Why Nike Makes The Most Money - YouTube

Adidas versus Puma. Nike versus Under Armour. Not  many markets are as competitive as the sportswear  

industry. Having the best shoe design, greatest  athletes and most efficient supply chain - there  

is a reason that the race for the market leader  has been many times referred to as 'sneaker wars'.

But the point is: the battle is long decided.  There is no question who the number one is.  

Nike’s value is more than  twice the market cap of Adidas,  

Puma and Under Armour combined. And not just since yesterday.  

The company from Oregon has been  dominating its competitors since the 90s. 

How did Nike manage to displace the  German sportswear giants Adidas and Puma?  

What strategy kept them on top for decades  and what have they planned for the future?  

We take a deeper look into the strategy of  the strongest sports brand in the world. 

For a long time the sportswear market  was dominated by German brands.  

Adidas and Puma were the big names, had all  the resources and know-how and it didn't  

look like this would change very soon.  But Phil Knight had a different idea.

After graduating from the University of  Oregon, he enrolled at Stanford for an MBA.  

Being a competitive runner himself, he followed  his interests and wrote a paper with the title  

"Can Japanese Sports Shoes Do to German  Sports Shoes What Japanese Cameras Did to  

German Cameras?,". His ambition was  to import high-quality and low-cost  

running shoes from Japan, where labor  was cheaper, into the American market.

And that’s exactly what he  did. After his graduation,  

he traveled to Japan and met with Onitsuka  Tiger, the company that would later launch  

ASICS. Impressed by the quality and low cost  of their running shoes, Knight managed to  

secure the distribution rights for the western  United States and ordered his first samples.

When Knight finally received the first  shoes after more than a year of waiting,  

he mailed two pairs to his former track coach  Bill Bowerman at the University of Oregon,  

hoping to gain both a sale and an influential  endorsement. To Knight's surprise, Bowerman  

not only ordered the shoes, but also offered to  become a partner and provide product design ideas.  

The two men agreed to a partnership by  handshake and Blue Ribbon Sports was born,  

the company that would later become Nike.

The founding story already reveals some  important factors that explain the rise of Nike. 

First, Phil Knight showed strong  analytical skills by realizing the  

potential in outsourcing the production to Japan.

Maybe even more significant were Nike's roots in  sports, to be precise in running. Like the two  

Co-founders, many of the first employees were  former runners. They sold their first running  

shoes to befriended athletes, often right on  the track. One of them was Steve Prefontaine,  

who was a huge star in Oregon at the time and went  on to become Nike's first sponsored track athlete.  

Soon people realized that the fastest runners  were suddenly not wearing Adidas shoes anymore,  

but this new, local brand. Knight and  his team quickly realized they had found  

their perfect marketing strategy. While Adidas was close to officials  

and putting their money on organizations like  Fifa and the IOC, Nike was close to athletes  

and rather invested in  individuals than institutions.

The idea of creating a shoe brand from  athletes for athletes was also shown  

in their hands-on research and development.  Aside from an intensely competitive mindset,  

Bowerman displayed a fascination with  optimizing the shoes of his athletes.

In the early 1970s, Oregon's Hayward  Field, where Bowerman worked for years,  

was transitioning from a crushed  cinder track to an artificial surface.  

And Bowerman was searching for a running shoe  that would be suitable for multiple surfaces. 

While watching his wife making waffles in  their kitchen, he had his eureka moment.  

He simply molted some plastic and poured it  into his wife's waffle iron. That completely  

ruined the iron, but its grooves turned out  to be a near perfect mold for a running shoe.

Bowerman's waffle trainer set a  precedent for Nike's culture to innovate  

and redefine the status quo in sports equipment. 

It was the first of many major  innovations that helped Nike gain  

and expand the lead on its competitors. Inventions  and designs like Air soles, the Air Force 1,  

Nike Free and Flyknit followed and  revolutionized the sneaker industry.

The latest example is the  Nike Vaporfly running shoe,  

that made headlines because it is literally making  you run faster. It was initially developed to help  

Eliud Kipchoge break the 2 hour barrier for  the marathon, which he did in 2019 in Vienna.  

That event and the fact that Nike runners have  dominated the major races in recent years,  

led the world athletics association to  release new rules to regulate running shoes.

Banning shoes because they increase  performance - that's a similar story  

to the NBA banning Michael Jordan's Air Jordan 1.  Nike couldn't have wished for better marketing.

Eliud Kipchoge and Michael Jordan are just two  names from a long list of Nike athletes. What  

started with Prefontaine quickly developed into  the most valuable sport portfolio in the world.  

Other big names of that list: Carl  Lewis, Tiger Woods, Serena Williams,  

Ronaldinho, Roger Federer, LeBron James and  Cristiano Ronaldo (and the real Ronaldo). 

Their roster of athletes, clubs and federations  

is the heart of the Nike brand - which is  one of the strongest in the world among  

all industries. Their marketing strategy  has been praised many times - from their  

iconic swoosh logo and 'Just do it' slogan to  multiple advertisements that have won Emmys.

But what's just as interesting  as the marketing strategy itself,  

is how the organization  behind that machinery works.

Nike is a so-called matrix organization. That  means that employees report to more than one  

supervisor. For example: If you are a sales  manager for footwear, you might report to  

the sales director and the director of footwear. The departments in a matrix organization can work  

closely together and communicate more frequently  to resolve issues. This frequent information  

exchange allows managers to respond quickly to the  needs of the customers and Nike’s business goals.

Nike’s matrix was previously  structured to develop,  

market, and sell based on product type. This  allowed them to be efficient in supply-chain  

and manufacturing, but it did not  address the needs of the consumer.

So in 2008, Nike made a change to organize  based on sports instead of products. An approach  

they called “Category Offense”. Nike’s  categories include among others Running,  

Global Football, Basketball and Training. This change has proven very successful,  

as sales have grown by 70% to over $30  billion dollars since the realignment.

Maybe you have even seen the effect of the  Category offense yourself in a store near you. 

As a market leader, Nike had so much influence  on their retail partners, that stores changed  

their layouts to build entire sections of the  store around each of Nike’s sports categories.  

These sections featured footwear, apparel and  equipment tailored to each specific sport,  

making the shopping experience  more convenient for the consumer.  

The change led to increases in overall spending  for multi-sport consumers who now had a large  

selection of merchandise for each of their sports.  So instead of owning one pair of shoes to use for  

both running and the gym, people now buy one pair  of running shoes and one pair of training shoes.

The Category Offense model has even improved  Nike’s financial reporting and planning.  

Now Nike tracks financial performance by  sports category and is able to make targeted  

investments in the struggling categories. For example: if they see a decline in sales  

of football boots, they could decide to  sign a football club to stimulate sales.

It is a perfect example how Nike used their  influence as a market leader to change the  

sports industry - from a focus on  product silos to sports category. 

It explains how the company defended and expanded  the lead over Adidas and Puma in recent years.  

But what are Nike’s plans for the future? Their  strategic outlook might be even more interesting  

than their past accomplishments. After the Category Offense in 2008,  

Nike’s leadership decided that it is time for  another strategy change in 2017. They announced  

the ‘Consumer Direct Offense’ with the goal ‘to  better serve the consumer personally, at scale.’

That sounds very fancy, but basically means  that they want to sell more online via their  

own website instead of selling to retailers  like footlocker. By eliminating the middleman  

and selling directly to the consumer, Nike  can charge the retail instead of the wholesale  

price. That means they earn more money for every  shoe they sell. In the end most of the strategic  

decisions are about the MARGIN - although  sometimes it’s not obvious at first sight.

To better understand that, let’s look at another  important pillar of Nike’s newest strategy:  

a strong focus on Women.

Now people could argue that this is just some  shiny commercial for social greenwashing.  

But Nike is actually very serious about  that shift of focus towards women’s sports.  

That becomes clear when  looking at their matrix again. 

Nike’s new CEO recently announced a shift to ‘a  new, simpler consumer construct of Men’s, Women’s  

and Kids’. Besides some changes to senior  leadership, that means that the focus of Nike  

will be more tailored on the individual needs  of the consumers in each of these categories.

Supporting equality and women’s rights is a  good cause and helps Nike sharpen its brand.  

But it is not just marketing. The Women’s  sportswear market is expected to grow  

rapidly - and has better margins. So just like Nike’s push on selling  

online directly to the consumer, their focus on  women is essentially a focus on better margins.

Since we’re talking about the future,  

here are two futuristic innovations  the Nike matrix produced recently.

Ever wondered why NBA players are still sitting on  foldable chairs? The Microclimate Chair is aiming  

to change that. It allows players to get quick  heating or cooling therapy by simply sitting in  

the chair rather than hopping into an ice bath.  It is also collecting data on the athlete’s  

recovery status, so the player can be brought  back on the court at exactly the right time. 

One step further on making the life of athletes  more comfortable is this customized Boeing 787.  

To extract the best performance out of  players, the quality of travel is important.  

So they segregated the plane into: recovery areas,  

workout decks, sleep, and review  zones for analyzing past game data. 

It is very unlikely that Nike will  start selling airplanes in the future,  

but it shows their strive to keep innovating. And  it might be a hint that they are willing to expand  

their product portfolio going forward, in order  to achieve their own ambitious targets for growth. 

The bottom line is: Nike keeps betting  on the strengths that made them big.  

World-class athletes, adaptive  operations and constant innovation.