Porter’s Five Forces is a model named after Michael E. Porter
that takes into consideration five market forces that play out
on any given company or industry. The five forces are: power
of buyers; power of suppliers; threat of substitutes; threat of
new entrants; and industry jockeying.
This model examines these forces thereby helping to
determine a given company’s strengths and weaknesses.
Porter’s Five Forces is also a way to view the potential risks to
which any given company may be exposed.
Porter’s is a valuable yet somewhat subjective tool. It is a
starting point meant to encourage further discussion.
What is Porter’s Five Forces?
Please note there is no official method to score the model.
This method is simply a way to further categorize companies.
Each market force is scored on a scale of 1 – 5 with 1
representing the lowest threat and 5 representing the highest
All five forces are totaled for a final score. The lowest possible
score is 5 and the highest possible score is 25.
implies a lower threat rating.
implies a medium threat rating.
implies a higher threat rating.
Power of Buyers
The buyers in the case of Nike are consumers
like you and me.
Professional athletes are advertising. They
get the gear out there for us to see.
Athletic gear/apparel/footwear is a $200
billion-plus market opportunity.
All around the world Nike is synonymous with
Consumers will often pay for what they really
Nike has been able to maintain a decent level
of pricing power on product; direct-to-
consumer is helping the cause as well.
Score - 3
Power of Suppliers
Suppliers are those that supply the materials
and produce the goods NKE sells.
It’s difficult to forget the sweatshop issues
and abusive labor practices of the past.
From the 10-K: “We have thus far
experienced little difficulty in satisfying our
raw material requirements.”
Nike has led the way in supply chain
transparency since these issues arose.
With a manufacturing presence of 719
factories in 44 countries spanning almost 1
million workers (contracts), suppliers do hold
some of the cards.
Score - 2
Threat of Substitutes
One of the greatest threats in virtually every
walk of retail is the threat of substitutes.
Generally speaking there are plenty of
substitutes in athletic apparel/equipment.
Materials and products exclusive to the brand
help to mitigate this threat.
NKE’s reputation for excellence, leading
market position and powerful brand that
earns the stamp of approval from many
athletes do mitigate this threat somewhat.
Top-line growth over the last decade has
been quite impressive.
Competition will continue to keep pace for
the most part so innovation will be key.
Score - 3
Threat of New Entrants
While the threat of new entrants is very
relevant in the retail space, NKE has built a
fiercely loyal customer base with both the
quality of the offering and the power of the
Can new entrants come in and start taking
away NKE sales? Of course.
Do new entrants force NKE to cut prices to
maintain market share? Doubtful.
NKE’s leading position in the space and
reputation in the field protect it somewhat
from new entrants.
Gross margin over time indicates a degree of
Score - 2
Sporting goods is a very large market
opportunity on a global scale.
Signs of an active and competitive industry
can be seen in innovation, SG&A costs, social
media presence, etc.
Constantly signing new athletes and
endorsements. Nike maintains its gold
standard, however competitors like Adidas,
Under Armour and others are capitalizing on
opportunities as well.
NKE also capitalizing on direct-to-consumer.
NKE has had to maintain spending, signs of a
robust and competitive market.
Score - 4
Power of Buyers – 3
Power of Suppliers – 2
Threat of Substitutes – 3
Threat of New Entrants – 2
Industry Jockeying – 4