Nike (US) continued

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History of Nike

In the 1960s, just about the only international sportswear brand was Germany's Adidas. In 1962 American athlete Phil Knight and sports coach Bill Bowerman set up Blue Ribbon Sports to steal a little of Adidas's US market by importing lower-cost but higher-tech running shoes from Japan. The pair had met five years earlier at the University of Oregon, where Bowerman taught and Knight was a student. To begin with, the company distributed shoes manufactured by Japanese company Onitsuka Tiger (now Asics). These Tiger shoes were a modest success, and the company opened its first retail outlet in 1966. Slowly, the business grew, not least after Bowerman's 1966 book Jogging launched a running craze which swept America and later the world.

As demand for running shoes began to increase, Tiger attempted to take back control of its shoes in the US. As a result, Bowerman and Knight decided to set out on their own and start designing and making their own trainers. In 1971, Knight paid art student Carolyn Davidson just $35 to design a new logo, and the famous swoosh was born. The first shoe, named Nike after the Greek goddess of victory, was launched at the 1972 US Olympic trials, and got a big boost when it was endorsed by two of the fastest runners. The company promptly changed its name to Nike. Two years later, the Waffle Trainer - with an undersole moulded after Bowerman's preferred breakfast food - became America's best-selling sports shoe.

With sales now approaching $5m, Nike set up a dedicated factory in the US, as well as an Australian sales office. Sales rocketed over the next five years, as the company expanded rapidly around the globe, supported by endorsements from several sports stars including tennis player John McEnroe. By 1980, the year the company went public, Nike had stolen more than 50% of the US market from Adidas and Reebok, and sales had powered from $5m in 1974 to over $269m. Yet Nike also had strong rivals to overcome. The sudden popularity of aerobics in the early 1980s appeared to take Nike by surprise, and it was overtaken in 1983 as the leading manufacturer of athletics shoes by Reebok, which developed a close association with that exercise routine. It took Nike another six years to regain its lead, once the popularity of aerobics had begun to fade, and by the end of the 1980s, company revenues had leapt to over $2bn.

At the heart of the company's success was its revolutionary Nike-Air cushioning system, developed by former NASA engineer Frank Rudy. Pressurised gas pockets in the sole gave the shoe extra spring and resiliency during running. In 1985, the company took a gamble by signing an endorsement deal with basketball player Michael Jordan, a college star who had just turned professional for the Chicago Bulls. Famed for his spectacular slam-dunk leaps, Jordan was the perfect partner for the new cushioning, highlighted by the new range of "Air Jordan" shoes. It was to become a hugely lucrative partnership. Over the next 15 years, as a result of Nike's marketing, Jordan was established as one of the world's best-known sports figures, despite the fact that the sport in which he excelled had only marginal appeal outside the US. And the marketing was truly a force to be reckoned with it. The 'Just Do It' campaign first launched in 1987, and was a huge success. Not only did it turn Nike into a global brand, but it established agency Wieden & Kennedy as one of America's most creative shops. Also one of the hardest-working - delivering up to 60 different creative executions a year by 1996.

At the same time, the company began to diversify, acquiring Cole Haan leisure wear in 1988. In 1990, the first Niketown superstore, selling a full range of clothing and shoes, was opened in Portland, Oregon. Nike also spent widely and wisely to sign up a glittering portfolio of the world's top sports figures, particularly in athletics, where each Olympics seemed to broaden the brand's strength. The rest of the world began to catch the Nike fever. International sales soared to over $1bn by 1992, making up a third of the company's total revenues.

In 1993, Nike took a bite out of a new sport, when Michael Jordan retired from basketball to become a professional baseball player. The following year, the group acquired Canada's leading sportswear company Canstar, owners of Bauer hockey and skating gear. Meanwhile the group was conquering every other international sport, from athletics to soccer to golf, signing up leading stars for endorsement deals. In 1995, Nike took a gamble on recreating their success with Michael Jordan, by signing another rookie, golfing sensation Tiger Woods. In 1995, 20 year-old Woods inked a $40 million endorsement contract and went on to win the PGA Masters tournament in 1997. In 1996, the Brazilian national soccer team and CBF, the country's football association, were signed to a $200m, 10-year deal, centring on star player Ronaldo and Nike's Mercurial football boot brand. Sales continued to climb by $1bn or more every year, reaching a peak of $9.2bn in 1997.

Then suddenly, Nike hit a brick wall. The market changed. In the US, Nike's fashion-led teenage target market moved from basketball shoes to hiking boots, almost overnight. As a result, the long-running sports-oriented marketing campaign finally ran out of steam. The US media was suddenly swamped with stories accusing Nike of operating sweatshop conditions in its Far Eastern factories, where workers were paid minimal wages to make $150 shoes. Key managers whose personal stock options in Nike had soared as a result of the company's growth retired early or left for other challenges. The group was even hit by a sudden and wholly unforeseen drop in US sales of golfing wear by up to 20%. Total US sales, accounting for 57% of revenues, dropped. Meanwhile in Asia, economic problems led to a sudden halt in growth - after more or less doubling every year since 1995, sales in the Asia Pacific market rose by just 1% in 1998. The company was caught completely off-guard. Restructuring costs from a reduction in factory operations led to a write-off of over $129m. The company was forced to let 1,600 people or 7% of the workforce go. Only Latin America and Europe saw continued growth, but there was a symbolic disaster in the Paris World Cup that summer, when Nike's Brazil, the favourites to win, were roundly defeated in the final by France, sponsored by arch rival Adidas.

Thanks to growth outside the US and Asia, group sales for 1998 inched up to $9.6bn. But redundancy costs, restructuring, improvements in Asian factory conditions and more left a big dent in profits - net income effectively halved from $796m in 1997 to $400m in 1998. Operating profits dropped 37%. As chairman & CEO Phil Knight put it in his 1998 shareholders' letter "So, what knocked us down in 1998? Asia ... brown shoes ... labour practices ... resignations ... layoffs ... boring ads. Also, we have been criticised for our headquarters expansion. But understand this: we need a much bigger place to house all our troubles." But as Knight's typically informal comment suggests, Nike was able to look at its problems objectively and showed every sign of bouncing back.

Michael Jordan's retirement from sports, announced in 1999, was followed by the launch of a new range of Jordan Brand "Jumpman" shoes, sportswear and accessories. Also new in 1999 was the launch of the Nike Alpha Project brand, featuring top-of-the range clothing, shoes and accessories, including the ACG - All Conditions Gear - line of outdoor wear. Meanwhile, Nike renewed its sponsorship contract with golfer Tiger Woods, making him the world's second best-paid sportsman after racing driver Michael Schumacher. The new five-year deal was worth $100m to Woods, more than twice the previous figure. In an end to one era in Nike's history, Bill Bowerman retired from the Nike board in 1999, and died later that same year.

In 2000 Nike agreed a deal with the UK's Manchester United soccer team to have exclusive rights for replica sports kit for the club over a 13-year period from 2002. Other endorsement partnerships include tennis players Andre Agassi, Monica Seles, Pete Sampras and John McEnroe, as well as athletes Michael Johnson, Carl Lewis and Joan Benoit-Samuelson. There were signs that the group was regaining its stride. Sales in 2001 rose to $9.5bn, mostly on growth outside the US, and net income rose to $589m, the company's best performance since 1997's record $795m.

As competition between manufacturers increased so did the size of endorsement deals, and 2003 marked a new high in Nike's spending. That year the company signed 18-year-old basketball rookie LeBron James to a $90m contract before he even played his first professional game. Shortly afterwards Los Angeles Lakers player Kobe Bryant was tied to a $40m deal. Nike got a little more than they had anticipated from this deal in particular when sexual assault charges were filed against Bryant only a few months later. (Suspended from Nike's family for a while, he returned to the fold in 2005). In early 2004 tennis star Serena Williams agreed a $40m deal which will make her one of the faces of Nike's female tennis line until 2010. (Her sister Venus signed with Reebok for the same amount in 2003). Since then, however the size of deals has reduced, as has their structure. Rather than pay champion cyclist Lance Armstrong direct, Nike agreed instead in 2004 to support a fund-raising exercise for his cancer charity. Sales of the little yellow rubber LiveStrong bracelet were forecast at 5m units. Instead, a staggering 50m bracelets were sold, sparking off a series of copycat bracelets. Nike continued to support Armstrong both as an endorsement partner and for his Livestrong Foundation for the next eight years, despite growing allegations that he had cheated repeatedly through blood-doping. The company eventually terminated its support of Armstrong personally in October 2012.

Also in 2003, Nike finally settled a long-running law suit over its description of labour practises. In 1998, Californian consumer activist Marc Kasky sued the sportswear company, alleging it had lied in a PR campaign which attempted to defuse accusations of poor working conditions in its Asian factories. Nike denied that it had lied and claimed that its campaign constituted free speech under the US constitution. A court eventually ruled that the campaign was not free speech, but marketing, designed to sell more products. After losing an appeal, Nike agreed to pay around $2m towards independent worker education and training programs.

Phil Knight gave up the role of president & CEO of Nike in 2004, initially appointing newcomer William Perez, recruited from SC Johnson, as his successor. That was always likely to be a difficult handover, and so it proved when Perez resigned a little more than a year later as a result of "strategic differences". Instead, Nike brand co-president Mark Parker was promoted to group president & CEO.

In 2006, Nike teamed up with Apple to launch an integrated system which links a computer chip inside certain running shoes with a specialised version of the iPod, which monitors details of distance travelled and calories used on its screen.

Last full revision 1st October 2017


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See also:

Adidas

Puma

Reebok

Under Armour

New Balance