Nike (US) continued

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Adbrands Weekly Update 18th May 2018: FRIDAY CLASSIC: Nike 'I Feel Pretty' (2006). Nike Women is an important strand within the sportswear giant's marketing these days but it wasn't always this way. In fact, this superb ad from Wieden & Kennedy from 2006 was the first time that a female athlete had been the focus of any Nike TV advertising campaign. "We were completely aware that it had never happened before," said W&K art director Mira Kaddoura later, "so we wanted to create something super. Up until that point, only superstar male athletes were getting all the money. It was a chance to prove to the client that you can do something just as impressive with a female athlete."

Then the brightest star on the circuit, Maria Sharapova - who had only recently signed to Nike - was the perfect choice. Still only 19, she combined supermodel looks with a steely determination, and above all that celebrated almost animalistic on-court shriek.

Yet Sharapova had plenty to prove too. She'd won her first Grand Slam title at Wimbledon two years earlier, but needed to demonstrate that there was more to her than looks, and that Wimbledon hadn't been a one-off fluke. "Nike wanted to support Sharapova because she was a kick ass athlete and not only a pretty face," said Kaddoura. "That duality was the coolest thing about her. Yes she's pretty, but she's also badass. We wondered if there was a song out there about being pretty and whether we could do something with that. As soon as we found 'I Feel Pretty' we really felt it was right."

Star director Ivan Zacharias was signed to direct. "I hate musicals but this was something different," he said. "This was about people thinking she was pretty but maybe useless. But then at the end, we see she's f***ing great at tennis. And if you have a great song, why not get people to sing it? It's a nice idea."

The song was rerecorded with a full orchestra in a revised version to fit the 60-second framework, with the vocals dubbed over afterwards. Each supporting actor's contribution was also recorded live with an on-body microphone. The final sequence was shot in New York's famous Arthur Ashe stadium, home of the US Open, with extra stardust provided by cameos from former champion John McEnroe and his brother Patrick. There was an audience of just 100 extras in the stadium. Post-production house The Mill then painted in another 25,000 or so digital spectators with the magic of CGI.

"Funny little detail," added Kaddoura. "The spot was killed after it was approved and it was one of those little advertising miracles that it ended up seeing the light of day at all." Clearly the advertising gods were all looking on with approval: the ad aired a week before US Open in 2006. Sharapova went on to win it, earning her a second Grand Slam title. It also proved a big hit on the awards circuit, earning a shelf-full of awards including two Gold Lions at Cannes a year later, one of them for Best Use of Music. (It was beaten to the Grand Prix by Dove 'Evolution').

"This will always be one of my favourite campaigns to have worked on," said Kaddoura, "because the big idea and the craft were on par with each other. We were so excited about the script and even more excited to craft the work. From recording the song with a live orchestra in Prague, to the puzzle of casting and picking every person, to filming and editing with such talented people. It’s really an example of the magic that happens when everything lines up."

The group also produces a range of golf apparel and equipment under Nike Golf brand. That unit is perhaps best-known for its endorsement partnership with Tiger Woods, and it was Woods' most vocal supporter during his recent marital troubles. The relationship with Woods has been maintained, but the veteran golfer was more or less retired in 2016 in favour of better-performing Rory McIlroy. However, sales of Nike's golf clubs and other equipment suffered from the global downturn in interest in that sport, and the group said it will stop producing hardware, though it will continue to market apparel. In fiscal 2017 alone, Nike's wholesale revenues from golf-related apparel plunged by 18% to $579m. In 2002 the group acquired Hurley, producing premium clothing and footwear for surfing, skate and snowboarding. It is now the main operating unit within the Nike Action Sports segment. Nike Golf, Hurley and Jordan are all included under the umbrella of the Nike brand.

In the 1990s and 2000s the group also diversified, adding subsidiary brand divisions, which were grouped under the general umbrella title of Nike Affiliate Brands. The most significant of these is rival US sportswear brand Converse, maker of the All Star basketball sneaker, acquired in 2003 for about $305m. Converse continues to operate as a standalone business, under its existing management team. Established by Marquis Converse in 1908, Converse is in fact America's oldest sporting brand. All Star was the first sports performance shoe when introduced in 1917, and was later endorsed by legendary basketball player Chuck Taylor in the 1920s. Converse has had a mercurial corporate history, bought and sold by one owner after another for most of the 20th century. Its owner from 1986 onwards, furniture and clothing company Interco, collapsed in 1991 in what was then one of the biggest ever US corporate bankruptcies. Established as a separate public business in 1994, Converse struggled through that decade before itself declaring Chapter 11 in 2001. It was acquired by private investors who agreed the sale to Nike in July 2003. For ye 2019, Converse contributed sales of $1.91bn.

Other brands in Nike's affiliate portfolio have not lasted the distance. The group acquired ice hockey equipment manufacturer Bauer in 1995 for $430m, but despite its best attempts was unable to develop the business beyond its core sport. It agreed to sell Bauer in 2008 for just $200m to a private investment group. The group also owned Cole Haan for several years. That company markets casual non-sports footwear under the Cole Haan and Bragano brands through its own chain of more than 160 stores. It generated revenues of $535m in 2012. The business was put up sale during the year, and was eventually acquired by investment company Apax for $561m.

In 2004 the group established a new division, Exeter Brands Group, to develop footwear and apparel for "value" retail channels. Previously it had barred its branded products from sale through mass-market discount outlets. The new division allowed Nike to exploit this enormously valuable retail sector without compromising the values of its lead brand. Exeter was originally built around Starter, a minor brand acquired in 2004 which supplied sports shoes to mass-discounters under the Shaq brand (under license from basketball star Shaquille O'Neal). Nike continued to produce Starter as an exclusive brand for sale through Wal-Mart, where Nike was not otherwise available, and Tailwind was launched in early 2007 for sale though PayLess ShoeSource. The shoes are priced well below other Nike-made brands, but at a premium to other discount trainer brands. Other brands introduced under the Exeter umbrella include Asphalt and Dunkman. Nevertheless there were signs of a change of heart at Nike over this strategy by the end of 2007. Starter was sold to smaller apparel manufacturer Iconix in November, and the rest of the Exeter group was eventually shut down. In 2005, the group quietly reintroduced the Blue Ribbon Sports brand - actually Nike Inc's original name - for a range of upscale urban clothing, including jeans, pullovers and shirts. Despite its "sports" branding the range was quite far removed from traditional sportswear and puts Nike into much closer competition to casual retailers such as Gap. The experiment failed to take off, and was just as quietly discontinued in 2006.

The group sells through a variety of third-party retailers, as well as its own network of over 1,150 outlets by May 2019. Three-quarters of these are factory outlets selling discontinued lines, but the most prestigious outlets are the NikeTown superstores (mostly in the US, but also other major markets such as Germany and the UK), extravagant giant outlets designed to celebrate all aspects of the brand. The group also has its own fast-expanding e-commerce business. Direct-to-consumer sales from its own retail network and online have risen steadily in receny years, topping $11.75bn in ye 2019.

Financials

Nike's group revenues topped $30bn for the first time in the year to May 2015, and have continued to climb since then. The company has set itself a revenue target of $50bn by the end of fiscal 2020. Revenues for the year ending 2018 rose 6% to a new high of $36.40bn. After a record year in 2017 (in which profits topped $4bn for the first time), net income fell sharply in ye 2018 to $1.93bn, largely as a result a big one-off tax charge. However pretax earnings were down 11% year-on-year as costs and expenses rose by a higher rate than revenues. The US alone accounted for 46% of total revenues in ye 2017. China is now Nike's #2 market by revenues, with sales up 17% at constant exchange rates in ye 2017 to $4.24bn. Japan was the #3 territory at $1.0bn.

For the year to 2019, revenues hit a new high of $39.1bn, with net income of $4.03bn. Footwear remains the core line within the group, generating 65% of Nike brand revenues, or $24.2bn in ye 2019. Nike branded apparel contributed $11.6bn, and equipment $1.40bn. The US alone accounted for 41% of total revenues in ye 2019. China is now Nike's #2 market by revenues, with sales of $6.2bn in ye 2019.

Management & Marketers

Nike chairman and co-founder Phil Knight has long developed a reputation as one of the most enigmatic and idiosyncratic figures in big business, rarely to be seen in person without his trademark pair of sunglasses, even within Nike HQ. He generally maintains a low profile outside Nike. His best-known sideline is as the chairman and owner of Laika, a specialist CG and stop-motion animation production company run by his son Travis Knight, who joined Nike's board in 2015. Laika produced its first animated feature film, Coraline, in 2009 released theatrically by Universal's Focus Features division. A follow-up, the similarly dark ParaNorman, was released in 2012, and there have been others since. In 2015, Knight announced plans to step down as chairman in 2016, and transferred his 18% voting stake in the company to a newly created investment entity, Swoosh LLC. This entity is run jointly by him in association with current Nike CEO Mark Parker and two other trusted Nike directors. Knight now holds the title of chairman emeritus.

Mark Parker is president & CEO of Nike, and succeeded Phil Knight as chairman in 2016. He will move to executive chairman at the end of 2019, to be succeeded by former eBay CEO John Donahoe, already a board director at Nike. Trevor Edwards, the company's effective #2 and president, Nike brand, stepped down suddenly in Spring 2018 following allegations that he had encouraged a negative workplace culture that routinely discriminated against female employees. Several other managers were dismissed over the following months. Elliott Hill absorbed some of his duties as president, customer & marketplace. Other members of the executive committee include Eric Sprunk (group COO), Hilary Krane (chief administrative officer) and Andy Campion (EVP & CFO). Dirk-Jan "DJ" van Hameran was named as global chief marketing officer in 2018. John Slusher is EVP, global sports marketing; Michael Spillane is president of categories & product.

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