Porter's Five Forces Model
- Threat of Entry - There are definitely economies of scale within the retail manufacturing business that produces a range of products but a great number of homogeneous ones such as the athletic retail business that Nike is in, and that their manufacturing processes have a stronghold on. New entrants would need a large amount of capital investment in this area to even consider entry. Nike's distribution network is widespread all over the globe with some 20,000 retailers, most of which in the United States, Europe, and Asia, selling their products to the masses as well. The Nike brand is known around the world (not to mention the other major brands that it controls in their own right: Cole Haan, Converse, Hurley, the Jordan brand, and Umbro) and the customer loyalty to it is very strong, another difficulty for a start-up to overcome. It's basketball shoe division, with the Jordan brand being the main driver, controls about 95% of the market by itself! Barriers to entry are extremely high and are of little threat to Nike.
- Threat of Rivalry - With Nike being an international conglomerate, its market is massive and thus there are many unique competitors in the industries it pursues. With that said, very few have the ability to compete on Nike's level. Only Adidas and Reebok are current threats internationally and in combination with those two, New Balance and Under Armour being the main domestic ones. The lack of competing firms plus the competitors lack of size and current influence in regards to Nike indicates a low to moderate level of threatening rivalry.
- Threat of Substitutes - There are many hypothetical substitutions for Nike's products, i.e. wearing cowboy boots instead of basketball shoes during a pickup game, but none of which are rather feasible. The athletic products Nike makes are for a particular niche of the market and if an athlete prefers to play at their highest ability level, they will purchase athletic gear from Nike or another competitor. To combat a competitor's substitute product, Nike has years of know-how and continues to innovate with its Research and Development department to produce high quality, high performance products. By staying innovative, Nike can continue to build upon its dominance. Total substitution threats are low to moderate.
- Threat of Suppliers - The suppliers' industry is so vast that bargaining power is held almost entirely by Nike and a small number of other athletic firms. For instance the raw materials to make an athletic shoe can be purchased from a number of factories so substitutions can be made rather easily between them because unique or highly differentiated shoe materials are basically non-existent or to easy to come by. Nike employees a low-cost methodology to suppliers in that it can switch for a cheaper provider rather easily. Supplier threat is low.
- Threat of Buyers - Customers are crucial for Nike, but have little to no power or threat toward them. There will always be customers in need of their products so if one person doesn't want it, chances are another will. Even the retail buyers, such as Dick's Sporting Goods, Foot Action, and Hibbits Sports, hold relatively little power as customers who want Nike's differentiated and branded products will seek whatever avenue necessary to obtain them. The main threat that buyers have over Nike is their own buying power. During rough economic times, monies are stretched thin between certain buyers so Nike may lose out on some sales in certain climates but should bounce back when recovery is apparent. Buyers threat is low.
In conclusion, Nike is in great shape within its industry. There are high natural barriers to entry, competition is fierce but proportionally low in regards, substitutions are possible but innovative techniques and brand awareness keep this at bay, and suppliers nor buyers have much bargaining power to influence Nike's products. By staying on this current path of industrial superiority, Nike is well equipped as a oligopolistic (perhaps in some areas monopolistic) company that it can worry little of these threats and will continue to grow in power and performance over time.
