Nike & Reebok

Company Overviews

Nike

In 1964 in Oregon, Phil Knight and Bill Bowerman join together to make a new enterprise; each contributed about $500 to the partnership. The company started bringing low priced and high tech athletic shoes from Japan to replace the German domination of athletic shoes in the industry. In 1971, a graphic design student created the Swoosh trademark for a $35 fee. In the same year Jeff Johnson, Blue Ribbon Sports' first employee, made his most durable contribution to the company in coming up with a new name, Nike, after the Greek goddess of victory. NIKE is the world's #1 shoemaker and controls over 20% of the US athletic shoe market.

Reebok

Reebok's ancestor-based company came from the United Kingdom and it was founded for one of the best reasons, to give athletes the best running shoes. Around 1890, Joseph William Foster made some of the first known running shoes with spikes in them. By 1895, he was in the process of making shoes by hand for top runners. Before long he started the fledgling company J.W. Foster and Sons and were exposed to international clientele with distinguished athletes. The company became known as Reebok, named for an African gazelle in 1958, when the founder's grandsons started a companion company. Reebok's products are available in more than 170 countries and they are #2 in the U.S. shoe making market.

External Analysis

The footwear industry is a complete package so the different stages of shoe design and manufacturing interact seamlessly. This means that design departments and supply chains can operate on different components within the same product family; it reduces the opportunity for error resulting in efficient and highly profitable production. For the first six months of Nike's current fiscal year, they brought in $816.9 million in revenue, with a 35 percent increase over the same period a year ago. Meanwhile, the core Nike business grew from $5.26 billion to $5.89 billion, a 12 percent increase. As for Reebok Brand, worldwide sales in the 2004 fourth quarter increased 18 percent to $817 million. From the numbers we can see that the athletic shoemaker industry is profitable and both companies are very competitive. With that said, we will now go on with discussing some of the basic factors that helps the industry to grow in profitable way.

Existing Rivalry

Jockeying among existing rivalry is extremely high. Rivals are numerous and are roughly equal in size and in power (Reebok versus Nike). Many of the product lines lack differentiation, most of the shoes look different, but they are basically the same. The products are highly "perishable", and the product life cycles are extremely short. Lastly, the rivals are diverse in strategies, origins and personalities. Each one of the major rivals is identified with a certain marketing approach, and also symbolized by the paid support of famous sport stars.

Suppliers

The bargaining power of suppliers is medium to high since it is dominated by relatively few companies. The product is unique, and the switching costs are high. With the materials being used to manufacture shoes are typically considered raw materials. Because the materials are not very expensive and they are not hard to come by, so the cost of making shoes is not very high. It is also possible for the suppliers, especially in foreign manufacturing to integrate forwards into the industry's business especially in overseas markets and become a rival to the industry.

Substitutes

The threat of substitute products is low. The industry is upgrading the products frequently to cope with flashy fads and the "hottest" fashion. There are not too many close substitute products to athletic shoes. What else would you wear when you run? Of course, multipurpose shoes such as "cross trainers" may impose a possible substitute threat to the current highly diversified range of athletic shoes on the market. In the end, however, consumers have very big alternative options available and will patronize the shoes industry at any point and price. We see that the threat of substitutes is quite low given the nature of the industry and brings the results into a greater profitability.

Consumers

The bargaining power of consumers is medium to high. The power of purchases made by the individual buyers group is not concentrated in large volumes and the products that the consumer purchases are not standardized. With low switching costs in process and with so many buyers, the shoes industry has to be updated very often. Furthermore, the industry sets and creates the fads and determines what is "hot". On the other hand, the buyers, like corporate retailers and sports teams, have very high bargaining powers. Because, the shoes they wear have to be changed often and also sports teams can become great advertisers for any given company.

Potential Entrants

The threat of new entrants into the industry is low. The start-up costs are somewhat high, consumer loyalty within the market is moderate and the learning curve is pretty short. The entrance barriers are high in that the capital requirements are high due to up-front advertising and research and development. Also, economies of scale in production will be difficult to reach due to the difficulties of penetrating the market that is dominated by the large five: Nike, Reebok, Coverse, LA Gear, and Stride-Rite. Furthermore, it will be almost impossible to achieve product differentiation in terms of brand identification and product difference, since the "big five" set the trends. Also, distribution channels, and dealers are in many cases tied-up by existing competitors. With that it is also very difficult to maintain a share of the market.

Other Factors

Political factors can significantly determine how the organization takes different actions. Each political factor depends on the industry that a given company is in. As for shoe making industry they can require them to set prices and have them follow strict operating regulations. Economic factors can have a big influence on an organization based on their behavior, performance, interest rates, foreign exchange rates, economic growth and also foreign trade balances.

In social factors, the industry has to see what the consumers want and need. How much confidence the consumers have and how far are they willing to expend for non-necessities. In the shoe industry the companies have to fluctuate with the tastes and trends