THE NIKE EMPIRE: SUPPLY AND DEMAND
THE NIKE EMPIRE: SUPPLY AND DEMAND 1
The Nike Empire: Supply and Demand
Milestone Two
Karla Wilbur
Southern New Hampshire University
THE NIKE EMPIRE: SUPPLY AND DEMAND 2
Supply and Demand Analysis
Nike is well-known for designing, developing and the global marketing as well as selling of athletic footwear, equipment, apparel, accessories and services. It is therefore regarded as the giant in terms of selling of athletic footwear as well as apparel in the industry across the world. Nike is known for selling their goods to retail accounts, via the NIKE owned retail stores alongside the internet websites. (Google Finance, 2013)
The obstacles to the entrance of new rivals in the athletic footwear and apparel industry are very low; the industry has several competitors and the major rival of Nike is Adidas. Given that the production model is open, the involvement of Korea, Japan and China in the industry has decreased barriers and elevated aggressive competition. Nike is a company that is popular across the world and it has been able to lead the way by its distinctive products as well fashions for the trending sections of the market. The latest incursion of the company into sports sponsorship in terms of visibility and branding has seen the company growing tremendously. Although the company considers that sturdy dedication to the CSR activities or functions has made this achievable (“Nike CR Report,” n.d.). Nike accounted another sturdy quarter in the Q4 2015, with its profits increasing by 5% yearly to $7.8 billion, boosted by constant development in every product forms as well as geographies. “Fiscal 2015 was an outstanding year for Nike,” said Mark Parker, President and CEO, Nike, Inc. (“Nike CR Report,” n.d.) Nike’s gross margin increased by 60 basis points annually, from a change in the sales mix toward elevated margin products alongside expansion in the higher margin direct-to-consumer commerce. It was
THE NIKE EMPIRE: SUPPLY AND DEMAND 3
therefore partly counterbalanced by an increase in the contribution expenses as well as negative effects of fluctuations in currency. In terms of stable currency, Nike proclaimed an income growth of 13%. Its sturdy performance in the Q4 2015 was underlined by elevated expansion in Western Europe, North America, and Greater China. The higher demands in basketball, football, and running categories persist to stimulate the growth force for the company (“Nike CR Report,” n.d.).
The level of respect and investment amount in excellent management which the company has deployed for human rights as well as sustainable behaviors in its supply chain is essential for its stability in supply. For instance, it is illustrated that Nike, is not just focused on trading one off in opposition to the other, meaning that by identifying that sustainability is a road to prospect productivity, and that a sustainable economy or business model must lead to equitable supply chains: if we pay attention to the requests of the environment or profits, but not supply chains, we will not have thrived.
In the table below, it is evident that 2014 saw a drastic increase in the overheads resulting in a sharp decline in profitability because of high levels of promotions, advertisement, as well as market growth activities. Also, considerable investment in the off shoring activities besides of units within East Asia have been the possible reasons behind increases in cost (“Nike CR Report,”n.d.). The demand for the company’s products is increasing due to their quality and that they’re well designed to serve the intended purposes. Adidas is the major competitor to the company, but Nike continues to lead the way due to its commitment to meet the customers’ demands.
THE NIKE EMPIRE: SUPPLY AND DEMAND 4
Nike, Inc. Costs of Production
| Costs | 2013 | 2014 | 2015 |
| Factory Costs FOB | 17% | 17.6% | 18.7% |
| Sea Freight & Insurance Costs | 2% | 1.4% | 1.08% |
| Miscellaneous Overheads | 6% | 6.4% | 8% |
| Total Valuable Overheads | 25% | 25.4% | 27.78% |
| Fixed Overheads | 16% | 16.8% | 16.8% |
| Total Overheads | 41% | 42.2% | 44.58% |
| % in COGS | 6% | 5% | 5.2% |
Source: “Nike CR Report, n.d.”
Recommendations
Nike has to considerably expand its market share in the East Asia by looking for some ways in which sponsorship of individuals as well as sports events may convey in the required income in terms of sales. The development of new products has not been reliable consequently proving to be a chief hindrance for Nike. Nike should consider increasing its products for women and children, which will allow the deficiency to decrease. The incursion into women and children’s footwear among other accessories has been somewhat damp with Adidas pilfering the market in this area. Also, Nike ought to follow the blue ocean approach in terms of market capture and create demand rather than compete for it. There is ample opportunity for growth in this industry. (Kim, W. and Mauborgne, 2004)
Elasticity of Demand Analysis
After examining Nike’s 2015 annual report for adequate information, it is evident that for the past two years, the company realized more than $13 billion as revenue from their footwear section; this was an increment of 15% from the last fiscal year. In fact, during the precedent three years, the firm has seen a steady increase in their income from the footwear sector. From
THE NIKE EMPIRE: SUPPLY AND DEMAND 5
the 2015 annual report, Nike credits this increase to a low particular digit percentage increase in the standard selling price per pair of shoes; a double digit proportion increase in part of the sales; an increase in demand for performance products, such as the Nike Free and Lunar technologies
that may be found in a lot of their running shoes; and an increase in sales of the Nike Running, Basketball, and Sportswear lines of Nike.
Focusing on inelasticity of the company’s goods such as footwear, it is evident that Nike’s 2015 annual report indicates inelasticity of demand; in the presence of inelastic goods, price and income move in the identical direction, which indicates that if the price increases, that the total income will increase as well. In addition, it is confirmed that they experienced an increase in profits from their footwear due to a low particular digit proportion increase in average selling price. Therefore, this proposes that Nike was aware that their product and consumers comprehend that the company’s footwear is inelastic and that a small spike in prices would not harm the revenue. As projected, Nike produced augmented sales that are perfectly why they later discovered a double-digit percentage increase in their unit sales for that year.
In addition, the company provides that there is increase in revenue in their products because of an increase in consumer demands for Nike’s new running technologies as well as particular shoe channels in the company. Nike is known for releasing products which are not considered enough to meet the customer’s demand. The company presents limited pairs of footwear from their running, basketball and even their Sportswear line that employs the company’s latest footwear technologies, because these fashions which are trendy past the sportswear world. Children and adolescents are also wearing Nike’s products in a non-athletic
THE NIKE EMPIRE: SUPPLY AND DEMAND 6
fashion, but a casual one as well. Nike has noted and exploited these recent tendencies in their liberations and it has become a critical reason as to why the company has realized increased revenue margins in the last few years and will continue to do so in the future.
THE NIKE EMPIRE: SUPPLY AND DEMAND 7
References
Holmes, S. and Bernstein A. The New Nike. BusinessWeek – Business News, Stock
Market & Financial Advice. Retrieved From
Kim, W. and Mauborgne, R. (Oct. 2004). Blue Ocean Strategy. Retrieved from
Google Finance (2013, Feb 18). Retrieved from
NIKE FY2015 Annual Report. (n.d.). Retrieved from
Nike CR Report. (n.d.). Retrieved from
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"
