It’s not as if athletic equipment didn’t exist before the 1970s. Marketing, however, was still in its infancy. That’s the short answer to how Nike, Inc. (NKE) entered a competitive, saturated marketplace and became one of the largest sporting goods company in the world. Nike reported fiscal Q2 2019 earnings after market close on Dec. 20, 2018. The athletic apparel company reported $9.37 billion in revenue this quarter, compared to $8.55 over the same period last year.
Just Do Everything
It’s hard to overestimate the influence that Nike has had on worldwide culture. When Adidas AG (ADDYY) and Converse (the latter eventually bought by Nike in 2003) dominated the United States athletic shoe market in the 1970s, the shoes themselves were intended for function, not fashion. The phenomenon of lining up to buy the latest version of a particular shoe, or even the idea of new models coming out annually, didn’t exist. Nor did celebrity endorsements, blinding colors, or moisture wicking. Contrast an NBA game from the black-and-white era with one from today, and the most notable difference (aside from the preponderance of set shots and fondness for the 2-handed chest pass) will be how outdated the gear seems.
How Nike Created a Global Market
Do the same thing with a football game, and one thing you can’t help but notice is the lack of merchandising deals. In 1995 Dallas Cowboys owner Jerry Jones hired Nike to make the team’s uniforms, which involved emblazoning a small Nike logo on the breast. That the National Football League’s stodgy old guard of owners immediately cried foul is well remembered. What isn’t remembered quite as well is that by the next season, every team in the league had signed a similar deal with one manufacturer or another. Major colleges followed suit, and today it’s a football uniform without a manufacturer logo that looks peculiar.
As a legitimately worldwide enterprise, Nike reports among the following geographical operating segments: North America, Western Europe, the remainder of Europe, China, Japan and the rest of the world. It barely bears mentioning at this point that like most American companies of its size and age, Nike draws a large but gradually dwindling portion of its revenue from its home continent. The first year in which Nike sold more merchandise outside North America than within was 2012, a trend that has continued every year since. In fiscal Q2 2019, sales in Europe, the Middle East, Africa, China, and Latin America made up 54.96 percent of the companies revenues at $5.16 billion.
How Nike Created its Brand
In recent years Nike has been as acquisitive as companies of its size are wont to be, only Nike keeps its purchases somewhat quiet. It owned dress shoe manufacturer Cole Haan until 2013, and is the parent of renowned surfwear company Hurley. The Converse acquisition happened in 2003, and today the brand remains a separate entry on Nike’s balance sheet.
The Nike brand is omnipotent. As retro and timelessly hip as those objectively ugly pairs of Chuck Taylors might be, their sales are dwarfed by those of anything adorned with a swoosh. The Nike brand generated $8.95 billion in revenue last year, and still enjoys consistent 10% annual growth despite being the biggest of its kind. Sure, it takes not just clothes but balls, gloves, and sticks to play a sport. Yet it might not be surprising to know that Nike makes far more money from bedecking its customers than from selling them equipment. Among shoes, clothes, and sporting goods, that’s where the Nike brand earns 62.2%, 34.1%, and 3.6% of its revenue, respectively.
The Bottom Line
Perhaps elite athletes can tell the difference, but for most of us, there’s little appreciable difference between a pair of Nike cross-trainers and one from a competitor. The truth is that beyond a baseline level of performance and quality, athletic wear purveyors are selling an image. Nike has leveraged its image like few companies possibly could, creating a full lifestyle in the process. The marketplace is competitive — an established Reebok here, an upstart Under Armour Inc. (UA) there — but Nike remains the standard that other manufacturers aspire to.