November 2016
Sales and Account Plan Nike to Footlocker in the USA
Presented by:
Fabrizio Rossi Fabrice Martini Ferdi Lathouwers
Table of Contents 1.
Market and strategy Analysis ............................................................................. 2 Market Analysis .................................................................................................... 2 Channels to Market ............................................................................................... 3
1.1 1.2 1.3
Strategy Analysis ................................................................................................... 3
2.
Account Business Profile .................................................................................... 4 Mission and Vision ................................................................................................ 4
2.1 2.2
Organization, Operating structure, Key activities and exec and decision makers ... 4
3.
4.
Products and Services ........................................................................................ 5 3.1 Products and Services portfolio ............................................................................. 5 3.2 Qualitative description of your products and services ........................................... 6 Positional Analysis ............................................................................................. 7 Competitive Analyses – Porter’s Five Forces .......................................................... 7 SWOT - Internal and External Analysis ................................................................... 9
4.1 4.2 4.3
Relationship Analysis .......................................................................................... 10
5.
Objectives and Targets ..................................................................................... 11
6.
Sales Forecast, Realization and Plan of Action .................................................. 11
APPENDIXES ............................................................................................................ 12 Appendix A ..................................................................................................................... 12 Appendix B ...................................................................................................................... 15 Appendix C ...................................................................................................................... 15 Appendix D ..................................................................................................................... 16 Appendix E ...................................................................................................................... 16 Appendix F ...................................................................................................................... 17 Appendix G ..................................................................................................................... 17
Bibliography ............................................................................................................ 18
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1. Market and strategy Analysis
1.1 Market Analysis The Market in the United States of America is saturated and footlocker closed down a net of 40 stores within the USA. However, Nike has the advantage of holding the position of the key and main supplier for Footlocker. Foot Locker has two main business areas, merchandise being the first, which contains clothing and accessories and second which is shoes. 73% of the total merchandise sector of Foot Locker is supplied by Nike, furthermore Nike supplies 88% of the total inventory of shoes. Nike and Foot Locker sustain a strong and healthy relationship resulting in different Joint ventures to further expand the distribution system of footlocker and thus also of Nike. As already touched upon Foot Locket is an intermediary for Nike. Both companies have the same target audience when it comes to applying the 80/20 rule. The target audience ranges from 14-24 with a sporty lifestyle and which tend to adapt to recent fashion trends set by different celebrities, mostly sport stars, marketing the new Nike products. Although Nike has own retail stores, the cooperation between the companies has benefited both. However, Foot Locker is very much dependent on Nike and has been at mercy when negotiating contracts of all kinds but as history has shown until now this gives Nike an advantage over their competitors but at the same time also Foot Locker the advantage of expanding and diversifying their product portfolio which again give them an advantage over their competitors. It is important to understand that both companies have different competitors. The main competitor of Nike is Adidas. Adidas supplies 14% of the merchandise and 9% of shoes to Foot Locker. Lacoste, Reebok and smaller fashion labels supply the rest. It is fair to say that Nike holds the position as a dominant market leader. However, fashion is in constant change and new trends appear almost monthly. Most fashion labels produce own sneakers but Foot Locker sustains the brandy mentioned in their stores only with small exceptions. Therefore, the threat of a new competitor entering the market is fairly low. The newest trend is set by Nike with the introduction of a show which ties the lasses automatically. Other competitors have adopted the concept and want to follow.
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1.2 Channels to Market Channels to market are channels which a company uses to get their products to
their
customers.
This
could
either
be
directly
or
indirectly.
(businessdictionary, sd) Nike has five big distribution centres in the USA. Besides that, the USA is the biggest market for Nike’s products. Therefore, it is crucial that they choose their channels carefully to keep good relationships with their partners/clients. When considering channels to market Nike’s products to one of the multiple clients of them which sell their shoes, in this case Footlocker in the United States of America (USA), it is smart for Nike to use multiple channels to sell their products to Footlocker. Footlocker is a partner of Nike for a long time now. Footlocker can be seen as a channel for Nike. It is one of the multiple retailers which Nike uses to sell their products to customer. Footlocker has a license agreement with Nike, which means that they are allowed to sell Nikebranded products. Nike sells their products to Footlocker, which sell them at their stores to (potential) customers. Footlocker provides revenue for Nike but also brand-recognition. Footlocker is an intermediary for Nike. They distribute their products from the distribution centres to the retailer. The retailer sells the products for them. (Marketrealist, 2014) Another channel that is being used to provide sales, are electronic sales.
1.3 Strategy Analysis Three strategies have to be observed and analysed. The strategies of Nike, Foot Locker and the main competitor Adidas. Nike is focusing in expanding the distribution system with joint ventures and regarding the product portfolio Nike is aiming at diversifying the portfolio and innovating products thus following the first mover advantage. Following this strategy mean that the company is constantly refining product and creating new products and is the first to bring them to the market, thus taking risk of rejection from costumers but at the same time the advantage of a short monopole until the competitors follow into the market. As mentioned before the market in which foot locker is active is saturated and foot locker closed down a net of 40 shops. This forces Foot Locker to follow a strategy which is focused on quality improvement (of the store, promotion and the home brand) and refining of key processes to reduce costs
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and increase efficiency and customer satisfaction. The main competitor in this account is Adidas. They are following strategy which is a mix of cost leadership and fast following when it comes to product innovation. Adidas products are cheaper than Nike products the price difference ranges from 10$ - 70$ therefore customers which value price and quality might as well choose Adidas as the quality is not applicable to be lower. Furthermore, Adidas chooses to observe the market and the competition and evaluate the reaction of the market when a competitor launches a new product. Based on the evaluation Adidas will also move onto the market or decide to either also try to create a new product or use the resources to refine processes and lower costs.
2. Account Business Profile
2.1 Mission and Vision A Vision Statement is a sentence or short paragraph providing a broad, aspirational image of the future of the company and used for long term planning. Foot Locker Vision Statement is: "To be the leading global retailer of athletically inspired shoes and apparel." Foot Locker decided to not officially publish a mission statement but instead defined their core values which are: Integrity, Leadership. Excellence, Service, Team Work, Innovation and community. These values take into account all the stakeholders of foot locker and therefore this is an alternative to develop a mission statement. It is important to understand that Foot Lockers vision dose not collide with the one of Nike which is: "To bring inspiration and innovation to every athlete* in the world. (* If you have a body, you are an athlete)." This provides both companies with a completive advantage over their competitors because the long-term relationship has resulted in a strong partnership between companies.
2.2 Organization, Operating structure, Key activities and exec and decision makers Foot Locker has defined key stakeholders as the following starting with the
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highest priority and ending with the lowest priority: Investors, Customers, Employees, and Suppliers. Foot Locker has a line of staff organization (See Appendix) and is aiming to change its organizational structure by consolidating the management team and lowering the hierarchy level within the company, which provides better opportunities
for
employees
to
gain
a
management
position.
The
consolidation of managers has increased the efficiency as well as the lowering of the hierarchy inside the company as information are now faster at the key decision maker and the company is able to react and adapt faster than before. The ways of decision making can again be followed in the structure of the company, each manager has to inform his manager which makes it impossible for a fast information delivery from top to bottom but rather results in miss-management, thus Foot Locker is aiming at increasing efficiency Referring back to the organizational chart in the organizational structure in the appendix, the key executives are Richard Mina as he is responsible for the market and therefore also for the sector of this account, Ronald Hall which is the president of Foot Locker International and the executive officer Kenneth C. Hicks which eventually is the final decision maker. However, the logistics vice president joseph will be needed when referring to delivery of the final product to Foot Locker.
3. Products and Services
3.1 Products and Services portfolio The company's products are classified into four categories: Footwear, Apparel, Equipment and Other. Under Footwear category, Nike offers footwear for running, training, basketball, soccer, tennis, golf, baseball, football,
cricket,
volleyball,
walking,
wrestling,
cheerleading,
aquatic
activities, hiking, outdoor activities, and other athletic and recreational activities. These products are designed for specific athletic use, but can be also used as casual footwear. In FY2016, the Footwear category reported revenues of US$19,871 million, accounting for 61.4% of the company’s total revenue. The Apparel category comprises sports-related lifestyle apparels, athletic bags and other accessory items. Additionally, the company markets apparel with licensed college and professional teams, and league logos. In FY2016, the Apparel category reported revenues of US$9,067 million,
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accounting for 28% of the company’s total revenue. Nike, through Equipment category, offers bags, socks, timepieces, sport balls, electronic devices, eyewear, bats, gloves, protective equipment, golf clubs and others sports equipment. The company sells various plastic products to other producers through its subsidiary, Nike IHM, Inc. It also has licensing agreements, whereby it permits unaffiliated parties to produce and sell certain apparel, electronic devices and other equipment designed for sports activities. In FY2016, the Equipment category reported revenues of US$1,496 million, accounting for 4.6% of the company’s total revenue. Other category includes revenue from Global brands, Converse and corporate sales. In FY2016, other category reported revenues of US$1,942 million, accounting for 6% of the company’s total revenue.
3.2 Qualitative description of your products and services Nike produces different types of shoes. The most important and most profitable shoes are: •
Air Jordan
•
Air Max
•
Nike Hyper Adapt 1.0
Air Jordan is a brand of basketball footwear and athletic clothing produced by Nike and endorsed and created for Chicago Bulls basketball player Michael Jordan. Designer Peter Moore was given the task of coming up with the first Air Jordan shoe. The Air Jordan 1 featured the Nike Swoosh on the mid panel and a newly designed wings logo on the upper ankle. The Air Jordan I featured a Nike Air unit for heel cushioning, padded foam ankle collars for additional protection and a toe overlay for added lockdown. Although the AJ 1 lacked technology, the colours and cultural significance set the sneaker industry on its ear. The Air Jordan 1 paved the way for colourful basketball sneakers. It transformed the way people looked at athletic shoes. During the 1985 NBA season, Michael wore the Air Jordan 1, which retailed for $65 - at the time, the most expensive basketball shoe on the market. Nike’s Jordan Brand is a financial juggernaut. Jordan U.S. shoe sales rose 17% last year to $2.6 billion, according to data compiled by SportScanInfo. Jordan has eight times the sales of the signature shoes for the top active NBA star, LeBron James. Jordan apparel and the international business add more than $1 billion as well. The Jordan Brand commanded 58% market share of the $4.2 billion U.S. basketball shoe market last year, up from 54% in 2013. The Swoosh’s
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share jumps to 95.5% if you include Nike Basketball. The competition: Adidas (2.6% share). Nike Air Max is a line of shoes first released by Nike, Inc. in 1987 and is designed to be a shoe to wear every day and the sales exploded. Meanwhile the Nike Air Max is not only the bestselling sneaker on the market but also of footlocker with every fourth shoe sold being a Nike Air Max. Many different versions have been released even a special version in 2012 for Nike’s and Foot Locker’s successful Joint venture in opening new shoe stores, further strengthening the relationship. Referring to the Nike Air Max with a suggested sales price of 100€ a pair and a margin of 243% this is clearly the leader when it comes to shoes sold. (See Appendix). The average delivery time is 2-3 weeks. These are the normal delivery times of Nike due to the location of the factories. The Nike Air Jordan has a margin off 200% and is the market leader when it comes to basketball shoes therefore these will also always be sold.
4. Positional Analysis
4.1 Competitive Analyses – Porter’s Five Forces Suppliers (Weak) Suppliers of Nike are producers of raw materials. Because of the fact that Nike has a very big market share, they have a high supply. To minimize risk, they use more suppliers. This means that they can easily switch from suppliers. Another factor that reduces the power of suppliers, is due the fact that Nike places very large orders at their suppliers. This means that suppliers are not willing to risk losing such a big customer. Overall, the power of suppliers is weak. Clients (Strong) Clients have a big influence on the performance of Nike in the athletic footwear market. Of course, they are the reason that Nike is one of the biggest players in the market. Low switching costs is a factor for them that does not benefit the company. Clients can easily switch to other shoe brands. Competitors (Strong) When considering competitors of Nike that is selling shoes to Footlocker,
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there are a few other big shoe brands that are a threat for Nike. Footlocker has many brands for sale in their physical and on their online web shop. Big shoe brands such as Adidas, Asics, New Balance, etc. can be seen as competitors of Nike. The power of these competitors is strong because Nike does not achieve a high growth rate. Mostly because of saturation of the market for athletic footwear and because of the fact that the market is not growing very fast. Newcomers (Weak) To enter the market that Nike is in, will be considered as a huge risk due to the fact that large brands such as Nike, Adidas, etc. dominate the entire market. Those brands that dominate the market invest a lot of money to stay on top of the market. They created a brand that is known by almost everyone around the world. Also, a factor that benefits Nike, are the high economies of scale that provide them with a big advantage against (potential) newcomers. (SelectUSA, 2015) Considering these factors, the power of newcomers is weak. Substitutes (Moderate) Substitutes of athletic shoes are mainly other shoe brands. Other brands can easily be switched to and purchased by customers. Another threat to Nike are counterfeit products. Especially due to the fact that counterfeit products are qualitatively improving and way cheaper than original Nike footwear. On the other hand, the quality of those products will never match real Nike quality. Furthermore, they created a big brand recognition and loyalty which keeps customers loyal to their brand. This is one of the biggest advantages for Nike in the market. (MarketLine, sd) Therefore, the power of substitutes is moderate. Unique Selling Point (USP) A big USP of Nike, is that they refer to their shoes as those that athletes wear. If you buy shoes from Nike, you will be associated with the footwear that athletes wear. Another USP of Nike, is that their brand is very persuasive and valuable in the minds of their customers. Unique Buying Reason (UBR) One of Nike's best UBR, is the fact that they let customers be the designers
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of their own product. They give them the chance to design their own product online, and buy it afterwards. They make sure that the customers have fun while shopping for their products.
4.2 SWOT - Internal and External Analysis Strengths A strong brand loyalty and recognition is what makes Nike very successful. A lot of customers are loyal to the brands Nike offer and lots of people at least have heard of the brand. Furthermore, Nike has a very high market share. This is mostly because of their strong brand loyalty and recognition and their competitiveness. Nike is a very competitive organisation. They look at competition in a positive way and it motivates them to become even better. Weaknesses A weakness of Nike is the low-price margin on their products. Because of the high price competition that they are facing, the money that they invest in the shoes to keep the top position in the market and the price that customers pay, it leaves them with a lower price margin. Opportunities There are a few opportunities which are useful for Nike. First of all, you have product innovations. Nike is a very innovative organisation which is always looking at ways to make their products better for their customers. For example, Nike made it possible that customers are able to create their own shoes on their website. This way, you let the customer be his own designer of his shoes. This way they can create the shoes that in their image is exactly what they want. There are not many other shoe sellers/manufacturers which use this strategy. Still, there is a lot that Nike can improve in this market while looking at product innovations. Secondly you have the growing retail market in the US. There is prospected that the retail market will grow in the near future. This means that there still are a lot of opportunities for Nike to gain more market share and become an even bigger player on the market. At least you have strategic initiatives. Nike is a company which is very strategically inclined. Still, there are a lot more strategic initiatives which Nike could use.
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Threats There are also threats which Nike has to aware of. There is rapid growing competition on the corner. Newcomers like Under Armour are growing very fast and are gaining more market share. Nike has to stay innovative and stay ahead of the competition. On the other hand, there are counterfeit products. These products are becoming of higher quality and are way cheaper than Nike’s products. Finally, the retail sector is becoming more price competitive. Shoes in retail stores will become cheaper because of the high competitive market.
4.3 Relationship Analysis Current business Nike is currently involved in the market of athletic footwear, apparel, equipment and accessories. They are not only designers, but also marketers and distributors. Brands of Nike are: Nike, Jordan, Converse and Hurley which are sold through company-owned stores, independent distributors and licenses all over the world. Their merchandise is also sold on their online website: www.nike.com. (MarketLine Nike inc., 2016) Contracts Nike is the key supplier of Foot Locker that’s why both companies have established long term contracts. However new products which are released by Nike do not have a contract yet therefore thee have to be negotiated. Foot Locker also has long term contracts with Nikes competitors, however they make up a fairly small amount of the market and therefore don’t have the bargaining power Nike has. Image Nike is characterized as a sports brand that is associated with athletes. They were first introduced as a pure American brand, but throughout the years they gained awareness globally. It is seen as a very innovative, qualitative and high-performance product by their clients. Their shoes are viewed as qualitative products that are designed for athletes and winners. They have created the image that they adapt to the needs of their customers very well.
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5. Objectives and Targets The objective is to establish the automatic shoe “Hyper Adapt 1.0� and increase the margin by 10 % a year for the first 5 years. Nike will have the first mover advantage into the market and will be able to sustain a short monopole in this market. Which will increase the total revenue by 2% with only this single project which will be released in January 2017. The sales plan is for the year 2017 and results in a revenue gain of over $260 million. The establishment will not only profit Nike but also with a revenue boost of almost $60
million-foot
locker
tremendously,
securing
them
a
comparative
advantage over their competitors.
6. Sales Forecast, Realization and Plan of Action The fixed costs are placed higher than the variable costs because the basic use of the machines and factories will remain intact, however Nike will invest into the technology of the new tying shoe so that the variable and the OneOff costs are also quite high. The margin is set at 160% because it is a new product which is introduced into the market. If the costumer accepts the product and increase the demand than the margin can also be increased and is aimed to be increased by 10% per year. Resulting also in an increase for the revenue for Foot Locker and the relationships between the companies will be secured and strengthen and this concept and approach can also be used for other products which will be releases over the next years Furthermore once the product has been accepted by the costumers and is established market, the sales ns will increase, the entry bulk for foot locker would consist of 2 Million pairs of shoes spread over the 1171 stores in the USA.
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APPENDIXES
Appendix A
Porter’s Value Chain A value chain is the whole series of activities which create and build upon value at every step the product passes. The total value delivered by the company is the sum total of the value created throughout the company. Michael Porter developed this concept in �Competitive Advantage� Book which was published 1980 and laid the ground stone for modern day business understanding. The Value chain is again split up into two different activities primary and support activities. As the name already suggests primary activities are the stations a product will receive an added value and the support activities make the system work however thus not directly creating value but indirectly. The primary activities are inbound and outbound logistics, operations, market and sales and service. Each of these activities will be analysed. Inbound logistics: As market leader Nike has accomplished what many firms strive for, Low production costs. Nike achieved this by purchasing most raw materials in large bulks from local suppliers and only importing specialized materials, an importing always raises transportation and other
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costs. Furthermore, Nike relies on a complex but efficient system of local logistic providers which are implemented into logistic system. This grants Nike the advantage of having a good inventory control and a reduced inventory risk and cost. Operations: Nike outsourced manufacturing and assembly to low wage countries but take great care that the quality I always on the highest standard. Furthermore, Nike conducted heavy investments into the research and development in order to sustain their strong position which resulted in great technological innovation. Nike decided to send employees to assist production factories to sustain high quality and a high efficiency and thus effectively manage the supply chain. Due to changing customer trends and because of environmental awareness Nike refuses to use certain materials in their products. Outbound Logistics: Nike has a Strong control over global distribution system and decid3d to use the Just in time delivery concept to reduce cost and risk of inventory. Furthermore, Nike has a very good and strong supplier relationship and have the ability of forward integration with their supply chain. Marketing & Sales: Nike has a high brand recognition and great reputation by costumes as well as suppliers. Further Nike can rely on economies of scale which reduce costs. They are following a quality leadership and value based pricing strategy and place great value in having the first mover advantage. This is supported by aggressive marketing which involves Celebrity endorsement. Most companies are not able to provide the marketing sectors the necessary budgets for such projects, however Nike does and this eventually results in the Strong customer base of Nike. Service: Customer care is valued high by Nike. There is a constant will of creating a higher customer satisfaction by offering Pre-and after sales service and even a one of its time system of Customization of individual products. Furthermore, Nike uses modern technology to further improve customer satisfaction The
secondary
activities
are
Firm
infrastructure,
Human
resource
management, technology development and procurement. Firm infrastructure: Nike has a Strong brand, product, marketplace solution, delivery and support. Building upon this is an IT System across
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supply chain and an efficient E-commerce infrastructure. This results in a strong financial position and CSR and continuously low debts. Nike decided to empower top managers which resulted in more successful joint ventures with different business partners. Human resource management: Nike has a strong management team and the global staff is continuously learning and being trained. This results on an excellent employee relationship due to the minimum hierarchy concept employees have good chances on receiving managing positons. Furthermore, Nike places high ethical values throughout the company worldwide. Technology development: Nikes research and development is leading in their sector and resulted in a diverse product portfolio which has the potential to adapt and change to the market expectations. Developed leading technology for medical and consumer electronics (Motion analysis, metabolic rate, blood work) Procurement: Nike has a long-term relationship with suppliers and buys localized and materials in bulks. Furthermore, just in time strategy so that goods and services are ready for sale in order to lower inventory costs. But buffer and safety stock always in hand.
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Appendix B
Appendix C
15
Appendix D
Appendix E
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Appendix F
Appendix G
Nike’s Revenue n the US by sectors 2009-2016
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Bibliography Dunne, B. (2014, December 16). How Much It Costs Nike to Make a $100 Shoe. Retrieved from Sole Collector: https://solecollector.com/news/2014/12/howmuch-it-costs-nike-to-make-a-100-shoe Economic Times. (n.d.). Definition of 'Value Chain'. Retrieved from Economic Times: http://economictimes.indiatimes.com/definition/value-chain Foot Locker. (n.d.). Our Vision. Retrieved from Foot Locker: http://www.footlockerinc.com/company.cfm?page=core-values MarketWatch. (2016, November 18). Foot Locker beats profit views, sales growth slows. Retrieved from MarketWatch: http://www.marketwatch.com/story/foot-locker-beats-profit-views-salesgrowth-slows-2016-11-18 Nike Inc. (n.d.). Nike Mission Statement. Retrieved from http://help-enus.nike.com/app/answer/a_id/113/~/nike-mission-statement
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