Industry Analysis

Athletic Apparel & Footwear

Prepared By:
Kyle Bonham

In Partial Fulfillment
of the Requirements for
MANGT 595: Business Strategy

Introduction to Industry:
The Athletic Apparel & Footwear Industry is a subgroup of the Retail Industry. The mission for
nearly all athletic apparel companies is to motivate and inspire consumers to exercise in
confidence using their products. For example, according to www.nike.com, Our mission, bring
inspiration and innovation to every athlete in the world. If you have a body, you are an athlete.
Now, that millennials and all Americans know the importance of exercise and a healthy lifestyle,
the sales of athletic apparel is constantly rising.
According to www.fortune.com, Growing demand for active wear, the sporty fashion for both
the gym and the streets, has lifted sales for makers of the clothing and the retailers that sell it.
Athletic gear, you might say, is running laps around the competition doing even better than the
overall retail industry, which is humming along as shoppers feel more comfortable about opening
their wallets because of the improving economy. Statista.com states, The sporting good market
is growing, though competitive, industry in the U.S., where sales topped 64 billion U.S. dollars
in 2014, up from just over 50 billion U.S. dollars a decade prior. The athletic apparel industry
popularity is rising daily and many brands experienced success because of it in 2014-2015.
Fortune.com states, The proof is in the industrys sales results. Nikes North America sales leapt
14% for the six-month period ending November 30th from the prior years level, with the help of
stronger footwear and apparel sales. Smaller rival Under Armours sales in the region leapt 29%
for the first nine months of 2014. Sales are also climbing at major companies including
Lululemon Athletica and Foot Locker. After analyzing these numbers and the recent peak in
popularity of athletic apparel, I would say the industry is in the mature growth phase of the
industry life cycle. This is because over the last decade sales for Athletic Apparel brands have
risen dramatically. There are certain brands that dominate sales, but sales continue to climb for
the industry each year without showing any sign of slowing down.

Five Forces Analysis:

Athletic Apparel and Footwear companies are always scanning their industries to identify threats
and opportunities in attempt to handle each force in the most efficient way possible, with the use
of Porters Five Forces Model. Exhibit 1, below, provides a table for Nike, a brand within the
athletic apparel industry, for an easier understanding of how companies apply the Porters Five
Forces Model.
Of the five forces, Competitive Rivalry within the Industry, is rated at medium to high intensity
for the most threatening using the model. For a company to have control of the Athletic Apparel
and Footwear Industry, it is vital the company puts their greatest effort into beating out their
competitors. According to http://www.statista.com/statistics/305819/brand-purchasing-top-50sporting-brands-united-states/, However, the brand name also plays an important role in the
purchasing decision of 60% of respondents, while past experience with a brand is mentioned by
over 80% of those surveyed as a possible factor. This demonstrates the importance each
company must place on convincing consumers their brand offers quality and style other
companies cannot achieve because the prior statistic shows that consumers are likely to continue

purchasing athletic apparel from brands they had a successful experience with. There are more
reasons why the threat of competitors is so high in this industry listed below Exhibit 1.
Next, when it comes to Bargaining Power of Customers within Porters Five Forces, the intensity
for the Athletic Apparel Industry is only low to medium. For nearly all companies within this
industry, brand image is everything when it comes to the bargaining power of customers. As you
see in Exhibit 1 with Nike, big wholesale customers can have some bargaining power in the
industry. If the Athletic Apparel Company has a strong brand image and is known for creating
innovative footwear and apparel, the bargaining power is low for large wholesale customers. The
Bargaining Powers of Wholesale Customers also can be influenced by prices they get from any
certain apparel brand within the industry.
The Threat of New Entrants in the Athletic Apparel and Footwear Industry is relatively low.
Most of the top competitors have been around for a very long time and have developed a very
strong brand image because of it. When it comes to athletic apparel and footwear, consumers are
shown to purchase from brands they have had previous experiences with, especially if they were
positive. Once a positive image is already in a consumers mind about a certain brand, it is hard
to steer them towards another athletic apparel brand. Also, as shown in Exhibit 1 below, a high
amount of capital is required for new entrants for research, product development, marketing and
sales, which can be very difficult for small new entrants to attain the needed amount. This is why
Athletic Apparel brands with a known positive image tend to dominate the industry.
When it comes to Bargaining Power of Suppliers, the intensity is low within the Athletic Apparel
Industry. There is no significant supplier within the industry that holds a high amount of power.
Nearly all companies within the industry have suppliers outside of the United States by thirdparty manufacturers. As shown in Exhibit 1 below, companies can choose between many
different suppliers and not one of them accounts for a large portion of product manufacturing for
any certain company. Athletic Apparel Brands have many options when it comes to suppliers, so
the bargaining power for those suppliers are low because they have to offer low switching costs
which deduct from the total profitability for the supplier.
Now, the Threat of Substitutes in the Athletic Apparel Industry is a different story. The intensity
of this force, as shown below in Exhibit 1, can range from low to medium. The biggest threat
from this force actually comes from companies creating counterfeit products, using specific
brand logos, and then selling the merchandise at a much lower price. A counterfeit product can
be very damaging to a brands reputation. For example, a consumer purchases a pair of Nike
shoes, but was unaware the website the purchase was on is known for manufacturing counterfeit
Nike footwear and apparel. When the consumer receives the shoes and notices the very poor
quality, it reflects negatively on Nike because the consumer now believes Nike manufactures
poor quality products. This is a growing concern for many brands within the industry because
more and more websites are selling counterfeit products at an extremely lower price which
attracts consumers.

Top Players & their Strategies:

In the Athletic Apparel & Footwear Industrys current market conditions, there are three
companies that control a large amount of the shares for the industry. According to Forbes, the top
three companies are Nike, Adidas, and Reebok. Nike leads the industry with an estimated brand
value of $15 billion, Adidas follows with an estimated value of $5 billion, and Reebok is third
with an estimated value of $1.5 billion. After analyzing those numbers, its evident that Nike is
the main leader of the industry.
Nike has experienced so much success for multiple reasons. Nikes Website states in the 2015
Fiscal Income Statement Review for the First Quarter, Revenues for the NIKE Brand were
$28.7 billion, up 14% excluding the impact of changes in foreign currency. They have been the
leader of this industry for many years now and are not showing any signs of slowing down. Nike
has reached their current success due to successful athlete endorsements, marketing towards
millennials that now prefer athletic gear to denim, and the sponsorship of collegiate and
professional sports. Nikes main strategy is to offer innovative products that enhance athlete
performance. The statistics show that athletes all around the world prefer Nike over any other
Athletic Apparel brand.
Adidas has reached their level success due largely to their sales from their focus on enhancing
the performance of their consumers. Adidas Group First Quarter 2015 states, Group revenues
grew 17% to 4.083 billion. Adidas believes, No matter whether you are an athlete, a fashionista,
a (potential) employee or any other stakeholder, we strive to create value for you. They strive to
design premium products to help athletes achieve their personal best and also provide responsive
services for customers, if they have complaints about the product they purchased. Adidas
believes only then, will they prove to be a leader in their industry. Their strategy has proven to
work due to the fact they are the number two Athletic Apparel Brand in the world and also that
their consumers appreciate their efforts.
Reebok, the third highest grossing Athletic Apparel Brand, is actually owned by the two number
grossing Brand Adidas. Reebok sales increased 9%, which led to their estimated value of $1.5
billion. Reebok has experienced a decrease in sales in recent years but they intend to change that
by implementing a strategy. Adweek.com reads, Launched last month, "Be More Human" casts
the athletic apparel and footwear company as a coach, cheerleader and, the brand hopes, gear
supplier to everyday athletes who embrace a "no pain, no gain" mentality to attain personal
fulfillment. "We want to be peoples' partners in their journey," said Yan Martin, Reebok's VP,
global brand communications. "This is a mission we've been on for years." Adidas hopes this
strategy will help contribute to an increase in sales for both brands.

Competitive Dynamics:
Mergers and Acquisitions do not occur very often in the Athletic Apparel Industry. The last
acquisition between the top competitors of the industry was in 2006, when Adidas purchased
Reebok in a strategic effort to boost sales and hopefully surpass the industry giant NIKE, in the

near future. NIKE, still leads the industry in sales, but Adidas efforts have been successfully
increasing their revenues through 2015 thus far.

Strategic Implications:
The Athletic Apparel Industry is an extremely expensive and difficult industry for new entrants.
The current leaders NIKE, Adidas, and Reebok, have been working for decades now to create the
brand image they each have today. Research shows that consumers are hesitant to switch to new
Athletic Apparel companies when they already have purchased high quality apparel from prior
companies. My recommendation for possible new entrants of the Athletic Apparel Industry is to
consider another one, because heavyweights NIKE, Adidas, and Reebok, all have an unbreakable
image and will never be surpassed. They not only manufacture Athletic Apparel and Footwear
for people across the world, but also design the uniforms for many professional sports across the
world too. The industry giants just seem too big to be surpassed.

References:
"Adidas Group First Quarter 2015 Results." Adidas Group -. N.p., n.d. Web. 07 Oct. 2015.
http://www.adidas-group.com/en/media/news-archive/press-releases/2015/adidas-group-firstquarter-2015-results/
"Athletic Apparel: Outperforming the Competition in 2014." Fortune Athletic Apparel
Outperforming the Competition in 2014 Comments. N.p., 25 Dec. 2014. Web. 07 Oct. 2015.
http://fortune.com/2014/12/25/athletic-apparel-top-performer/
"BRING INSPIRATION ANDINNOVATION TO EVERYATHLETE* IN THE
WORLD." About Nike. N.p., n.d. Web. 07 Oct. 2015. http://about.nike.com/
Forbes. Forbes Magazine, n.d. Web. 07 Oct. 2015.
http://www.forbes.com/pictures/mlm45jemm/1-nike/
"NIKE, INC. Reports Fiscal 2015 Fourth Quarter And Full Year Results."NIKE, Inc. N.p., n.d.
Web. 07 Oct. 2015. http://news.nike.com/news/nike-inc-reports-fiscal-2015-fourth-quarter-andfull-year-results
"Reebok Is Quietly Emerging as a Challenger Brand to Contend With."AdWeek. N.p., n.d. Web.
07 Oct. 2015. http://www.adweek.com/news/advertising-branding/reebok-quietly-emergingchallenger-brand-contend-163074
"Strategy Overview." Adidas Group -. N.p., n.d. Web. 07 Oct. 2015. http://www.adidasgroup.com/en/group/strategy-overview/
"Top 50 Sporting Goods Brands U.S. Consumer Purchases 2014 | Survey."Statista. N.p., n.d.
Web. 07 Oct. 2015. http://www.statista.com/statistics/305819/brand-purchasing-top-50-sportingbrands-united-states/

Porter Five Forces

Intensity

Competitive Rivalry Within The Industry

Medium to High

Bargaining Power Of Customers

Low To Medium

Threat Of New Entrants

Low To Medium

Bargaining Power Of Suppliers

Low

Threat Of Substitute Products

Low To Medium

Exhibit 1:

Competitive Rivalry Within The Industry Intense competition from established and upcoming rivals
could threaten Nikes market share growth

The global market for athletic footwear, apparel and equipment is characterized by intense
competition, with presence of a large number of players such as Puma, Adidas, V.F Corporation, Asics,
etc.

The global athletic products industry is exposed to continuous changes in consumer preferences
and technology; if Nike is unable to adapt to these changes quickly, it could suffer losses in its market
share.

Rising competition from emerging players such as Under Armour and Lululemon Athletica, which
focus on niche market segments such as performance apparel and yoga-focused apparel, also pose a
threat to Nikes share of selected markets.

Nike also faces rising competition from local players in emerging markets, who are increasingly
improving their product quality.

Having said that, Nike has a strong brand reputation which likely will continue to propel strong
demand for its products. Further, Nike continues to differentiate its products within an innovative product
portfolio, leveraging a particularly strong brand with enhanced marketing activities.
Bargaining Power Of Suppliers While no single supplier holds significant bargaining power, footwear
production is concentrated in Vietnam, China and Indonesia

Nikes footwear and apparel products are manufactured by third-party contract manufacturers
outside the U.S. in various countries, including Vietnam, China, Indonesia, Argentina, Brazil, India and
Mexico.

Nikes footwear production is largely conducted in Vietnam, China and Indonesia as contract
factories in these countries in fiscal 2013 comprised around 42%, 30%, and 26% of total Nike brand
footwear production, respectively. Hence, both sovereign issues and currency effects could be a cause for
concern for Nike.

No single footwear factory or apparel factory accounted for more than 6% of total Nike brand
footwear production and Nike brand apparel production respectively in fiscal 2013; hence, due to a large
base of suppliers, we believe their bargaining power is limited.

The switching costs in changing suppliers is significant.

However, suppliers generally share the inflationary pressure (related to raw material costs and
labor expenses) with Nike through manufacturing service pricing.
Bargaining Power Of Customers Big wholesale customers could exert some bargaining power

Nike caters to its customers through both the wholesale and direct-to-consumer channels, which
accounted for 80.6% and 18.9% of total Nike brands sales respectively, in fiscal 2013.

Direct-to-consumer sales rose by 23% in fiscal 2013, as compared to 6% growth in the wholesale
channel; hence Nike is looking to strengthen its direct channel.

Certain big wholesale customers hold bargaining power as they could widen their partnership with
Nikes competitors or provide their own private label offerings to earn higher profitability.

Bargaining power of end-customers is low as Nike has a very strong brand image and holds an
innovative product portfolio.

However, customers could also choose other brands owing to factors such as price, advertising,
product sponsorship, and changing styles.
Threat Of New Entrants Requirement for high capital and research investments could limit the entry of
new players; however, there is a threat from new e-commerce players

Significant capital resources are required for creating a new brand as large investments are
needed for marketing and procuring floor space; hence, this restricts the entry of newer players.

Nike enjoys a great degree of brand recognition and loyalty, and it will be a difficult for a new
player to match its level.

Having said that, we believe more Internet companies could start selling competitors footwear,
apparel and equipment online as the barriers to entry are low in this business.
Threat Of Substitute Products - Counterfeit products represents the biggest threat in this area

The worldwide demand for athletic footwear, apparel and equipment is expected to grow in the
future as customers cannot substitute these products.

However, the problem of counterfeit products is an area to watch. As the quality of counterfeit
products has been improving over the recent past, we believe this could threaten the companys sales in
emerging markets and could also potentially dilute Nikes brand value.

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