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Distribution Strategy of Nike

Distribution Strategy of Nike

Discuss Distribution Strategy of Nike within the Elements Of Logistics forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States. The company is headquartered ...

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Rohini Upadhyay
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Distribution Strategy of Nike - March 28th, 2011

Nike, Inc. is a major publicly traded sportswear and equipment supplier based in the United States. The company is headquartered near Beaverton, Oregon, which is part of the Portland metropolitan area. It is the world's leading supplier of athletic shoes and apparel and a major manufacturer of sports equipment with revenue in excess of US$18.6 billion in its fiscal year 2008. As of 2008, it employed more than 30,000 people worldwide. Nike and Precision Castparts are the only Fortune 500 companies headquartered in the state of Oregon, according to The Oregonian.
The company was founded in January 1964 as Blue Ribbon Sports by Bill Bowerman and Philip Knight, and officially became Nike, Inc. in 1978. The company takes its name from Nike (Greek Νίκη pronounced, the Greek goddess of victory. Nike markets its products under its own brand as well as Nike Golf, Nike Pro, Nike+, Air Jordan, Nike Skateboarding and subsidiaries including Cole Haan, Hurley International, Umbro and Converse. Nike also owned Bauer Hockey between 1995 and 2008. In addition to manufacturing sportswear and equipment, the company operates retail stores under the Niketown name. Nike sponsors many high profile athletes and sports teams around the world, with the highly recognized trademarks of "Just do it" and the Swoosh logo.

Entering into a strategic outsourcing relationship doesn't require turning over logistics management to a lead logistics provider. Take Nike Inc., which ships products to 143 global destinations. Nike's logistics operations are complex, involving three product lines footwear, apparel, and equipment and four regions managing orders through the company's logistics service provider network. Setting up the network of providers is a collaborative process between the regions and Nike's corporate logistics group.
World-leading sportswear brand Nike has opened its largest-Asian distribution center in China. It shows the company is keen to keep close ties with its Chinese customers, and further expand its Chinese market.
After entering the Chinese market 3 decades ago, Nike is taking another big step building its largest-Asian logistics center in Taicang, Jiangsu province. The brand new 200 thousand square meter facility will provide distribution support for Nike China’s footwear, apparel and equipment products. With the use of high-end technology, Nike's logistics center will reduce distribution time and optimize the overall logistics process.

To many of the Nike faithful, those sorts of changes smacked of heresy. In fiscal 2004, ended May 31, Nike showed just how far it had elevated its financial game. It turned in a record year, earning almost $1 billion, 27% more than the year before, on sales that climbed 15%, to $12.3 billion. What's more, orders worldwide were up a healthy 10.7%. In North America orders rose 10% following eight stagnant quarters.

That performance has pleased investors, who now see a company where earnings are less volatile and less fad-driven, yet still growing rapidly enough to spin off lots of cash. In the past fiscal year, Nike's free cash flow totaled $1.2 billion, and its return on invested capital was 22%, up from only 14% four years ago. The company boosted its dividend by 43% last fall and completed a $1 billion share repurchase. It plans to buy back $1.5 billion more in shares over the next four years. The result: Nike stock recently traded at about 78, up 37% in the past year vs. a 9% rise in the Standard & Poor's 500-stock index. The truth is, the onetime corporate rebel is edging toward blue-chip respectability.


It's overseas, in fact, where most of Nike's sales now come from. Last year, for the first time, international sales exceeded U.S. sales -- still the company's single largest market. Under Grossman, Nike is making sports fashion a core business, something unthinkable until recently inside Nike's male-dominated culture. Thanks to stylish athletic wear -- think tennis star Serena Williams at the U.S. Open -- Nike's worldwide apparel sales climbed 30% in three years, to $3.5 billion in fiscal 2004.

Of course, Nike still faces challenges. After several years of red-hot growth, European sales of higher-priced shoes have started to slide. In the U.S., retro-sneaker makers like K-Swiss, Diesel, and Puma are filling a rising demand. And adidas-Salomon has redoubled efforts to attack the North America basketball market, where Nike has a 60% share. Taking a leaf from Nike's book, Adidas just signed three NBA all-stars: Tracy McGrady, Tim Duncan, and Kevin Garnett, each of whom will have his own sneaker. On the technology front, Adidas has unveiled the Adidas 1, a $250 shoe slated for December that has a computer chip that automatically adjusts the fit as the wearer runs.



Nike has also shown it can grow by expanding into new markets. When the U.S. hosted the World Cup in 1994, Nike's global soccer sales were $45 million. But a team of executives persuaded Knight that soccer was the company's future. Today, soccer sales are nearly $1 billion, or 25% of the global market. This year, for the first time, Nike's share of the soccer shoe market in Europe, 35%, exceeded Adidas, at 31%. Nike has achieved that fast growth in part by using the same outsize marketing tactics that made it big in the U.S. It paid the prestigious Manchester United club an unprecedented $450 million over 14 years to run its merchandising and uniform operation.
Just before this summer's European soccer championships, Nike launched its Total 90 III, a sleek shoe that draws inspiration from cars used in the Le Mans 24-hour road race. Nike realized that millions of kids around the globe play casual pickup soccer games in the street and developed the shoe especially for them. That insight does not impress soccer purists. "Nike is selling a lot of the Total 90 street shoes and is including them in the soccer category," huffs Adidas CEO Herbert Hainer. "They are trying to turn the business model into a lifestyle." He's right, of course. Just as Nike made basketball shoes into an off-the-court fashion statement, its Total 90s have become fashion accessories for folks who may never get closer to a soccer pitch than the stands.
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