Athletic Footwear and Apparel Industry

GROUP 7:
Kirsten Ross April Rust Wenjun Zhao Elizabeth Poe Xaio Li Juexin Feng

Friday, February 24, 2012 *link for photo: Deviantart nike

NAICS/SIC Codes
NAICS code SIC Code
316211 316211 316219 316219 316219 316219 316219 316219 316219 316219 3021 3021 3149 3149 3149 3149 3149 3149 3149 3149

Description
Athletic shoes, plastics or plastics soled fabric upper (except cleated), manufacturing. Athletic shoes, rubber or rubber soled fabric upper (except cleated), manufacturing. Athletic shoes (except rubber or plastics soled with fabric upper) manufacturing. Cleated athletic shoes manufacturing. Footwear, athletic (except rubber or plastics soled with fabric upper), manufacturing. Golf shoes, mens cleated, manufacturing. Golf shoes, womens cleated, manufacturing. Leather upper athletic footwear manufacturing. Shoes, athletic (except rubber or plastics soled with fabric upper), manufacturing. Vinyl upper athletic footwear manufacturing.

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Major Economic Characteristics of the Industry

Billion dollar industry This market is beginning to decline somewhat, however experts expect there could still be some small bursts of growth occasionally. Characterized by having a small number of large players.

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Industry Driving Forces

Fashion trends (+) Change in society (healthy lifestyle) (+) Changes in consumer sports preferences (sport popularity) (++) Changes (rise) in manufacturing costs (--)

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5 Forces Model
Substitute Products
(of rms in other industries)

Suppliers of Key Inputs

Rivalry Among Competing Sellers

Buyers

Potential New Entrants

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5 Forces Model: Rivalry

STRONG
Strong because industry is shrinking in the U.S. Switching costs are low Strong rivalry between large players

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5 Forces Model: Substitutes

MODERATE
The only substitutes athletic shoes have to contend with are other types of shoes (casual shoes, dress shoes, and sandals) and none of those would be useful for the same purpose as athletic shoes so they are not true substitutes. Athletic apparel could be substituted with other types of clothes, especially casual clothes like jeans.
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5 Forces Model: Potential New Entrants

Costs to start up are high. Hard to get new brand recognized.

WEAK

Economies of scale play a huge role because its hard for new companies to grow New companies dont have the nancial resources to compete with industry bigs like Nike and Adidas. Its hard for new entrants to get contracts with professional leagues, universities, colleges, and celebrity athletes.

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5 Forces Model: Suppliers

Dont have to contend with substitutes

MODERATE

Forward integration is unusual because large companies have huge brand recognition. There are a lot of manufacturers in low cost manufacturing locations (Asia, India) so you have the option to switch.

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5 Forces Model: Buyers

Buying power for individual consumers is low because footwear is a basic necessity. Buying power is also weak because there is a high volume of sales. Buying power is strengthened because theres a variety of options and styles.

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WEAK

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Strategic Group Map

Popularity/Brand Image
High Under Armour

Nike
Adidas
Low Narrow Wide

Variety and Selection in Offerings

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Key Success Factors

Reputation/Image New Product/Innovation Manufacturing Capacity Financial Resources Relative Cost Position

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Competitive Strengths Assessment

KSF/Strengh Measure Reputation/Image New Product Innovation Manufacturing Capacity Financial Resources Relative Cost Position Sum of Weights Overall strength rating Weight
0.40 0.20 0.10 0.20 0.10 1.00 8.20 6.00 5.50

Nike
8/3.20 9/1.80 8/0.80 10/2.00 4/0.40

Adidas
6/2.40 5/1.00 6/0.60 7/1.40 6/0.60

Under Armour
7/2.80 6/1.20 3/0.30 3/0.60 6/0.60

Rating Scale: 1 = Very weak, 10 = Very strong

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Our 3 Companies
Nike

Adidas

Under Armour

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Nike - Background Info

Nike Inc. is a company that is in the business of designing, developing, and marketing athletic footwear, apparel, accessories and equipment. They were established in 1968 and are located in Beaverton, OR. Nike is the largest seller of athletic footwear and apparel in the world. They sell their products in over 170 countries. In addition to its NIKE brand, the company also owns the following brands: Converse, Hurley, Umbro, Cole-Hann, and NIKE Golf. Another big part of Nikes business surrounds around marketing apparel with licensed colleges, pro teams, and league logos. They are well known for their afliation with many universities.

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*Background Nike Logo comes from: hot.Pink.Nike.logo *Photo of shoes comes from: Pink/White Nike Air Link

Nike - SWOT
Strengths
Their brand is very valuable They are very innovative and lead the

Weaknesses
Based on their nancial statements their

liquidity is decreasing industry in technological advances because They tend to hold a lot of inventory of their focus on research and development Their network of manufactures is well managed and costs from it are minimized Considered a leader in the industry

Opportunities
While the market has been declining
recently, recent forecasts show a positive outlook looking ahead Online sales are booming and this would be an easy area for Nike to tap into

Threats
Costs to produce are rising The competitive environment it becoming
really intense They have to contend with counterfeiters

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Nike - Strategies
Nike tries to nd new and innovative ways to design and create superior athletic products, and unique ways to communicate with their consumers. Nike continues to expand in new ways: strong growth in China becoming the ofcial sponsor of the National Football League (NFL) beginning in 2012.

At its core this company revolves around innovation.

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http://www.nikeinc.com/pages/history-heritage#tab6-tab

Nike - Financial Performance

They had $20,862.00 million in Sales during 2011. Their P/E ratio reects that investors are condent about the rms outlook. They have a really great Debt/Equity ratio, anything less than 1 is considered good (There is enough equity in the company to cover their liabilities). They have the most protable operations because they have best operating prot margin. Their dividend yield is in line with fast growing companies. Their ROE % falls within the average range.
P/E

Key Ratios
22.60

Return on Equity (%)

22.54

Total Debt/Equity

0.05

Operating Prot Margin (%)

13.02

Dividend Yield (%)

1.36

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P/E Ratio = $105.76/4.68 = 22.60 Return on Equity = $1,906.7 million / $9,754.0 million = 22.54% Total Debt/Equity = 591.8 million / $9,754.0 million = 0.05 Operating Profit Margin = ($19,014.0 million - $16,497.1 million) / $19,014.0 million = 13.02 Dividend Yield = 1.06 / $105.76 = 1.36

Nike - Marketing Performace

Target Market: Athletic and active males and females Making both their advertising and brand presences minimalist but striking Helps to create demand with releases of limited numbers of shoes to limited shops Strategic partnerships Live Strong Jordans Expanding athletic lines Nike 6.0 - Extreme sports Nike skateboarding Nike snowboarding Mission Statement To bring inspiration and innovation to every athlete in the world Celebrity Endorsers include: Michael Jordan Serena Williams Tiger Woods US National Teams

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Adidas - Background Info

Adidas Group (AG) was established in 1949 and is a leader in the athletic wear industry. They design and develop their own athletic products. Some of their well-known subsidiary companies include: Reebok, CCM, and Taylormade/adidas Golf. Unlike the other companies we are looking at Adidas is not an American company, but instead is German. Its headquarters are in Herzogenaurach, Germany.
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*Background Adidas Logo comes from: lt.blue.adidas *TOP picture: ad.bounce *MIDDLE picture: lightbluerun

Adidas - SWOT
Strengths Weaknesses
Considered a leader in the market They tend to hold a lot of inventory They have a huge international presence They dont have a very well established By far the main player in the soccer market network of manufacturers which causes They are diversied across a huge platform them to rely a lot on 3rd-party companies to
of product offerings. supply them with their inputs.

Opportunities
They have the best potential in emerging
markets because they are established on an international level. They have made good partnerships over the years.

Threats
The competitiveness in the market is
intensifying. Their production costs are rising They have to contend with counterfeiters

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Adidas - Strategies
Adidas mission: be the leading sports brand in the world. Vision: to enhance social and environmental performance in the company and the supply chain, thereby improving the lives of the people making our products. To achieve this the brand uses its broad and unique product portfolio made up of apparel and footwear for professional athletes and premium fashion. They can address the needs of multiple consumers, take advantage of opportunities in the market from in a variety of ways and be less affected by market risks. They are committed to product innovation and they have a strong history which separates them from other brands in the industry and provides a foundation which future growth can build upon. Their different focuses include: Football: Expanding strong market position Basketball: increasing global footprint Running: building credibility with high-performance athletes Training: creating new consumer experiences Outdoor: the athletic brand in the outdoors adidas Sport Style style your life
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Adidas - Financial Performance

Key Ratios
Their P/E ratio is above 20, this shows strong investor condence. Their Debt/Equity ratio is strong. Their dividend yield is in line with fast growing companies. Their ROE % falls within the average range.
Total Debt/Equity 0.35 P/E 20.88

Return on Equity (%)

13.52

Operating Prot Margin (%)

7.46

Dividend Yield (%)

1.41

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P/E Ratio = 56.59/2.71 = 20.88 ---> Return on Equity = 568.0 million / 4,616.0 million = 13.52 ---> Total Debt/Equity = 1,615.0 million / 4,616.0 million = 0.35 ---> This is very low - GOOD Operating Profit Margin = (11,990.0 million - 11,096.0 million) / 11,990.0 million = 7.46 ---> Dividend Yield = 0.80 / 56.59 = 1.41 --->

Adidas - Marketing Performance

Impossible is nothing Global focus Soccer Cricket Rugby Etc Key sponsor of: NBA MLS New Zealand national rugby team England Cricket Club Dale Earnhardt Jr Many many more CSRCorprate citizenship Global greeness Goal of being a zero emmissions company
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Under Armour - Background Info

Under Armour was started as a plan to make a T-shirt that provided compression and took sweat off your skin instead of absorbing it, therefore allowing athletes to regulate body temp. The company was founded in 1996 by Kevin Plank. They were originally just in the business of making performance apparel, but they have since expanded into footwear as well. The idea behind the company is to use complex technology to meet simple needs like: HeatGear for when it's hot ColdGear for when it's cold AllSeasonGear when it is between the extremes. Their mission is to give the world with innovative products engineered with better fabric construction, and advanced moisture management. They want all of Under Armours products to do something for you, to make you better.

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*Logo: UA logo

Evolution of Under Armour

(Image from Forbes Magazine)

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http://management.fortune.cnn.com/2011/10/26/under-armour-kevin-plank/

Under Armour - SWOT

Strengths
Seen as cool brand Becoming afliated with more universities Has popular celebrity endorsements Sponsors high schools (nike and adidas
dont)

Weaknesses
Newcomer in shoe industry Doesnt have a big international presence Currently not expanding Focuses more on males Lack of nancial resources

Opportunities
Could open retail locations Expanding offerings

Threats
Rising costs in production throughout
industry Technological advances by competitors

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Under Armour - Strategies

Brand Mission: To make all athletes better through passion, design and the relentless pursuit of innovation. They are slowly building brand recognition and taking market share as shown in the gure below. The companys original growth strategy was through a six degrees of separation or hear-say method. Unlike Nike who stresses customization and individuality, Under Armour stresses team unity and selling a team look.

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http://www.uabiz.com/company/mission.cfm http://management.fortune.cnn.com/2011/10/26/under-armour-kevin-plank/

Under Armour - Financial Performance

Key Ratios
The highest P/E ratio in the industry: Investors are extremely condent in the future of this company Their ROE % is above average. This is the highest for the companies we are evaluating, meaning investors from this company are getting the most return on their investment in the rm.
P/E 42.27

Return on Equity (%)

17.02

Total Debt/Equity

0.12

Operating Prot Margin (%)

11.05

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P/E Ratio = $77.58 / 1.84 = 42.27 Return on Equity = $68.5 million / $497.0 million = 22.54% Total Debt/Equity = $15.9 million / $497.0 million = 0.12 Operating Profit Margin = ($1,063.9 million - $951.6 million) / $1,063.9 million = 11.05

Under Armour - Marketing Performance

Celebrity sponsorships include: Tom Brady Cam Newton Derrick Williams Hunter Mahan They have deals with many colleges including: Auburn, Maryland, Virginia Tech, and Texas Tech They are the only company that actively sponsors High Schools CSR UA Freedom: - UA works with the Wounded Worrier Project UA Green : - They are trying to implement more green technology into their performance products. Under Armour uses recycled plastic bottles to make their Green products. Their 2011 goal was to convert over 2,000,000 one liter plastic bottles into performance products. Power in Pink: - Under Armours breast cancer awareness program.
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Winner/Loser
WINNER: Nike is the big winner in this industry because they are the biggest player, the most innovative, and they have an enormous amount of nancial resources available to maintain and build on their competitive advantages. LOSER: Under Armour is the loser in this industry mainly because they are so small compared to the other two companies and they dont have the nancial resources or brand recognition to keep up with their competitors.
One thing to mention about Under Armour is that while they currently are the weakest in the industry, their investors are the most condent, and they have the most opportunities for growth because they are so young. This rm could easily be a winner within the next 10-15 years.

Overall the companies in this industry are very similar and none are showing glaring aws or huge vulnerabilities.

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Summary
Nike has been and continues to be the leader in this industry. This industry is in a trend where the small companies are disappearing or being bought up by the larger power players like Nike and Adidas. The rivalry in this industry should continue to grow as its growth begins to decline.

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Citations
Industry: http://galenet.galegroup.com/servlet/BCRC?vrsn=unknown&locID=ksu&ste=1 Adidas: adidas-group.com Adidas 2010 Annual Report - http://adidas-group.corporate-publications.com/2010/gb/index.php?lang=en Nike: Nikeinc.com Nike 2010 Annual Report - http://investors.nikeinc.com/Theme/Nike/les/doc_nancials/AnnualReports/ 2010/index.html Under Armour: UAbiz.com Under Armour 2010 Annual Report - http://les.shareholder.com/downloads/UARM/1709755545x0x452384/ c8786075-4201-4df1-9fc8-d9740f8d59aa/2010_Annual_Report.pdf http://management.fortune.cnn.com/2011/10/26/under-armour-kevin-plank/

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