How will the strategic objectives as well as the sudden change in CEO affect Nike’s

profitability in the long run?

Introduction:

Nike is a well-known multinational corporation based in the United States that designs,
manufactures and sells shoes, clothing, gear and other sporting equipment globally. The
company offers Nike Products in six main different categories: Running, Nike Basketball,
Jordan brand, Football, Training and sportswear. Moreover they also manufacture jerseys for
a large number of sports teams and endorse players from sports ranging from track and field,
football, soccer, basketball and more.
It is the market leaders in the global athletic shoe market with its competitors being brands
like adidas, puma and reebok. It also has a high market share in the sneaker industry . This
makes the corporation one of the biggest multinational companies in the world with an annual
revenue of $34.35 Billion.
Nike has had an exponential and astonishing increase in its stock price for the past few
decades, its profits rocketing since its IPO in 1980. When Its current CEO Mark Parker who
took up his post in the year 2006, each share was priced at $10.78 a piece. He then carried the
company to where it is today where the share is priced at $ 90.92 a share. Mark Parker has
during his years at Nike used a combination of strategies to ensure that Nike remains the
market leader.1
However after 14 years, Nike declared recently that Mark Parker will be stepping down as
CEO in 2020. In his stead a Nike board member John Donahoe, the former eBay CEO will be
taking up the post, in Nike’s hopes to conquer the online market in the foreseeable future.
Surprisingly another sports giant, Under Armour seemed to have similarly the step down of
their CEO for a new employee who has more of a technological oriented background.
This commentary will focus on analyzing how the change in CEO and strategic objectives
will affect the long term profitability of the company.

Supporting Documents:
1
http://panmore.com/nike-inc-generic-strategy-intensive-growth-strategies
 Sourc Source: Publishin Date
e No: g date: of
access:
1. https://yahoo.brand.edgar-online.com/DisplayFiling.aspx? October 4, Octobe
TabIndex=2&dcn=0000320187-19- 2019 r 26,
000071&nav=1&src=Yahoo 2019

2. https://www.bloomberg.com/news/articles/2019-10-22/ October Octobe

nike-names-ebay-veteran-john-donahoe-to-succeed-parker- 23, 2019 r 26,
as-ceo 2019

3. https://sg.finance.yahoo.com/quote/NKE/profile?p=NKE - Octobe
r 26,
2019

4. https://www.forbes.com/sites/jefffromm/2019/01/04/ January 4, Octobe

marketing-convenience-to-the-modern-consumer/ 2019 r 26,
#51bfd87127fb 2019

How will the strategic objectives as well as the sudden change in CEO affect Nike’s
profitability in the long run?

Methodology:
This commentary will evaluate and analyze whether Nike’s current strategic objectives along
with its change in leadership (change in CEO) will affect Nike’s profitability in the
foreseeable future. The essay will be based on Nike’s revenue in the years following Mark
Parker taking over the position of CEO and modern transition into technology is changing
consumer patterns. Thus analyzing Nike’s current and projected revenue helping us reach a
conclusion to deduce the corporation’s standpoint in terms of its competitors. The
commentary will use the following business tools: SWOT analysis, STEEPLE analysis,
Liquidity, Profitability and Efficiency Ratios.
SWOT Analysis:2
Strengths: Weaknesses:
- World’s market leader for - The income of the business is still
sportswear and have an extremely heavily dependent upon its share of
strong core brand that is the footwear market. This could
recognizable across the globe leave the company vulnerable if it
- Uses a “make to stock” customer loses its market share in the
order which provides fast services to footwear industry.
customers from available stock - Most of Nike’s revenue comes from
- Has outlets throughout the world retailing shoes, and since the retail
that cater to numerous age groups market is extremely sensitive, as
and a variety of sports most retailers offer consumers
- Have an extremely strong Research similar experience making it almost
and development background perfectly competitive. Retailers try
allowing them to constantly innovate to pass the low price competition off
and manufacture whenever they to Nike forcing lower prices on
produce a high quality products at shoes, and lower revenue.
low prices. - Its manufacturing is mostly
- Are an extremely huge company outsourced to countries with
allowing them to benefit enormously extremely cheap costs for raw
on manufacturing costs due to materials and this could compromise
economies of scale the product’s quality compared to
- They innovate based on customer the quality intended by the company.
feedback and their products satisfy - Nike is constantly criticized for poor
customers, allowing them to have a labour conditions in its
strong customer relationship and manufacturing sectors.
build on brand loyalty - The company’s major revenue
- Nike also owns numerous other comes from the US with 42% of its
companies, which contribute to the revenue dependent on a single
corporations revenue. country.
- Nike has iconic relationships with - The firm though has an outstanding
the strongest athletes around the revenue it still as a huge debt of
globe. $3.49 Billion left to pay. These
- The brand itself has been marketed financial threats can affect the
enormously making the firm company negatively in the long run.
extremely renowned and well
known.
Opportunities: Threats:
- Growing economies can help Nike’s - Nike being a very well renowned
long term growth. Despite their company and its brand means that
establishment in developing numerous counterfeit products pop
economies, these growing up at retailers and merchandisers.
economies can contribute the These are low quality products with
rampant growth of the corporation. the Nike brand label. This can
- Nike is looking at combining potentially tarnish the name of the
technology with fashion and its firm.
sportswear. The niche market of - Numerous brands have joined the
wearable technology is only starting footwear industry and some brands
2
https://bstrategyhub.com/swot-analysis-of-nike-nike-swot-analysis/
 to be explored, allowing Nike to are gaining increasing popularity.
diversify into this field. This means that Nike has to
- Since post of the company’s supply constantly spend on marketing and
and production is outsourced and advertising to keep up with its
depends on independent market share. Specifically Nike
manufacturers. The firm could spent $3.5 Billion dollars just on
acquire these suppliers so as to marketing in 2018.
reduce its costs further. This would - Nike being a Multi-National
also make the supply chain more Company, it is constantly affected
streamlined and more efficient. by fluctuating interest rates. Since its
revenue is usually expressed in
USD, the USD is constantly exposed
to volatility affecting its revenue
exposure.

STEEPLE Analysis3:

- Social Opportunities and Threats:

o With more people in the world’s population being aware of Health hazards
and daily dietary requirements. According to the Huffington post4 more and
more people are becoming health conscious and are joining fitness clubs. This
increasing social trend means that more people will be willing to spend
towards their health, which would result in an increased revenue for Nike.
- Technological Opportunities and Threats:
o Increasing social media presence on YouTube, Instagram and Facebook of
Nike with a following of nearly 27 million is a reflection of its global
popularity.
o Nike constantly releases videos and advertisements of its latest innovations.
For example its latest running shoe the Nike Joyride’s advertisement is the
most watched advertisement of the month of October 2019.
o Nike relies on information technology to carry out designing, production,
marketing and distribution.
o Nike also is working on its ecommerce branch ass the Nike website reaches
out to only 45 countries at the present with limited stock in some. However to
meet demand it will be increasing its coverage. Which could explain the
announcement of the change in CEO.
- Economic Opportunities and Threats:

3
https://www.marketingtutor.net/nike-pestle-analysis/
4
https://www.huffingtonpost.ca/timi-gustafson/younger-consumers-are-
mor_b_14290774.html
 o Recession and booms can affect a corporation’s ability to perform in the
market. In Nike’s case Economic Recession in numerous financial markets
can affect the company’s profits. Recession can cause an inflationary increase
in the raw materials required by Nike in the manufacturing of its products.
Thus affecting its manufacturing costs and therein affecting the profit
generated by the firm.
o Currency movement in different countries can also affect the corporation’s
sales, budget etc. The constant changes in interest rate heavily impacts the
corporation.
o Government tax and revenue policies can affect the corporation as well. For
example low interest rates and favorable international tax agreements in the
United states provide strong foundations for Nike’s growth. However
manufacturing laws and tax rates in different countries can affect Nike’s
annual income as well as their produce.
o The expanding free trade opportunities in most countries will also allow Nike
to trade at lower tax rates.
o In recent times the slowing down of the Chinese economy due to the ongoing
trade war can affect the company’s revenue
- Environmental Opportunities and Threats:
o Expanding environmental law helps create environmental and sustainable
programs which are already considered the best in the world. Nike’s concept
of recycling old shoes, helps build customer trust and gives the company a
good reputation in the Media which results in more brand loyalty.
o Sustainable strategies are being employed by other companies as well, for
example Adidas’ latest ultra boost is made entirely out of recycled plastic, this
gives Nike incentive to boost its sustainability program and gain positive
Media attention.
o Being a large firm with a high cash flow, its investment into Climate change
programs and its promotion of the wellness of the planet can also give
consumers a positive opinion of the Corporation.
- Political Opportunities and Threats
o Due to Nike’s majority revenue coming from the united States, the country’s
political relations effect the countries in which Nike operates. For example
Nike couldn’t continue producing equipment for the Iranian football team due
to US sanctions on Iran.
o Issues of Racism and Injustice that politically hurt the sentiments of a country
can affect Nike’s revenue. Nike’s advertisement of Colin Kaepernick
following the athlete’s fight for Social Injustice paired along with Nike’s
promotion of the athlete affected the sales revenue of the corporation as the
citizens of the United stated did not take lightly to the gesture.
o Moreover in most countries the increasingly stable political climate can help
the company choose where and how to set up shop, resulting in an increased
revenue.

- Legal Opportunities and Threats:

o Improving employment laws in countries could mean that more labourers will
be willing to join the firm, at the same time this is a threat to the firm as Nike
will have increased labour costs and this can affect the profit of the company.
 o Increasing Consumer laws in countries mean that Nike can get rid of
unnecessary competition and promote the quality of its goods and apparel, and
hence could potentially capture a higher percentage of Market share.
o Laws that demand an improvement in Health and safety regulations mean that
Nike should spend more on its manufacturing practices so as to keep its work
environment more safe, This could affect the costs of the company.
- Ethical Opportunities and Threats:
o Nike has been constantly criticized for having extremely poor working
conditions for its factory workers, and for paying workers below the minimum
wage rate. Their unethical business practices have constantly affected their
sales by numerous support groups. Specifically Nike’s sweatshops in Vietnam
have extremely poor working conditions and workers are expected to work
extremely long hours without sufficient pay.5
o Nike has recently come into light for discriminating wages against males and
females, along with sexual harassment charges by the ex-employees of Nike
claiming Nike’s “boys club” should be discouraged at the workplace and is
extremely unethical. These are one of the allegations hurled at current CEO
Mark Parker as well, claiming that sexual allegations about employees were
entirely ignored. However these were responded to positively by the CEO as
he raised salaries and fired certain senior managers.6

Efficiency Ratios:
5
https://web.stanford.edu/class/e297c/trade_environment/wheeling/hnike.html
6
https://www.nytimes.com/2018/08/10/business/nike-discrimination-class-action-
lawsuit.html
The efficiency ratios and the current ratios can be used to determine the way in which the
firms is employing its financial resources as well as how well it will be able to cover its short
term debts.
Nike being a large Multi-national company with a large cash flow with a considerable
amount of short term debts, hence there is an incredible amount of pressure on the firm to
ensure a profitable growth, and hence efficiency ratios such as the Return on Capital
Investment calculation can help calculate the overall productivity as well as the profitability
of the company.

The formula used to calculate the Return on Capital employed is =

Net Profit before interest ∧tax
100
Capital Employed

For Nike in particular for the year 2018 their net profit before interest and tax is $4.325
Million while their capital employed is 9.812 Million.
Using the formula their Return on Capital employed will be