping to gain both a sale and an influential
endorsement. To Knight's surprise, Bowerman not only ordered the shoes, but also offered to
become a partner and provide product design ideas. The two men agreed to a partnership by
handshake and Blue Ribbon Sports was born, the company that would later become Nike. The founding story already reveals some
important factors that explain the rise of Nike. First, Phil Knight showed strong
analytical skills by realizing the potential in outsourcing the production to Japan. Maybe even more significant were Nike's roots in
sports, to be precise in running. Like the two Co-founders, many of the first employees were
former runners. They sold their first running shoes to befriended athletes, often right on
the track. One of them was Steve Prefontaine, who was a huge star in Oregon at the time and went
on to become Nike's first sponsored track athlete. Soon people realized that the fastest runners
were suddenly not wearing Adidas shoes anymore, but this new, local brand. Knight and
his team quickly realized they had found their perfect marketing strategy.
While Adidas was close to officials and putting their money on organizations like
Fifa and the IOC, Nike was close to athletes and rather invested in
individuals than institutions. The idea of creating a shoe brand from
athletes for athletes was also shown in their hands-on research and development.
Aside from an intensely competitive mindset, Bowerman displayed a fascination with
optimizing the shoes of his athletes. In the early 1970s, Oregon's Hayward
Field, where Bowerman worked for years, was transitioning from a crushed
cinder track to an artificial surface. And Bowerman was searching for a running shoe
that would be suitable for multiple surfaces. While watching his wife making waffles in
their kitchen, he had his eureka moment. He simply molted some plastic and poured it
into his wife's waffle iron. That completely ruined the iron, but its grooves turned out
to be a near perfect mold for a running shoe. Bowerman's waffle trainer set a
precedent for Nike's culture to innovate and redefine the status quo in sports equipment. It was the first of many major
innovations that helped Nike gain and expand the lead on its competitors. Inventions
and designs like Air soles, the Air Force 1, Nike Free and Flyknit followed and
revolutionized the sneaker industry. The latest example is the
Nike Vaporfly running shoe, that made headlines because it is literally making
you run faster. It was initially developed to help Eliud Kipchoge break the 2 hour barrier for
the marathon, which he did in 2019 in Vienna. That event and the fact that Nike runners have
dominated the major races in recent years, led the world athletics association to
release new rules to regulate running shoes. Banning shoes because they increase
performance - that's a similar story to the NBA banning Michael Jordan's Air Jordan 1.
Nike couldn't have wished for better marketing. Eliud Kipchoge and Michael Jordan are just two
names from a long list of Nike athletes. What started with Prefontaine quickly developed into
the most valuable sport portfolio in the world. Other big names of that list: Carl
Lewis, Tiger Woods, Serena Williams, Ronaldinho, Roger Federer, LeBron James and
Cristiano Ronaldo (and the real Ronaldo). Their roster of athletes, clubs and federations is the heart of the Nike brand - which is
one of the strongest in the world among all industries. Their marketing strategy
has been praised many times - from their iconic swoosh logo and 'Just do it' slogan to
multiple advertisements that have won Emmys. But what's just as interesting
as the marketing strategy itself, is how the organization
behind that machinery works. Nike is a so-called matrix organization. That
means that employees report to more than one supervisor. For example: If you are a sales
manager for footwear, you might report to the sales director and the director of footwear.
The departments in a matrix organization can work closely together and communicate more frequently
to resolve issues. This frequent information exchange allows managers to respond quickly to the
needs of the customers and Nike’s business goals. Nike’s matrix was previously
structured to develop, market, and sell based on product type. This
allowed them to be efficient in supply-chain and manufacturing, but it did not
address the needs of the consumer. So in 2008, Nike made a change to organize
based on sports instead of products. An approach they called “Category Offense”. Nike’s
categories include among others Running, Global Football, Basketball and Training.
This change has proven very successful, as sales have grown by 70% to over $30
billion dollars since the realignment. Maybe you have even seen the effect of the
Category offense yourself in a store near you. As a market leader, Nike had so much influence
on their retail partners, that stores changed their layouts to build entire sections of the
store around each of Nike’s sports categories. These sections featured footwear, apparel and
equipment tailored to each specific sport, making the shopping experience
more convenient for the consumer. The change led to increases in overall spending
for multi-sport consumers who now had a large selection of merchandise for each of their sports.
So instead of owning one pair of shoes to use for both running and the gym, people now buy one pair
of running shoes and one pair of training shoes. The Category Offense model has even improved
Nike’s financial reporting and planning. Now Nike tracks financial performance by
sports category and is able to make targeted investments in the struggling categories.
For example: if they see a decline in sales of football boots, they could decide to
sign a football club to stimulate sales. It is a perfect example how Nike used their
influence as a market leader to change the sports industry - from a focus on
product silos to sports category. It explains how the company defended and expanded
the lead over Adidas and Puma in recent years. But what are Nike’s plans for the future? Their
strategic outlook might be even more interesting than their past accomplishments.
After the Category Offense in 2008, Nike’s leadership decided that it is time for
another strategy change in 2017. They announced the ‘Consumer Direct Offense’ with the goal ‘to
better serve the consumer personally, at scale.’ That sounds very fancy, but basically means
that they want to sell more online via their own website instead of selling to retailers
like footlocker. By eliminating the middleman and selling directly to the consumer, Nike
can charge the retail instead of the wholesale price. That means they earn more money for every
shoe they sell. In the end most of the strategic decisions are about the MARGIN - although
sometimes it’s not obvious at first sight. To better understand that, let’s look at another
important pillar of Nike’s newest strategy: a strong focus on Women. Now people could argue that this is just some
shiny commercial for social greenwashing. But Nike is actually very serious about
that shift of focus towards women’s sports. That becomes clear when
looking at their matrix again. Nike’s new CEO recently announced a shift to ‘a
new, simpler consumer construct of Men’s, Women’s and Kids’. Besides some changes to senior
leadership, that means that the focus of Nike will be more tailored on the individual needs
of the consumers in each of these categories. Supporting equality and women’s rights is a
good cause and helps Nike sharpen its brand. But it is not just marketing. The Women’s
sportswear market is expected to grow rapidly - and has better margins.
So just like Nike’s push on selling online directly to the consumer, their focus on
women is essentially a focus on better margins. Since we’re talking about the future, here are two futuristic innovations
the Nike matrix produced recently. Ever wondered why NBA players are still sitting on
foldable chairs? The Microclimate Chair is aiming to change that. It allows players to get quick
heating or cooling therapy by simply sitting in the chair rather than hopping into an ice bath.
It is also collecting data on the athlete’s recovery status, so the player can be brought
back on the court at exactly the right time. One step further on making the life of athletes
more comfortable is this customized Boeing 787. To extract the best performance out of
players, the quality of travel is important. So they segregated the plane into: recovery areas, workout decks, sleep, and review
zones for analyzing past game data. It is very unlikely that Nike will
start selling airplanes in the future, but it shows their strive to keep innovating. And
it might be a hint that they are willing to expand their product portfolio going forward, in order
to achieve their own ambitious targets for growth. The bottom line is: Nike keeps betting
on the strengths that made them big. World-class athletes, adaptive
operations and constant innovation.
