Strategic Management - Nike: The Trainer Faltered

Case Study: 4: Nike: the trainer faltered

Nike was founded in 1957 by two individuals selling low price high tech running shoes out of the back of a van. In 1972 the company became Nike and the swoosh emblem was born. In 1978 Nike was accused by the Washington Post of providing free shoes to basketball coaches to give to their teams. While Nike had done nothing illegal, its competitors stepped back from player endorsements. At that point Nike acted and signed up everyone it could, thus laying the foundations for future relationships with global stars.

By 1988 Nike was the brand leader in the world training shoe market; by 1997 its market share was 33%, while in the huge US market Nike was even more dominant, with a 40% market share. The brand was instantly recognisable everywhere, and has joined the Coca-Cola can and the MacDonald's yellow M as a brand that is instantly recognisable by its logo. It has consistently been at the forefront of technology and design - for example it was the first to use Nasa's air-sole cushioning system and silver fabrics, and was the first to introduce training shoes for women. But by the end of 1997 things had started to go wrong. In the last quarter of 1997 net earnings slumped by over two thirds, there had been two profit warnings, and over 1000 employees in the US had been made redundant. This had contributed to a slump in morale and the company seemed to have lost its dynamism and leadership.

The market

Some commentators reckoned that the branded sportswear boom had passed its peak and that the global market was becoming saturated. This was exacerbated by the economic problems in the Far East, which was a significant part of the total market. Training shoes are to some extent a fashion item and, as such, are subject to changes in preferences; by 1997 there had been a significant change in taste towards 'brown shoe goods', which are hybrid training/walking shoes. By 1997 Rockport, a 'brown shoe' maker, had sales of $500 million. In fact, sport and fashion are becoming increasingly intertwined and the sportswear market is now worth about $5 billion per year.

Some superstores were obtaining cheap supplies of Nike shoes (on the so-called grey market) and selling them at a substantial discount. This was undermining Nike's brand image of premium price and quality.

The company

Nike had come in for some bad publicity regarding the working conditions of its many employees in Asia. There were reports of very low pay and extremely poor and repressive working conditions. Whether these reports were entirely true is not clear, but they led to widespread disenchantment with the company. Coupled with the layoffs within the US, morale in the company was adversely affected and many employees felt that the company was now so big that it