Description
Since the birth of the Internet in 1969 to its commercial adoption in the 1990s, the World
Wide Web has enabled businesses and consumers to connect with one another to exchange
and share information, anywhere and anytime. The web has provided consumers and
businesses with enormous advantages by reducing the transaction time and increasing the
level of convenience.
Nike and Adidas are two primary footwear companies along with their competitors who have
adopted an online e-commerce strategy to increase their sales and product awareness. Most
importantly, companies like Nike and Adidas have invested heavily into online brand
building and image development. Nike launched the nike.com web site in August 1996
primarily to provide information to its consumers. In 1996, there were no e-commerce
capabilities present, however the web site served as a brand building tool for the company.
In 1999, Nike redesigned their web site with expanded e-commerce functionality. Adidas
launched their web site in the spring of 2000, which was later integrated with e-commerce
capabilities during that summer.
Case Study - Nike vs Adidas, market and comprehensive
competition analysis
EXECUTIVE SUMMARY
Since the birth of the Internet in 1969 to its commercial adoption in the 1990s, the World
Wide Web has enabled businesses and consumers to connect with one another to exchange
and share information, anywhere and anytime. The web has provided consumers and
businesses with enormous advantages by reducing the transaction time and increasing the
level of convenience.
As we leap into the twenty first century, it seems as though everyone is on the Internet and
more companies are establishing an online presence to maintain their competitive edge.
Along with high speed Internet connections, the Internet has become an essential tool for
any business to compete domestically or globally. In today's high speed environment, one
would be hard pressed to find a Fortune 500 company conducting business with either other
businesses or consumers to not have its own web site . Businesses are developing web sites
to provide their consumers and business partners with information and e-commerce. Large
firms who have not adopted e-commerce as part of their strategic initiatives will miss out on
opportunities to attain growth and competitive advantage.
Nike and Adidas are two primary footwear companies along with their competitors who have
adopted an online e-commerce strategy to increase their sales and product awareness. Most
importantly, companies like Nike and Adidas have invested heavily into online brand
building and image development. Nike launched the nike.com web site in August 1996
primarily to provide information to its consumers. In 1996, there were no e-commerce
capabilities present, however the web site served as a brand building tool for the company.
In 1999, Nike redesigned their web site with expanded e-commerce functionality. Adidas
launched their web site in the spring of 2000, which was later integrated with e-commerce
capabilities during that summer.
Attaining market share is important to both Nike and Adidas. In order to maximize their
market share, both Nike and Adidas have placed a great importance in developing their
branding and marketing strategies on the net through web appearance and user friendly
functionalities such as ease of purchase, speed, and navigation.
Nike and Adidas have adopted a merchant model which encompassed three pillars of their
e-commerce strategy: pure-play e-tailer, bricks and clicks, and their online store. The main
purposes of acquiring relationships with pure-play e-tailers is to promote and market
products; focus on the content to create new exposure and; gather, gain and transfer
market knowledge to their business counterparts.
The Internet has proven to be a useful tool for firms such as Nike and Adidas by increasing
sales and reducing cost. But most importantly their web sites have provided them with an
intangible asset such as market research and consumer buying behaviors. With the data
retrieve from consumers, these firms are able to analyze and monitor the buying behaviors
of their consumers. The data can also be used to exploit new marketing campaigns and
promotions. Furthermore, the data collected can be used to produce innovative designs and
improve their research capabilities.
Although, there are perceived benefits in conducting e-business over the Internet there are
also potential barriers. The major barrier of e-commerce with respect to large firms such as
Nike and Adidas is the technological barrier ranging from infrastructure to security. An
ongoing battle the e-commerce industry faces is security. With time and additional research
and resources, this problem will be mitigated. Meanwhile, both Nike and Adidas must
minimize their technological risks.
While both Nike and Adidas currently have an essential advantage over their rivals, there
are chances that their advantages will not last forever. The Internet has redefined
competition therefore changing the evolution of competition. Although, Nike and Adidas
have engaged in e-commerce there are apparent gaps within their e-business strategy. E-
commerce is only available in restricted regions such as the United States and the United
Kingdom, therefore opportunities exists within the global market to expand. The future will
prove to be very interesting for both Nike and Adidas, and those who move quickly will
dominate the market.
INTRODUCTION
A daring dream began in 1920 when Adi Dassler fashioned his first shoe in Herzogenaurach,
Germany. In 1948, Adidas was founded along with its identifying trademark, the three
stripes. From its inception, Adidas has faithfully adhered to three guiding principles
embedded deep into its DNA: produce the best shoe for the requirements of the sport,
protect the athlete from injury, and make the product durable. As time has passed, Adidas
has evolved and is now one of the premier global leaders in sporting brands offering athletic
footwear, apparel and accessories. This feat has been cultivated through continuous
innovation and a broad product portfolio. With time, Adidas discovered that in order to
continue to evolve further its strategy had to include the Internet. This led to the
development of www.thestore.adidas.com, an e-commerce site focused on interactively
profiling Adidas's extensive product offerings accompanied by detailed product information.
Initially, what started as Blue Ribbon Sports in 1962 became Nike Inc. in 1972, based in
Beaverton, Oregon. Nike was named for the Greek winged goddess of victory. The founders
were Bill Bowerman, a track & field coach and Phil Knight, a runner under Bowerman. From
their modest start, Nike has grown to be a global leader in the sporting goods industry. It is
recognized as the world's leading designer, marketer and distributor of athletic footwear,
apparel, and accessories for a wide variety of sports and fitness activities. For Nike, an
established and growing organization, a strong Internet presence felt like a natural
extension to their already globally focused strategy. Today www.niketown.com, Nike's e-
commerce site offers a unique experience, products and product information for its potential
and existing customers.
ANALYSIS OF E-COMMERCE
Attaining market share is important to both Nike and Adidas. In order to maximize their
market share, both Nike and Adidas have placed a great importance in developing their
branding/ marketing strategies on the net through web appearance and user friendly
functionalities. The analysis below represents the web site positioning map which identifies
some of the key performance criterion in determining the web site positioning strategy for
both Nike and Adidas. The upper right quadrant indicates a high rating in both web site
appearance and user friendly functionalities. While the lower left quadrant indicates both a
low web site appearance and user friendly functionalities. It's apparent in the figure below
that Nike has the most favourable web site with both high web site appearance and user
friendly functionalities. However, Adidas web site is slightly more favourable in user friendly
functionalities while lagging on overall in web site appearance in comparison to Nike's web
site.
OVERALL COMPANY VALUE CONFIGURATION
The value curve below illustrates an evaluation of Nike and Adidas's focusing on the
company as a whole but with the focal point of e-commerce extension.
Nike.com
Adidas.com
The inputs to the e-commerce value configuration for both Nike and Adidas are: Brand
Image, Price, Web site design, Service, and Innovation. Analyzing the graph, Nike.com has
a slight edge over its arch rivals Adidas. Adidas with growing popularity has narrowed the
gap from previous years. The brand image for both Nike and Adidas is immense; however
Nike has attained a considerable competitive advantage due to its reputation for quality and
innovation. In terms of e-commerce, both Adidas and Nike are analogous, however, Adidas'
web site is a bit more user friendly and navigation is fairly easy. The functionalities are
identical in both cases. Overall, Nike's continued efforts in innovation coupled with its brand
image, is a unanimous leader of the athletic footwear and apparel industry. In terms of the
e-commerce portion of the industry, Adidas with its web site design and functionality has
narrowed the gap between the market leaders and the market follower. Nike.com's value
proposition is an easy to use web site that is highly interactive, secure as well as its
reputation and brand image of their product. For Adidas.com, similar to Nike, the value
proposition is an interactive web site that is secure and easy to use. For the soccer industry,
Adidas.com positions itself as the leading brand in apparel and footwear.
The value chain configuration for both Nike and Adidas is supply chain. The value
configuration has multiple components. To the right is a table which summarizes these
components and the respective percentages for a $100 product (footwear). Because the
operations of both companies are similar, the table below only lists Nike's value chain
breakdown. Adidas' value chain although slightly different, is similar in nature in comparison
to the industry. Essentially, the breakdown of the value chain indicates for both Adidas and
Nike that the cost to produce and sell an item over the Internet costs these companies
almost 50% of the price of the item.
ItemPercentage
Material Cost16%
Labour Cost2.6%
Administration and Overhead4.6%
Profit Margin1.9%
Net Factory Price25.1%
Shipping, Customs and Finance3.9%
Net Landed Price29%
Warehousing and distribution0.8%
Royalties0.4%
Quality Costs0.3%
Direct Ship Allowance0.2%
Research and Development0.2%
Other costs of sale0.1%
Total Cost of Goods Sold31%
Sales and discounts4.6%
SG&A8.3%
Corporate Overhead1.8%
Interest Expense0.2%
Income Taxes2.6%
Total Nike Cost48.5%
Financial Analysis of Nike and Adidas
Below is the Nike and Adidas stock performance comparison in Euros. There is no question
Nike is the market leader in not only the product aspect but also the financial aspect of this
industry. However, over the last few years, Adidas has been slowly eroding the market
share from Nike. The financial comparisons of both companies indicate Nike having a
substantial financial advantage over Adidas. The operating margin and return on assets is
slightly lower for Adidas. This could be indicative of the market leader and market follower
relationship. Adidas needs to improve in both operating margin and return on assets to gain
ground on Nike.
Nike
Adidas
MeasureNikeAdidasIndustry
Employees23,30014,71623,000
Market Cap16.36 Billion13.97 Billion240.81 Million
Revenues10.70 Billion6.523 Billion 482.62 Million
Operating Margin10.89%6.71%N/A
Return on Assets11.97 %5.3%N/A
Return on Equity 20.12%21.1 %N/A
Below is a figure extracted from a study conducted at Cornell University, which illustrated
the distribution of market shares in the U.S. and in foreign markets. This research was
conducted in 1998, since this time, Adidas has comfortably moved to the second spot in this
highly competitive industry. For Nike to successfully remain as the market leaders, it must
continue to innovate and produce leading edge designs that attract the diverse markets.
One important point to highlight is the market share Adidas has gained since 1998. Adidas
evolved from a minor player in the industry to the second biggest company in the industry.
Footwear Market Share
SWOT Analysis for Nike.com & Adidas.com
Nike.comAdidas.com
Position Market Leader Market Follower
STRENGTHS
Strong management team and good corporate strategy in both North American and
overseas markets
First movers advantage in e-commerce
Brand recognition and reputation
Trademark "Just Do It"
Diversity and variety in products offered on the web (footwear, apparel, sporting
equipment, etc.)
Strong control over its own distribution channel
Strong customer base
Strong financial position with minimal long term debts
Innovative designs in footwear enabling consumers to design their own shoes online
Brand reputation and recognition
Diversity and variety in products offered on the web (footwear, apparel, sporting
equipment, etc.) Adidas even offers items not available in its retail stores
Emerging brand name
Pricing strategy is competitive to Nike's
Merger with Salomon will allow Adidas to gain a strong foothold in the Skiing Industry
Secondary web sites (i.e. soccerevolution.com to simply promote soccer, Adidas leads the
market in this sport)
WEAKNESSES
Negative image portrayed by poor working conditions in its overseas factories
E-commerce is limited to USA
The direct sale to consumers is creating conflicts with its own resellers
Not known for its research and development leading to innovative designs?Currently
available supply chain, manufacturing, and fulfillment technologies aren't easily integrated
with online build-to-order systems
The e-commerce is limited to USA, however, has planned to expand to Canada and
international in the near future
Online customer service not "helpful" or easy to find
OPPORTUNITIES
Increasing demand in the industry for products available online
Increase female participation in athletics
E-commerce will reduce the cost of goods sold thus improving the "bottom line"
New technology and innovation to stay on top of market needs
Expand e-commerce to global markets
Possibility of outsourcing the web development and e-commerce to a third party developer
Growing interest in the sport of Basketball. Partnering up with other retailers to sell
basketball footwear and apparel
Growing reputation in non-basketball sports will boost e-business
E-commerce will reduce the cost of goods sold thus improving the "bottom line"
Expand e-commerce to global markets
Collaborate with other online retailers to offer Adidas products
THREATS
Negative image due to "sweatshops"
Economic downturn in North America and Asian Countries
Increase in the price of providing technological solutions (e-commerce)
Strong competition from some of its major challengers in all branches of the business
Continuing challenges in import/export duties
Negative image created by the sponsored athletes (i.e. Kobe Bryant and his sexual assault
case)
Increase in the Price of Raw materials
Nike's strong reputation in the footwear and apparel industry
Continuing challenges in import/export duties
Threats to free trade and foreign currency fluctuations
Possibility of distress from growing beyond its capabilities
Losing serious ground to Nike in the Soccer industry, which Adidas has a stronghold on
Emerging competitors
Both Nike.com and Adidas have strong positions in the footwear and apparel industry.
Integrating e-business to its existing line of business is a key advantage to both companies
relative to its competitors. For Nike, to overcome the potential threats, they must continue
to be innovative and explore opportunities globally. Furthermore, Nike must focus their
energy towards reducing the channel conflict caused by the introduction of e-commerce to
Nike's strategy. Nike.com must balance out its efforts to reassure traditional retailers while
expanding its own line of business through e-commerce. Very similar to Nike, for Adidas to
overcome some of the potential threats they must continue to improve their strategic
position in the industry by increasing their e-commerce reach to the global markets. For
both companies, it's important to increase the market "pie" rather than increase their
market share away from their retailers. Furthermore, the information, such as
demographics and preferences, collected from directly selling to the end consumers should
be used to market new goods and products.
PORTER'S FIVE FORCES
Barriers to Entry - Low
Due to the large scale of both Nike and Adidas, these firms are able to control their costs to
retain performance advantage over emerging competitors in the industry. Their web sites
are more sophisticated and enticing to browse, both contributed to their large marketing
budgets. The capital injection into web site development is high and must be updated
frequently with new promotions and added features to attract online shoppers. There are
many proprietary product differences in the industry therefore brand identity has an
immediate competitive advantage. The Nike and Adidas brand is well renowned globally and
plays a major role in consumer decision making. Selling footwear online is highly
competitive; however, barriers to enter into this e-commerce industry are quite low. The
capital requirement for setting up an online shop is comparatively lower than setting up a
traditional bricks and mortar establishment. Therefore, the online footwear industry is highly
abundant with hundres of online merchants. Switching cost is low for the consumer, and
may occur frequently depending on consumer preference and other factors affecting
consumer buying decision, (i.e. price sensitive consumers). Another major barrier is
security. Although, Nike and Adidas have invested millions of dollars into their web site,
there is an industry wide problem of securing data over the Internet medium. Hackers may
potentially lacerate into the site and could retrieve sensitive data such as consumer profiles,
credit card numbers, and other corporate data. They could even redirect the company's web
site traffic to another web site similar to the case of Nike in June 2000. Nike experienced a
hijacking of its web site. The traffic from www.nike.com was redirected to a server at a
Scotland-based Web hosting company
Bargaining Power of Buyers - High
There are a large number of buyers relative to the number of firms in this industry.
Therefore, companies like Nike and Adidas must continuously market their product and
differentiate their brands against competitors, in order to increase sales and market share.
The use of online tools has helped to enhance the accessibility and intimacy among users.
For example, Nike's "nikeid.com" link allows consumers to customize and design their own
footwear by permitting customers to specify the desired colours and the option to
personalize the footwear with their name. Brand identity plays a critical role in the buying
behavior; strong identity will offer consumers trust and loyalty. Many online buyers are
price sensitive and switching cost is low for the buyer.
Bargaining Power of Suppliers - Low
There are many suppliers in this industry. In essence, there is very little differentiation
among the suppliers which makes suppliers' bargaining power non-existent. Leather,
rubber, and cotton are commodity items and are available abundantly in the market place.
Conglomerates such as Nike and Adidas have a definite advantage and power over their
suppliers. These suppliers become dependent on these firms as their means to survival.
Additionally, Nike and Adidas have standardized their input procedures pertaining to the
materials used, their labor force, supplies, services, and logistics. Firms are able to switch
between suppliers quickly and cheaply, due to the globalize networks of cheap labor on
various continents. Additionally, inputs are readily substituted and there are an abundant
number of suppliers available.
Threats of Substitutes - Low
Buyers' propensity to substitute is low. Consumer substitutes for athletic footwear products
are low because there are little alternatives to switch, some substitutes for athlete footwear
could be boots, sandals, dress shoes or bear feet. Consumers are not likely to substitute
due to the performance specification of the product. For instance, a basketball player would
not wear boots to play basketball. Therefore, there are no real substitutes for athletic
footwear.
Rivalry among Existing Competitors - High
The rivalry among existing competitors in the footwear industry is quite high. Large firms
such as Nike and Adidas have grown immensely over the last two decades. Their global
reach has expanded through all continents; this is attributed to the emergences of the
Internet and e-commerce. Online selling has enlarged the reach for these firms allowing
them to increase sales while minimizing operating costs. Almost every large firm has a web
site, and most of these web sites contain virtual stores which provide convenience to
consumers. Most individuals in North America have access to high speed Internet and online
purchasing has become the new trend for the twenty first century. Competition is fierce in
the footwear industry and those who dominate or lead the market do so with high capital
expenditures, aggressive sales and marketing strategies, and strong brand identity.
E-BUSINESS MODEL
Nike and Adidas have adopted a merchant model which encompassed three pillars of their
e-commerce strategy: pure-play e-tailer, bricks and clicks, and their online store. The main
purposes of acquiring relationships with pure-play e-tailers is to promote and market
products; focus on the content to create new exposure and; gather, gain and transfer
market knowledge to their business counterparts. Nike has landed a deal with Fogdog
Sports which will sell their entire Nike product line on its web site. Adidas signed an
agreement with SportsLine.com and Sports.com. The benefits of building relationships with
these pure-play e-tailers are to provide global reach and coverage. Fogdog.com,
Sports.com, and SportsLine.com have the initial coverage in the US, UK and eventually in
Asia. Nike and Adidas will also operate their traditional bricks and mortar establishments,
while selling their specialty products on their e-commerce web sites. This business model is
referred to as "bricks and clicks." The primary goals of operating a bricks and click site is to
increase sales, reduce cost, increase market reach, applying competitive pressure,
promoting new products, improving customer service, and progress in addressing user
concerns. Additionally, Nike and Adidas have included an affiliate link which allows
consumers in varies regions to locate affiliated store locations such as Foot Locker and
Champs.
APPARENT EFFECTIVENESS OF E-BUSINESS
Nike's ability to realize the potential of the Internet has placed them in the e-commerce
leadership position among other sporting goods companies. Through its initiative to be the
first to market with its e-commerce web site launch back in 1999, Nike was able to
understand early on what its 14 million visitors demanded and enabled itself to become
established while competitors scrambled to join, simultaneously creating a temporary
competitive advantage as a result. By continuously relying on innovative companies to
redesign the site, Nike acquired the luxury of owning a site that's every bit as inspirational
as it is informational, an important milestone for a market leader. Today, Nike's store
enables online consumers to design key elements of the shoes they purchase. This program
is the first time a company has offered such mass customization of footwear. All this online
success has not come without a price. Significant amounts of money were involved and a
constant chilled reaction was received from its channel partners like Footlocker and Sports
Chek with each site redesign as latest design contained e-commerce - leaving some
companies without Nike products to sell online.
Adidas's approach to e-commerce was that of a follower since Nike was first. As a result,
Adidas relentlessly pursued innovation and refreshing content to differentiate itself from
Nike. Adidas also realized that in order to be successful it has to be fully committed to this
initiative. That's why it included adidas.com as part of its three pillar strategy along with
pure play e-tailers, bricks and clicks. The final result is a web site that successfully portrays
Adidas's product portfolio in an interactive and informational manner. The e-commerce
presence required Adidas to adjust internally to be able to fully support and commit to this
initiative. With Nike being first to the punch there was no room for mistakes and
experiments. The final product had to be attractive and able to compete. Also, just like
Nike, Adidas had to consider the channel conflicts adidas.com created.
Nike and Adidas seem to follow similar online strategies but Adidas experienced a greater
transformation from being a minor, insignificant player back in 1998 to the number two
position in the athletic footwear and apparel industry. Part of this success is due to Adidas's
ability to thoroughly leverage the Internet as a marketing and e-commerce medium, most
of it at the expense of Reebok. In the Nike's case the online strategy ensured its strong
leadership position in the intensely competitive market. Both Adidas's and Nike's strategy
seem to be well ahead of their competition contributing to their e-commerce success. No
other athletic footwear company is able to outshine these two firms when it comes to e-
commerce, at least for now and in the near future as this task would involve large
infrastructure investment and more importantly thorough commitment.
PROGNOSIS
Although both Nike and Adidas currently have a significant advantage over their rivals,
chances are this will not last forever. The Internet is a medium that is redefining
competition and markets in sectors that previously did not embrace it. With time more firms
that deal with athletic footwear and apparel will join the Internet rush providing customers
with more choices. As more and more people engage in e-commerce it will become more
relevant to show how and why a product is superior to the competition as opposed to more
promotional e-commerce sites found today. Also, there will be an increased emphasis on
customization and differentiation of products, something Nike already pioneered with the
shoe with your name. At this point in time both Adidas and Nike are not slowing down with
their continuous web site innovations setting a high standard for the rest of the industry.
An interesting issue with such development is the increased channel conflict it presents. As
Nike and Adidas begin to significantly increase their online sales they might be reluctant to
sell their products through smaller online retailers. Currently all retailers are already
nervous of how this will affect their ability to sell Nike and Adidas products online. Nike
holds a lot of leverage because of its significant market share and could choose to exclude
certain retailers without suffering decreased sales. Adidas does not hold as favourable
position as Nike but still has leverage over certain smaller retailers. But it is a fine balance
as the larger retailers would not want to be eliminated and could combine efforts to ensure
that they are not eradicated from selling athletic footwear form main firms. The future
should prove to be interesting and full of developments. It will be full of successes, failures
and partnerships (between suppliers and retailers).
LIST OF REFERENCES:
*Adidas, Annual Report 2002
*Adidas, Annual Report 2001
*Nike, Annual Report 2002
*Nike, Annual Report 2001
*Industry Sector Analysis of Sporting Goods, U.S. and Foreign Commercial Service, 1998
*Multex Fundamentals / ProVestor Plus Company Report, Nike Inc., October 2003
*ShoeStats 2002, AAFA, January 2003
*http://www.channelseven.com/newsbeat/99features/news19990624.shtml, October 2003
*http://www.urlwire.com/newsarchive/062499.html, October 2003
*http://www.adidas-salomon.com/en/news/archive/2000/2000-07.asp, October 2003
*http://www.adidas-salomon.com/en/overview/welcome.asp, October 2003
*http://www.adidas-salomon.com/en/investor/strategy/default.asp, October 2003
*http://www.adidas-salomon.com/en/investor/reports/default.asp, October 2003
*http://www.adidas-salomon.com/en/overview/history/default.asp, October 2003
*http://www.cybersource.com/solutions/success_stories/nike.xml, October 2003
*http://www.nike.com/nikebiz/nikebiz.jhtml?page=1, October 2003
*http://www.nike.com/nikebiz/nikebiz.jhtml?page=15, October 2003
*http://www.nike.com/nikebiz/news/pressrelease.jhtml?year=1999&month=06&letter=d,
October 2003
* "Nike - Channel Conflict." Graduate School of Business, Stanford University, February
2000
*Belch & Belch. "Advertising and Promotion." McGraw-Hill Irwin. New York. 2001. p.493
*"Companies point fingers over Nike Web site hijacking." Computerworld. June 30, 2000
doc_837683437.pdf
Since the birth of the Internet in 1969 to its commercial adoption in the 1990s, the World
Wide Web has enabled businesses and consumers to connect with one another to exchange
and share information, anywhere and anytime. The web has provided consumers and
businesses with enormous advantages by reducing the transaction time and increasing the
level of convenience.
Nike and Adidas are two primary footwear companies along with their competitors who have
adopted an online e-commerce strategy to increase their sales and product awareness. Most
importantly, companies like Nike and Adidas have invested heavily into online brand
building and image development. Nike launched the nike.com web site in August 1996
primarily to provide information to its consumers. In 1996, there were no e-commerce
capabilities present, however the web site served as a brand building tool for the company.
In 1999, Nike redesigned their web site with expanded e-commerce functionality. Adidas
launched their web site in the spring of 2000, which was later integrated with e-commerce
capabilities during that summer.
Case Study - Nike vs Adidas, market and comprehensive
competition analysis
EXECUTIVE SUMMARY
Since the birth of the Internet in 1969 to its commercial adoption in the 1990s, the World
Wide Web has enabled businesses and consumers to connect with one another to exchange
and share information, anywhere and anytime. The web has provided consumers and
businesses with enormous advantages by reducing the transaction time and increasing the
level of convenience.
As we leap into the twenty first century, it seems as though everyone is on the Internet and
more companies are establishing an online presence to maintain their competitive edge.
Along with high speed Internet connections, the Internet has become an essential tool for
any business to compete domestically or globally. In today's high speed environment, one
would be hard pressed to find a Fortune 500 company conducting business with either other
businesses or consumers to not have its own web site . Businesses are developing web sites
to provide their consumers and business partners with information and e-commerce. Large
firms who have not adopted e-commerce as part of their strategic initiatives will miss out on
opportunities to attain growth and competitive advantage.
Nike and Adidas are two primary footwear companies along with their competitors who have
adopted an online e-commerce strategy to increase their sales and product awareness. Most
importantly, companies like Nike and Adidas have invested heavily into online brand
building and image development. Nike launched the nike.com web site in August 1996
primarily to provide information to its consumers. In 1996, there were no e-commerce
capabilities present, however the web site served as a brand building tool for the company.
In 1999, Nike redesigned their web site with expanded e-commerce functionality. Adidas
launched their web site in the spring of 2000, which was later integrated with e-commerce
capabilities during that summer.
Attaining market share is important to both Nike and Adidas. In order to maximize their
market share, both Nike and Adidas have placed a great importance in developing their
branding and marketing strategies on the net through web appearance and user friendly
functionalities such as ease of purchase, speed, and navigation.
Nike and Adidas have adopted a merchant model which encompassed three pillars of their
e-commerce strategy: pure-play e-tailer, bricks and clicks, and their online store. The main
purposes of acquiring relationships with pure-play e-tailers is to promote and market
products; focus on the content to create new exposure and; gather, gain and transfer
market knowledge to their business counterparts.
The Internet has proven to be a useful tool for firms such as Nike and Adidas by increasing
sales and reducing cost. But most importantly their web sites have provided them with an
intangible asset such as market research and consumer buying behaviors. With the data
retrieve from consumers, these firms are able to analyze and monitor the buying behaviors
of their consumers. The data can also be used to exploit new marketing campaigns and
promotions. Furthermore, the data collected can be used to produce innovative designs and
improve their research capabilities.
Although, there are perceived benefits in conducting e-business over the Internet there are
also potential barriers. The major barrier of e-commerce with respect to large firms such as
Nike and Adidas is the technological barrier ranging from infrastructure to security. An
ongoing battle the e-commerce industry faces is security. With time and additional research
and resources, this problem will be mitigated. Meanwhile, both Nike and Adidas must
minimize their technological risks.
While both Nike and Adidas currently have an essential advantage over their rivals, there
are chances that their advantages will not last forever. The Internet has redefined
competition therefore changing the evolution of competition. Although, Nike and Adidas
have engaged in e-commerce there are apparent gaps within their e-business strategy. E-
commerce is only available in restricted regions such as the United States and the United
Kingdom, therefore opportunities exists within the global market to expand. The future will
prove to be very interesting for both Nike and Adidas, and those who move quickly will
dominate the market.
INTRODUCTION
A daring dream began in 1920 when Adi Dassler fashioned his first shoe in Herzogenaurach,
Germany. In 1948, Adidas was founded along with its identifying trademark, the three
stripes. From its inception, Adidas has faithfully adhered to three guiding principles
embedded deep into its DNA: produce the best shoe for the requirements of the sport,
protect the athlete from injury, and make the product durable. As time has passed, Adidas
has evolved and is now one of the premier global leaders in sporting brands offering athletic
footwear, apparel and accessories. This feat has been cultivated through continuous
innovation and a broad product portfolio. With time, Adidas discovered that in order to
continue to evolve further its strategy had to include the Internet. This led to the
development of www.thestore.adidas.com, an e-commerce site focused on interactively
profiling Adidas's extensive product offerings accompanied by detailed product information.
Initially, what started as Blue Ribbon Sports in 1962 became Nike Inc. in 1972, based in
Beaverton, Oregon. Nike was named for the Greek winged goddess of victory. The founders
were Bill Bowerman, a track & field coach and Phil Knight, a runner under Bowerman. From
their modest start, Nike has grown to be a global leader in the sporting goods industry. It is
recognized as the world's leading designer, marketer and distributor of athletic footwear,
apparel, and accessories for a wide variety of sports and fitness activities. For Nike, an
established and growing organization, a strong Internet presence felt like a natural
extension to their already globally focused strategy. Today www.niketown.com, Nike's e-
commerce site offers a unique experience, products and product information for its potential
and existing customers.
ANALYSIS OF E-COMMERCE
Attaining market share is important to both Nike and Adidas. In order to maximize their
market share, both Nike and Adidas have placed a great importance in developing their
branding/ marketing strategies on the net through web appearance and user friendly
functionalities. The analysis below represents the web site positioning map which identifies
some of the key performance criterion in determining the web site positioning strategy for
both Nike and Adidas. The upper right quadrant indicates a high rating in both web site
appearance and user friendly functionalities. While the lower left quadrant indicates both a
low web site appearance and user friendly functionalities. It's apparent in the figure below
that Nike has the most favourable web site with both high web site appearance and user
friendly functionalities. However, Adidas web site is slightly more favourable in user friendly
functionalities while lagging on overall in web site appearance in comparison to Nike's web
site.
OVERALL COMPANY VALUE CONFIGURATION
The value curve below illustrates an evaluation of Nike and Adidas's focusing on the
company as a whole but with the focal point of e-commerce extension.
Nike.com
Adidas.com
The inputs to the e-commerce value configuration for both Nike and Adidas are: Brand
Image, Price, Web site design, Service, and Innovation. Analyzing the graph, Nike.com has
a slight edge over its arch rivals Adidas. Adidas with growing popularity has narrowed the
gap from previous years. The brand image for both Nike and Adidas is immense; however
Nike has attained a considerable competitive advantage due to its reputation for quality and
innovation. In terms of e-commerce, both Adidas and Nike are analogous, however, Adidas'
web site is a bit more user friendly and navigation is fairly easy. The functionalities are
identical in both cases. Overall, Nike's continued efforts in innovation coupled with its brand
image, is a unanimous leader of the athletic footwear and apparel industry. In terms of the
e-commerce portion of the industry, Adidas with its web site design and functionality has
narrowed the gap between the market leaders and the market follower. Nike.com's value
proposition is an easy to use web site that is highly interactive, secure as well as its
reputation and brand image of their product. For Adidas.com, similar to Nike, the value
proposition is an interactive web site that is secure and easy to use. For the soccer industry,
Adidas.com positions itself as the leading brand in apparel and footwear.
The value chain configuration for both Nike and Adidas is supply chain. The value
configuration has multiple components. To the right is a table which summarizes these
components and the respective percentages for a $100 product (footwear). Because the
operations of both companies are similar, the table below only lists Nike's value chain
breakdown. Adidas' value chain although slightly different, is similar in nature in comparison
to the industry. Essentially, the breakdown of the value chain indicates for both Adidas and
Nike that the cost to produce and sell an item over the Internet costs these companies
almost 50% of the price of the item.
ItemPercentage
Material Cost16%
Labour Cost2.6%
Administration and Overhead4.6%
Profit Margin1.9%
Net Factory Price25.1%
Shipping, Customs and Finance3.9%
Net Landed Price29%
Warehousing and distribution0.8%
Royalties0.4%
Quality Costs0.3%
Direct Ship Allowance0.2%
Research and Development0.2%
Other costs of sale0.1%
Total Cost of Goods Sold31%
Sales and discounts4.6%
SG&A8.3%
Corporate Overhead1.8%
Interest Expense0.2%
Income Taxes2.6%
Total Nike Cost48.5%
Financial Analysis of Nike and Adidas
Below is the Nike and Adidas stock performance comparison in Euros. There is no question
Nike is the market leader in not only the product aspect but also the financial aspect of this
industry. However, over the last few years, Adidas has been slowly eroding the market
share from Nike. The financial comparisons of both companies indicate Nike having a
substantial financial advantage over Adidas. The operating margin and return on assets is
slightly lower for Adidas. This could be indicative of the market leader and market follower
relationship. Adidas needs to improve in both operating margin and return on assets to gain
ground on Nike.
Nike
Adidas
MeasureNikeAdidasIndustry
Employees23,30014,71623,000
Market Cap16.36 Billion13.97 Billion240.81 Million
Revenues10.70 Billion6.523 Billion 482.62 Million
Operating Margin10.89%6.71%N/A
Return on Assets11.97 %5.3%N/A
Return on Equity 20.12%21.1 %N/A
Below is a figure extracted from a study conducted at Cornell University, which illustrated
the distribution of market shares in the U.S. and in foreign markets. This research was
conducted in 1998, since this time, Adidas has comfortably moved to the second spot in this
highly competitive industry. For Nike to successfully remain as the market leaders, it must
continue to innovate and produce leading edge designs that attract the diverse markets.
One important point to highlight is the market share Adidas has gained since 1998. Adidas
evolved from a minor player in the industry to the second biggest company in the industry.
Footwear Market Share
SWOT Analysis for Nike.com & Adidas.com
Nike.comAdidas.com
Position Market Leader Market Follower
STRENGTHS
Strong management team and good corporate strategy in both North American and
overseas markets
First movers advantage in e-commerce
Brand recognition and reputation
Trademark "Just Do It"
Diversity and variety in products offered on the web (footwear, apparel, sporting
equipment, etc.)
Strong control over its own distribution channel
Strong customer base
Strong financial position with minimal long term debts
Innovative designs in footwear enabling consumers to design their own shoes online
Brand reputation and recognition
Diversity and variety in products offered on the web (footwear, apparel, sporting
equipment, etc.) Adidas even offers items not available in its retail stores
Emerging brand name
Pricing strategy is competitive to Nike's
Merger with Salomon will allow Adidas to gain a strong foothold in the Skiing Industry
Secondary web sites (i.e. soccerevolution.com to simply promote soccer, Adidas leads the
market in this sport)
WEAKNESSES
Negative image portrayed by poor working conditions in its overseas factories
E-commerce is limited to USA
The direct sale to consumers is creating conflicts with its own resellers
Not known for its research and development leading to innovative designs?Currently
available supply chain, manufacturing, and fulfillment technologies aren't easily integrated
with online build-to-order systems
The e-commerce is limited to USA, however, has planned to expand to Canada and
international in the near future
Online customer service not "helpful" or easy to find
OPPORTUNITIES
Increasing demand in the industry for products available online
Increase female participation in athletics
E-commerce will reduce the cost of goods sold thus improving the "bottom line"
New technology and innovation to stay on top of market needs
Expand e-commerce to global markets
Possibility of outsourcing the web development and e-commerce to a third party developer
Growing interest in the sport of Basketball. Partnering up with other retailers to sell
basketball footwear and apparel
Growing reputation in non-basketball sports will boost e-business
E-commerce will reduce the cost of goods sold thus improving the "bottom line"
Expand e-commerce to global markets
Collaborate with other online retailers to offer Adidas products
THREATS
Negative image due to "sweatshops"
Economic downturn in North America and Asian Countries
Increase in the price of providing technological solutions (e-commerce)
Strong competition from some of its major challengers in all branches of the business
Continuing challenges in import/export duties
Negative image created by the sponsored athletes (i.e. Kobe Bryant and his sexual assault
case)
Increase in the Price of Raw materials
Nike's strong reputation in the footwear and apparel industry
Continuing challenges in import/export duties
Threats to free trade and foreign currency fluctuations
Possibility of distress from growing beyond its capabilities
Losing serious ground to Nike in the Soccer industry, which Adidas has a stronghold on
Emerging competitors
Both Nike.com and Adidas have strong positions in the footwear and apparel industry.
Integrating e-business to its existing line of business is a key advantage to both companies
relative to its competitors. For Nike, to overcome the potential threats, they must continue
to be innovative and explore opportunities globally. Furthermore, Nike must focus their
energy towards reducing the channel conflict caused by the introduction of e-commerce to
Nike's strategy. Nike.com must balance out its efforts to reassure traditional retailers while
expanding its own line of business through e-commerce. Very similar to Nike, for Adidas to
overcome some of the potential threats they must continue to improve their strategic
position in the industry by increasing their e-commerce reach to the global markets. For
both companies, it's important to increase the market "pie" rather than increase their
market share away from their retailers. Furthermore, the information, such as
demographics and preferences, collected from directly selling to the end consumers should
be used to market new goods and products.
PORTER'S FIVE FORCES
Barriers to Entry - Low
Due to the large scale of both Nike and Adidas, these firms are able to control their costs to
retain performance advantage over emerging competitors in the industry. Their web sites
are more sophisticated and enticing to browse, both contributed to their large marketing
budgets. The capital injection into web site development is high and must be updated
frequently with new promotions and added features to attract online shoppers. There are
many proprietary product differences in the industry therefore brand identity has an
immediate competitive advantage. The Nike and Adidas brand is well renowned globally and
plays a major role in consumer decision making. Selling footwear online is highly
competitive; however, barriers to enter into this e-commerce industry are quite low. The
capital requirement for setting up an online shop is comparatively lower than setting up a
traditional bricks and mortar establishment. Therefore, the online footwear industry is highly
abundant with hundres of online merchants. Switching cost is low for the consumer, and
may occur frequently depending on consumer preference and other factors affecting
consumer buying decision, (i.e. price sensitive consumers). Another major barrier is
security. Although, Nike and Adidas have invested millions of dollars into their web site,
there is an industry wide problem of securing data over the Internet medium. Hackers may
potentially lacerate into the site and could retrieve sensitive data such as consumer profiles,
credit card numbers, and other corporate data. They could even redirect the company's web
site traffic to another web site similar to the case of Nike in June 2000. Nike experienced a
hijacking of its web site. The traffic from www.nike.com was redirected to a server at a
Scotland-based Web hosting company
Bargaining Power of Buyers - High
There are a large number of buyers relative to the number of firms in this industry.
Therefore, companies like Nike and Adidas must continuously market their product and
differentiate their brands against competitors, in order to increase sales and market share.
The use of online tools has helped to enhance the accessibility and intimacy among users.
For example, Nike's "nikeid.com" link allows consumers to customize and design their own
footwear by permitting customers to specify the desired colours and the option to
personalize the footwear with their name. Brand identity plays a critical role in the buying
behavior; strong identity will offer consumers trust and loyalty. Many online buyers are
price sensitive and switching cost is low for the buyer.
Bargaining Power of Suppliers - Low
There are many suppliers in this industry. In essence, there is very little differentiation
among the suppliers which makes suppliers' bargaining power non-existent. Leather,
rubber, and cotton are commodity items and are available abundantly in the market place.
Conglomerates such as Nike and Adidas have a definite advantage and power over their
suppliers. These suppliers become dependent on these firms as their means to survival.
Additionally, Nike and Adidas have standardized their input procedures pertaining to the
materials used, their labor force, supplies, services, and logistics. Firms are able to switch
between suppliers quickly and cheaply, due to the globalize networks of cheap labor on
various continents. Additionally, inputs are readily substituted and there are an abundant
number of suppliers available.
Threats of Substitutes - Low
Buyers' propensity to substitute is low. Consumer substitutes for athletic footwear products
are low because there are little alternatives to switch, some substitutes for athlete footwear
could be boots, sandals, dress shoes or bear feet. Consumers are not likely to substitute
due to the performance specification of the product. For instance, a basketball player would
not wear boots to play basketball. Therefore, there are no real substitutes for athletic
footwear.
Rivalry among Existing Competitors - High
The rivalry among existing competitors in the footwear industry is quite high. Large firms
such as Nike and Adidas have grown immensely over the last two decades. Their global
reach has expanded through all continents; this is attributed to the emergences of the
Internet and e-commerce. Online selling has enlarged the reach for these firms allowing
them to increase sales while minimizing operating costs. Almost every large firm has a web
site, and most of these web sites contain virtual stores which provide convenience to
consumers. Most individuals in North America have access to high speed Internet and online
purchasing has become the new trend for the twenty first century. Competition is fierce in
the footwear industry and those who dominate or lead the market do so with high capital
expenditures, aggressive sales and marketing strategies, and strong brand identity.
E-BUSINESS MODEL
Nike and Adidas have adopted a merchant model which encompassed three pillars of their
e-commerce strategy: pure-play e-tailer, bricks and clicks, and their online store. The main
purposes of acquiring relationships with pure-play e-tailers is to promote and market
products; focus on the content to create new exposure and; gather, gain and transfer
market knowledge to their business counterparts. Nike has landed a deal with Fogdog
Sports which will sell their entire Nike product line on its web site. Adidas signed an
agreement with SportsLine.com and Sports.com. The benefits of building relationships with
these pure-play e-tailers are to provide global reach and coverage. Fogdog.com,
Sports.com, and SportsLine.com have the initial coverage in the US, UK and eventually in
Asia. Nike and Adidas will also operate their traditional bricks and mortar establishments,
while selling their specialty products on their e-commerce web sites. This business model is
referred to as "bricks and clicks." The primary goals of operating a bricks and click site is to
increase sales, reduce cost, increase market reach, applying competitive pressure,
promoting new products, improving customer service, and progress in addressing user
concerns. Additionally, Nike and Adidas have included an affiliate link which allows
consumers in varies regions to locate affiliated store locations such as Foot Locker and
Champs.
APPARENT EFFECTIVENESS OF E-BUSINESS
Nike's ability to realize the potential of the Internet has placed them in the e-commerce
leadership position among other sporting goods companies. Through its initiative to be the
first to market with its e-commerce web site launch back in 1999, Nike was able to
understand early on what its 14 million visitors demanded and enabled itself to become
established while competitors scrambled to join, simultaneously creating a temporary
competitive advantage as a result. By continuously relying on innovative companies to
redesign the site, Nike acquired the luxury of owning a site that's every bit as inspirational
as it is informational, an important milestone for a market leader. Today, Nike's store
enables online consumers to design key elements of the shoes they purchase. This program
is the first time a company has offered such mass customization of footwear. All this online
success has not come without a price. Significant amounts of money were involved and a
constant chilled reaction was received from its channel partners like Footlocker and Sports
Chek with each site redesign as latest design contained e-commerce - leaving some
companies without Nike products to sell online.
Adidas's approach to e-commerce was that of a follower since Nike was first. As a result,
Adidas relentlessly pursued innovation and refreshing content to differentiate itself from
Nike. Adidas also realized that in order to be successful it has to be fully committed to this
initiative. That's why it included adidas.com as part of its three pillar strategy along with
pure play e-tailers, bricks and clicks. The final result is a web site that successfully portrays
Adidas's product portfolio in an interactive and informational manner. The e-commerce
presence required Adidas to adjust internally to be able to fully support and commit to this
initiative. With Nike being first to the punch there was no room for mistakes and
experiments. The final product had to be attractive and able to compete. Also, just like
Nike, Adidas had to consider the channel conflicts adidas.com created.
Nike and Adidas seem to follow similar online strategies but Adidas experienced a greater
transformation from being a minor, insignificant player back in 1998 to the number two
position in the athletic footwear and apparel industry. Part of this success is due to Adidas's
ability to thoroughly leverage the Internet as a marketing and e-commerce medium, most
of it at the expense of Reebok. In the Nike's case the online strategy ensured its strong
leadership position in the intensely competitive market. Both Adidas's and Nike's strategy
seem to be well ahead of their competition contributing to their e-commerce success. No
other athletic footwear company is able to outshine these two firms when it comes to e-
commerce, at least for now and in the near future as this task would involve large
infrastructure investment and more importantly thorough commitment.
PROGNOSIS
Although both Nike and Adidas currently have a significant advantage over their rivals,
chances are this will not last forever. The Internet is a medium that is redefining
competition and markets in sectors that previously did not embrace it. With time more firms
that deal with athletic footwear and apparel will join the Internet rush providing customers
with more choices. As more and more people engage in e-commerce it will become more
relevant to show how and why a product is superior to the competition as opposed to more
promotional e-commerce sites found today. Also, there will be an increased emphasis on
customization and differentiation of products, something Nike already pioneered with the
shoe with your name. At this point in time both Adidas and Nike are not slowing down with
their continuous web site innovations setting a high standard for the rest of the industry.
An interesting issue with such development is the increased channel conflict it presents. As
Nike and Adidas begin to significantly increase their online sales they might be reluctant to
sell their products through smaller online retailers. Currently all retailers are already
nervous of how this will affect their ability to sell Nike and Adidas products online. Nike
holds a lot of leverage because of its significant market share and could choose to exclude
certain retailers without suffering decreased sales. Adidas does not hold as favourable
position as Nike but still has leverage over certain smaller retailers. But it is a fine balance
as the larger retailers would not want to be eliminated and could combine efforts to ensure
that they are not eradicated from selling athletic footwear form main firms. The future
should prove to be interesting and full of developments. It will be full of successes, failures
and partnerships (between suppliers and retailers).
LIST OF REFERENCES:
*Adidas, Annual Report 2002
*Adidas, Annual Report 2001
*Nike, Annual Report 2002
*Nike, Annual Report 2001
*Industry Sector Analysis of Sporting Goods, U.S. and Foreign Commercial Service, 1998
*Multex Fundamentals / ProVestor Plus Company Report, Nike Inc., October 2003
*ShoeStats 2002, AAFA, January 2003
*http://www.channelseven.com/newsbeat/99features/news19990624.shtml, October 2003
*http://www.urlwire.com/newsarchive/062499.html, October 2003
*http://www.adidas-salomon.com/en/news/archive/2000/2000-07.asp, October 2003
*http://www.adidas-salomon.com/en/overview/welcome.asp, October 2003
*http://www.adidas-salomon.com/en/investor/strategy/default.asp, October 2003
*http://www.adidas-salomon.com/en/investor/reports/default.asp, October 2003
*http://www.adidas-salomon.com/en/overview/history/default.asp, October 2003
*http://www.cybersource.com/solutions/success_stories/nike.xml, October 2003
*http://www.nike.com/nikebiz/nikebiz.jhtml?page=1, October 2003
*http://www.nike.com/nikebiz/nikebiz.jhtml?page=15, October 2003
*http://www.nike.com/nikebiz/news/pressrelease.jhtml?year=1999&month=06&letter=d,
October 2003
* "Nike - Channel Conflict." Graduate School of Business, Stanford University, February
2000
*Belch & Belch. "Advertising and Promotion." McGraw-Hill Irwin. New York. 2001. p.493
*"Companies point fingers over Nike Web site hijacking." Computerworld. June 30, 2000
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