Nike Porter's Five Forces

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Taking a look at Nike's business through the lens of Porter's Five Forces.

Published in: Retail

Nike Porter's Five Forces

  1. 1. Nike NYSE: NKE Porter’s Five Forces 1
  2. 2.  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. 2 What is Porter’s Five Forces?
  3. 3.  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 threat.  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. 3 Scoring
  4. 4. 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 sports.  Consumers will often pay for what they really want.  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 4
  5. 5. 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 5
  6. 6. 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 6
  7. 7. 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 brand.  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 pricing power.  Score - 2 7
  8. 8. Industry Jockeying  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 8
  9. 9.  Power of Buyers – 3  Power of Suppliers – 2  Threat of Substitutes – 3  Threat of New Entrants – 2  Industry Jockeying – 4 9 Score

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