Nike's Strategic Progression - Case Study Example

Nike Inc. strategic progression has comprised of following the concept of growth and expansion to reach new markets and address the demands of a wider customer base. Since, the initiation of the company’s operations in 1964 as Blue Ribbon Sports the firm has been abiding by the principles of acquisitions and takeovers. However, it was not until 1988 with the acquisition of Cole Haan that the company ventured into the process by adopting a more strategic stance, assessing the prospects of the acquiree and identifying the potential benefit of the business transaction. However, in the existing business scenario Nike Inc. has adopted a strategy of streamlining its business operations and drawing specific focus to its core product and target market (Nike Annual Report, 2013). Owing to this decision Nike Inc. has funded the acquisition of popular and iconic footwear company, Converse and its several brands. As reported in Nike’s Annual Report (2013), the company has adopted a strategy of drawing specific focus, reorganizing business units and assessing the scope of its product portfolio to create an effective long term strategy which is able to drive the company towards the attainment of its strategic objectives and goals. Therefore, under this campaign the company reevaluated its future potential and investment opportunities to ascertain the continuation of the NIKE brand name. Throughout the progression of this strategy, Nike Inc. took separate decisions during a short span between the time period of 2012 and 2013 to eliminate its stake in previously acquired businesses namely, Cole Haan and Umbro (Nike Annual Report, 2013). The primary motivation behind this step can also be identified as a move to channelize present resources and inject them in the strategic business units which possess the greatest potential; these include Nike Inc.’s subsidiaries of Hurley and Converse (Nike Annual Report, 2013). Nike’s acquisition of Converse which took place in 2003 occurred with the exchange of an amount of approximately $305 million, and the transaction was predominantly prompted by the company’s desire to become a part of a cultural insignia (Tkacik, 2003). As of 2013, the number of Converse stores including the brand’s factory outlets which are owned by Nike stands at 72 across the United States with 3 stores located in international locations (Nike Annual Report, 2013). The evaluation of Nike’s decision to acquire Converse can be conducted comprehensively by documenting the contributions of the strategic business unit to the overall success of the firm. From a monetary perspective, the acquisition of Converse has proved to be favorable for Nike over the years. For example, as per the financial information presented in the company’s Annual Report (2013) the firm has been able to enhance the level of revenue collection from the business during the stated fiscal year by 9% as revenues for the financial period have been reported as $1,449 million. Accordingly, the rate of growth in the previous fiscal year stood at 12% for Converse. As stated previously, Nike Inc.’s acquisition of other businesses has been driven by the strategy of promoting long term growth and expansion across geographic regions. The company has been successful in the achievement of this aim through the means of acquiring Converse as the major revenue generation for this business unit has been triggered by escalating sales volume across the United Kingdom and China (Nike Annual Report, 2013). Apart from monetary considerations another favorable aspect of the acquisition for Nike is that the cultural impact of Converse has allowed the company to become a critical element of popular culture. More so, the footwear brand has descended upon fashion and Hollywood circles to become the preferred choice for many celebrities. This aspect has further evolved the company’s brand image in a positive manner. Thus, the presentation of aforementioned arguments justifies the claim that the acquisition of Converse has been a successful decision for Nike Inc. in terms of advancing its long term strategic goals. Under Armour, Inc. is a sporting goods and apparel company based in the United States. Since the introduction of the company in 1996, the firm has not been a part of any deals involving the completion of a merger or acquisition. The target market of the company focuses upon reaching the youth and individuals who prefer the adoption of a healthy and performance-oriented lifestyle. Since, its introduction the company has been able to garner a large clientele and distribution network which is based upon the existence of retailers, online distributors and independent suppliers (Under Armour Form 10-K, 2013). The company’s financial performance in the past fiscal years has proved to be favorable with a reported revenue generation of $2.332 billion in the fiscal year of 2013 (Under Armour 10-K, 2013). In recent years the company has escalated its focus in producing apparel and footwear which enhance body performance and endurance under challenging or hindering temperatures. The promotion of this agenda has been conducted under the brand names of HEATGEAR and COLDGEAR amongst others (Under Armour Form 10-K). Given the innovativeness of the company and its specific focus towards targeting a young customer base which is health-oriented and prefers to maintain a performance-based lifestyle, the acquisition of the company by Gap Inc. or a merger of the firm with the same appears to be a viable option. Gap Inc. which reported annual revenues of $15.7 billion in 2012 has previously participated in the acquisition of Intermix which is brand that focuses on catering to a highly individualized, contemporary and young audience (Gap Inc. Annual Report 2012). Several acquisitions which have been conducted by Gap Inc. in previous years have focused upon enhancing the company’s place in the local market. In alignment with this strategy which was forwarded by the company with the launch of Athleta, it is suggested that the company would be able to benefit from the product portfolio of Under Armour because like Athleta which focuses on the manufacturing of functional and modern apparels and footwear, the business of Under Armour caters to a similar market. As of 2012, Gap Inc. reported an increase in sales from the previous year which stood at a staggering $367 million (Gap Inc. Annual Report, 2012). The company attributed a significant portion of this increase to the Athleta brand name and the inauguration of new stores which exclusively featured the brand. This view asserts that the concept of launching modern, functional and contemporary apparel is being appreciated by customers and the demand for such product lines is favorable. Therefore, this paper recommends a merger between Gap Inc. and Under Armour to promote future prospects for both organizations in a subsector of modern apparel which is being appreciated by customers. Nike Inc.’s comprehensive strategy in the international market is focused upon several individual elements one of which comprises of a managing an effective supply chain management system by combining the expertise of individual retailers, online platforms and distribution centers. Moreover, Nike Inc. recognizes that it experiences stiff competition in both domestic and international markets therefore; the company must maintain an effective business level and corporate level strategy to successfully address the implications of tough competitive pressures. From the perspective of coping with competitive pressures in international markets the company relies on improving upon three critical elements of the business which are that of 1) product quality 2) supply chain and 3) maintaining customer relationships (Nike Annual Report, 2013). In terms of product quality, the company focuses upon creating a product line which incorporates the elements of quality, performance, durability and reliability to provide best customer value. Accordingly, another integral focus is to maintain customer value and offer a product which is able to justify the price that the customer is expected to pay for acquiring the product. Consequently, the company recognizes that the product cannot meet or exceed the target sales volume in international markets unless marketing and promotion is conducted successfully to reach the target audience (Nike Annual Report, 2013). As is the case with the marketing campaign which is conducted by Nike in the domestic market the company aspires to enhance the number of professional athletes who are willing to choose the company’s product as their official brand of footwear or apparel. Moreover, another strategy within international markets is to incorporate the Nike brand name in public relations and sponsor events to receive maximum coverage across the region. However, it is important to recognize that Nike’s international strategy must be improved to capture a greater share of the market in international markets. It is recommended that the company should assess acquisition prospects in emerging local markets or markets which possess the greatest potential for future growth. For example, local sports manufacturers across China, Brazil and India must be provided with an incentive to merge with Nike and continue their local operations. This strategy is expected to be successful for the company because local manufactures understand preferences, domestic strategies and promotional standards to guide the firm’s expansion into the identified markets which possess immense potential because of economic growth, young target markets and the presence of a sizeable urban population. Moreover, sports fanaticism in Brazil and India indicates that the country’s populations would be willing to accept a greater integration of Nike’s brands in the local sports setup. The suggested business level strategy for Under Armour is associated with the adoption of a focused strategy which addresses the requirements of a smaller segment of the market. For example, the company’s brand HEATGEAR and COLDGEAR which are differentiated products for promoting performance during extreme weather conditions can be promoted in a given sports community to maintain the performance of athletes. Thus, the COLDGEAR could be promoted in sporting events such as the Winter Olympics as one of the official sponsors of the event. Moreover, HEATGEAR can be promoted in international locations. For instance, athletes in the Middle East who play regional sports such as camel racing and desert racing are prone to being subjected to heat strokes or other problems during the course of the game. The promotion of HEATGEAR would therefore prove to be popular across these geographic regions. Thus, the recommended corporate-level strategy for Under Armour is to focus on catering to a niche of professional athletes, fitness professionals and runners who demand functional and innovative clothing to enhance endurance and agility during games. The company would be able to benefit from this strategy by pricing their products at a higher price because the apparel serves a different purpose than that of normal clothing which is used for non-professional purposes. References Gap Inc. (2012). Annual Report 2012. Accessed from [27th May, 2014] Nike. (2013). Annual Report 2013. Accessed from [27th May, 2014] Tkacik, M (2003). Nike to Buy Converse For About $305 Million. WSJ. Accessed from [27th May, 2014] Under Armour. (2013). Form 10-K 2013. Accessed from [27th May, 2014] Read More