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Nike and Reebok

13 Dec 2016Other Essays

Description of the Primary Industry of the segment:

Nike and Reebok belong to the sports equipment industry. They produce sportswear for everybody in both indoor and out door sports. They have also been producing sport monitoring equipment and gadgets. Nike is based in Oregon, in US. (Foot wear global market, Online)Reebok on the other hand was acquired by Adidas by 2006 for $8 billion. Reebok are British based. (Reebok, Online)

Current Annual Sales:

By the end of year 2007, Nike's annual sale had risen to $17 billion. (Foot wear global market, Online). Just ahead of take over by Adidas, Reebok had revenue of $825 million in the 2005 first quarter. (Reebok Earning, Online). Today, Adidas has revenue of about $8 billion after taking over Reebok. Reebok contributed $ 4 billion to these sales. (ESPN, Online).

Market Share relative to its competitors

Nike has 37% of the market share and is actually the market leaders in that segment. It is followed by other mix of firms at 29% then Adidas is third with 22%, Puma is fourth with 7% and new balance is fifth with 6%. (Foot wears global market, Online) Reebok on the other hand takes 8.8% on the market share after the acquisition by Adidas. (Reebok Earnings, Online).

Historic growth rate: Trends and characteristics related to the industry as a whole (life cycle stage in industry)

This industry has been growing at a decreasing rate. Citing from 2003 to 2004, the growth for sports apparel went up by about $7.5 billion which translated to over 12%. In the following financial year to 2005, there was a growth of under $ 4 billion which translated to only 6%. Therefore the life cycle at the moment is at lag phase. (Foot wear global market, Online).Reebok has had a slow growth rate up to the time it was acquired by Adidas. (Reebok Stores, Online)

Projected growth rate

Overall, Nike will have a reduced growth rate in the total market. Specifically Europe will have a reduced growth while China has a steady growth that will boom toward 2008 when they host the Beijing Olympics. Nike will be sponsoring the event. Nike has a project growth rate of 7% for the next 10 years. (Foot wears global market, Online). Reebok have a 10 years projected growth rate of 4.7%. (Fortunes 500, Online).

Major customer group within the industry (businesses, government, consumers and expected demand)

The trend for the customers has been a steady shift to the low performance consumer who is not necessarily involved in sports. The big markets have continued to be in US and Europe. Generally the low performers are the most consumed at average 88 - 100% followed by the athletic products at average 58- 87% and finally the fashion products at average 0-57%. (Foot wear global market, Online).

How similar products are distributed within the industry

Across the industry for Nike, footwear contributes $7.965 billions, Apparels contribute $ 4.168 billions, Equipment contributes $0.873 billions while other products contribute $ 1.954 billions. (Foot wear global market, Online).

Sales force options/ media available

Nike uses low advertising strategies to push the sales up. In 2006, they spent $ 1.74 billion on the aggregate advertising strategies which translated to just 11% of its revenue. However their force for sales lies on well networked retail system. Nike has in the past used the Beetles songs, and Chinese theme advertisements. (Foot wear global market, Online). Reebok on the other hand have been active on sponsorships such as the NBA and other sporting functions. (Reebok Stores, Online)

Barriers to exit to operate in this market place

The barriers for exit for Nike from this market segment are the multi billion sponsorship arrangement and contracts that have been made by the respective sport organs and athletes. They are also the market leaders. (Foot Wear Global Market, Online). The exit barriers for Reebok are very high due to its acquisition by Adidas whom the have become entity. (ESPN, 2008.)

Macro - environmental analysis

The Sociological Conditions conditions that impact on Nike are the preferences for low performance products. This has seen the rise of demand of low cost footwear and apparels always from the core sport gear. (Foot wear global market, Online)

The Technical Conditions that affect Nike are its manufacturing locations. Nike has most of its manufacturing plants in Asia and especially in China but that will soon impact on its distributions technicalities with rising stiff competition. (Foot wear global market, Online). The technical conditions that affect Reebok are it current acquisition status that means management will not be as independent as before. (ESPN, Online)

The economic conditions that face Nike are the rising wage bill especially in China which takes more than 35% of its world manufacturing share. This has been going up by over 10% per year. From 2002 to 2005 there was a rise of over 17% in wage bill. Nike also has the second highest operating margin at 8.8% after Adidas. They spend over 11% of the revenue in advertising. Nike has 418 mega store worldwide. (Foot wear global market, Online). The Economic conditions that affect Reebok are its dwindling sales due to poor brand positioning. (Reebok Stores, Online).

The Environmental conditions that affect Nike are its good compliance with product recycle that has earned it a high slot in global ratings. (Foot wear global market, Online). Reebok on the other hand was recently fined $1million for violations of Federal Hazardous Substances Act. This was following an import of lead laden bracelets which are considered toxic. (Environment News Service, Online).

The Political Conditions that affect Nike are concerns for human right. Nike has been accused of exploitation of laborers in Far East, Asia, Mexico. They have also been accused of disempowering women with some of their campaign strategies in the East Asia. There are also allegations of child labor. (Foot wear global market, Online). The political conditions that affect Reebok are the market image following the acquisition by Adidas. (Reebok Stores, Online)

Any Cultural Changes that influence Nike and Reebok

Both Nike and Reebok has been moving from the cultural product advertisement to celebrity promotion styles. They are contracting major sport personalities to sell their brands globally. (Foot wear global market, Online)

Works Cited

  • ESPN: Adidas buy of Reebok would boost US market Share.
  • Footwear Global Market: Nike Market Share. Available at http://www.wikinvest.com/stock/Nike_(NKE)#Market_Share . Accessed on March 21, 2008. Fortunes 500: Reebok.
  • Available at http://money.cnn.com/magazines/fortune/fortune500_archive/snapshots/2003/1113.html . Accessed on March 21, 2008.
  • Reebok Stores: Available at http://store.reebok.com/home/index.jsp Accessed on March 21, 2008. Reebok Earning. Available at http://www.reebok.com/useng/ir/press/2005/Q1_2005_Earnings.htm Accessed on March21, 2008.

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