Nike Five Forces Analysis

Nike five forces analysis

The world’s largest sports shoes brand Nike is a renowned brand and easily recognized in most corners of the globe by its swoosh logo. In recent years, Nike has experienced faster growth driven by its focus on quality and innovation. Changing consumer trends have also favored Nike which is famous as a leading marketer. 

Nike has outsourced nearly all of its manufacturing to external suppliers so it can focus on the development of technologies to bring better products and product innovation as well as improvement of the other business processes. 

Nike operates in an intensely competitive environment. The competition is particularly intense in the United STates, which is its leading market based on net sales. In 2022, the company generated 43% of its total net sales from the UNited States and 57% from overseas markets. 

The retail landscape has changed a lot since the pandemic. Companies are investing in building their own digital infrastructure to serve customers more efficiently. Nike is also investing more in digitalization of processes and in more than 40 markets, Nike and Converse serve their customers through their own digital channels. To manage its presence outside the United States, the company depends on a channel of retail stores as well.

In this five forces analysis of Nike, we will analyze the competitive position of the sports shoes brand in the industry and its overall strength in terms of managing competitive pressure and achieving faster growth. Porter’s five forces analysis is an analytical framework for evaluating the competitive strength of a business in the industry and is used to guide strategy and decision making inside organizations. It was named after its creator, Harvard Professor – Michael E Porter.

Bargaining power of suppliers: Low

Nike has outsourced all of its production to external suppliers. The main reason behind it is that the company has been able to free resources and time to devote to product innovation and create new technologies that drive superior athletic performance. While outsourcing manufacturing can be good financially, it also gives some control to the suppliers. 

However, Nike is the world’s largest sports shoes and a financially strong brand. It has adopted quality control measures for its suppliers so that products are manufactured according to its specifications. The company also provides its suppliers with training and education so they can perform well. 

The company works directly with 123 finished goods factories located mainly in asian countries. Its suppliers are scattered over 11 countries and the largest supplier accounted for 9% of its production in 2023. 

When it comes to production and supply chain, Nike has several options. It means the company can switch to other suppliers if any supplier does not meet its quality criteria. Threat of forward integration from its suppliers is low to moderate. These factors reduce the bargaining power of suppliers.  Overall, the bargaining power of Nike suppliers is low which are mostly much smaller firms with less financial strength. Nike’s financial strength, its brand image and other factors like marketing also strengthen its bargaining strength over its suppliers.

Bargaining power of buyers: Moderate

The bargaining power of Nike’s buyers is moderate. Its buyer segment includes individual customers and retailers. Nike also serves a large number of external wholesale customers. In the case of the larger customers, they have somewhat higher bargaining power compared to the individual buyers.

 However, there are also several factors which favor the customers. The level of competition in the industry is high and switching costs are not high for the customers. Buyers also have several substitutes in the market since there are several more brands that manufacture good quality products. Due to these factors, the buyers hold some bargaining power.

Nike being the largest brand in the sports shoes industry which is known for offering a large range of footwear, apparel and accessories is also able to moderate the bargaining power of customers. Its product quality and innovation are the leading factors that help it gain bargaining strength over its customers. 

Since it is a brand with strong brand recognition and higher demand in the US as well as several more markets, the bargaining power of large buyers is moderate. 

Nike is a profitable brand and selling Nike products is profitable for the retailers. Individual customers love Nike because of its product quality, innovation and also marketing. Celebrity endorsements and marketing also drive the demand for Nike products higher in the international market. Overall, the bargaining power of Nike customers is moderate.

Threat of substitutes: High

The threat of substitute products is high for Nike. Mainly the threat of substitute products comes from the competing brands with similar product portfolios. Its large list of rivals includes several leading names in the US and international markets as well as several local markets which are limited to specific market regions but enjoy strong recognition in their local markets. 

New Balance, Skechers, Adidas, Puma, Reebok, Under Armor and Lululemon Athletica are among the leading names that offer similar products in the US and other markets. Many more brands also sell locally to customers in individual markets and compete with Nike in those markets. Other apparel brands like Jockey have also introduced a nice range of athleisure apparel and many more fashion brands have followed suit.

It is not difficult to see that Nike faces a strong threat of substitute products. However, to manage the threat from substitutes, Nike invests in innovation, marketing, product quality and customer satisfaction. In the footwear market, superior product quality generally means higher customer satisfaction but marketing and brand image are also critical factors that affect demand, sales and popularity. 

Overall, the threat of substitutes is strong and gets moderated to some extent by Nike’s focus on product quality, marketing, and brand image.

Threat of new entrants: Low

The threat of new entrants for Nike is low. In the sports shoes and apparel industry, the brands enjoying the largest market shares are the well known brands like Nike, Adidas, New Balance, Puma and others. This industry has grown highly competitive. 

Design innovation, product innovation and digitalization are driving faster growth across the sports shoes industry. Companies that are the leading players in the US and international markets invest heavily in creating demand so as to maintain their market share.

New entrants will need a large capital for investment when starting operations. At least, if they want to operate at a large scale or grow into a significant brand, they will need to invest in operational infrastructure, marketing, product quality, supplier management and other operational areas including managing a distribution system. 

To gain a significant market share, any sports shoes brand needs to place considerable focus on product quality and innovation. A new brand will also need to invest in marketing to build strong brand recognition and raise brand awareness. 

Some regulatory barriers also stop new players from entry. Product quality and labor related as well as other types of regulations also stop players from entering the sector. 

However, the most important factor is the aggressive competition a new brand will face from the incumbent players. It is easier for the incumbents to survive and thrive in a competitive business environment compared to a new player. If a player enters at a small scale, it does not pose any significant threat to market leaders like Nike.

Intensity of competitive rivalry:

The intensity of competitive rivalry in the sports shoes and apparel industry is high. The number of international players with significant brand awareness is high. In the US market, there are multiple international brands competing for market share. 

The list of Nike competitors is quite long and includes names like Adidas, Puma, Lululemon Athletica, Under Armour, New Balance, Skechers, Asics and several more. These are the market leading brands. Nike is the leader in the sneaker world, but faces strong competition from the likes of Adidas, Puma and Skechers1.

Nike also owns Converse, which also holds a small market share in sneakers. These players invest heavily in innovation and marketing to maintain their market shares.

Nike is also a highly competitive brand that holds the largest market share in the sneakers category. However, the other leading brands like Adidas, Puma and Asics are also market leaders in some categories. Nike’s strong image, marketing and strong customer loyalty, help it manage the competitive threat to some extent. However, the company invests billions in demand creation each year. Due to the high competitive pressure, Nike has to maintain a strong focus on marketing, innovation and supply chain management so that it can retain its market leadership.

Overall, the intensity of competitive rivalry faced by Nike is high.

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