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Business: The Genius of Nike

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nike-rooney-largeWhat Nike has done has been written about in books like Just Do It by Donald Katz and Swoosh: Unauthorized Story of Nike and the Men Who Played There, The by J.B. Strasser, which is a book that has insider info on the start of the company. Strasser’s husband was a former insider who went on to compete with Nike during the 80s by taking Reebok to the forefront of the aerobics movement. These books detail the bankruptcies and laid off employees as well as the venture with Wieden and Kennedy that has created the images of sport and cool that makes Nike, Nike.

There have been countless articles that detail Nike’s domination of sports and footwear. The billion dollar machine is such an efficient mechanism that for the foreseeable future Nike won’t crash and burn or lose ground. I think this is important. In a time where conglomerates are losing ground by the day, Nike keeps reinventing itself. Think about it, Mc Donald’s is closing 700 stores: http://www.infowars.com/mcdonalds-to-close-700-stores/ and even Wendy’s is selling 640 stores: http://money.cnn.com/2015/05/06/news/wendys-selling-restaurants/index.html. Nike, which could be considered a monopoly is seeing growth at the rate of a startup: http://www.fool.com/investing/general/2014/01/28/nikes-impressive-growth-makes-growth-companies-gre.aspx

On shoe websites like Campless there is consistent evidence of Nike outperforming other brands. As a new shoe company, that is only beginning, in baby terms, to form into an embryo I have a deep need to understand how and why brands from my early days of sneaker love have disappeared. I need to know how this monster consistently moves and shifts and performs like a startup by beating any and all brands at the area they are trying to hit; so I sit and look at websites and research and then I realize that 30 years ago Nike wasn’t what it was and that other company’s missteps allowed for the door to open and Nike has simply adjusted when it was necessary to adjust.

What I’m still amazed by is the fact there never seems to be a blowback or anything negative in regard to Nike’s constant raising of prices. http://www.bloomberg.com/bw/articles/2014-09-26/how-nikes-jumping-shoe-prices-bolster-boom-times

Why is it that people who can’t afford to pay an increase of 30% over the last 4 years for shoes, and jerseys (they raised the price of NFL jerseys!) will pay the cost to be seen as cool? Nike has paid to control their narrative and these are the factors that everyone understands about why they will pay 275.00 for a basketball shoe that probably cost 45.00 dollars to make, Lebron James, Kevin Durant, Kobe Bryant, Michael Jordan, Roger Federer and Tiger Woods. This is what I’ve noticed.

1. People no longer identify with individuality as cool. This is seen in the death of punk music and the repetitiveness of music in general. It’s also seen in the creation of apparel. If one company makes a pair of jogger pants, everyone does. 30 years ago you would see Etonic, Diadora, Ellesse, Le Coq Sportif, and a host of other shoe companies. Today, these brands still exist, but Nike has the feet of the people who control the shoe market… teens. These teens have a need to be the same. If a kid or even an adult is seen in something other than Nike it can lead to ridicule and side glances. Neither of these things physically hurt, but to be an outcast today is not desired.

carmelo-anthony-foot-locker-23-days2. Nike understands that people want to be in something expensive and associated with something expensive. The pricing of a Lebron shoe or Jordan shoe at 200.00 works in exact contrast to a loss leader.  A loss leader is a cheap shoe that gets you into the store where the store hopes that you will buy a more expensive shoe once you see better models. Nike makes 100 different running shoes and 100 different styles of every sports shoe. This means when you walk in and see a shoe for 59.99 next to a 275.00 dollar shoe, there is a certain amount of peer pressure and narrative placed around that more expensive shoe. The 59.99 shoe has a red tag hanging that diminishes the perceived value of the shoe. While the Lebron shoe or Jordan shoe is given a display that promotes the idea of Flight or being elite.

Nike = Cool is the basis of it’s success. It’s not about technology or the development of new concepts… Well it is because there is perceived value in new technology.  The irony is that the most consistent and arguably the best pro in the NBA in the last 20 years wore a shoe later in life that was sold at Payless or Kmart, Shaquille O’Neal. Another indicator of how meaningless technology is this year’s MVP winner, Steph Curry who wears an Under Armour shoe that is half of the price of his closest competitor who wears Nike, Lebron James. As a matter of fact the first few years of Steph Curry’s NBA career he wore Nike and was injured so much they called him Mr. Glass. He has played better and more successfully in Under Armour. Have sales increased? That’s hard to see because UA’s stock is soaring anyway, but what is evident is that Nike isn’t bothered at all. Even with Steph’s MVP win and a shoe to go with it, Nike is constantly dropping shoes… and this is why they are genius.

A shoe cost 45.00 dollars to make.

Retail for the shoe is 200.00.

Wholesale for the shoe is 100.00.

Nike sells the shoe wholesale and retail. Let’s say they make 10,000 pair of a 200.00 dollar shoe. They send 7500 pair to their various account holders. They keep 2500.00 pair.

Cost of Production: $450,000

Sold through Nike.com and Nike Retail 2500: 500,000  (Nike has already made a profit on the production of the shoe. Now this is not accurate because the company has to pay it’s employees and superstars.)

Wholesale: $750,000  (All profit basically).

Even in a worst case scenario if Nike kept all of their shoes, all 10000 pair and sold them at a reduced cost of 129.99 Nike still makes an insane amount of money. What’s interesting is this is exactly how Nike plans to continue it’s growth. The price increases haven’t slowed sales. While you can still walk into a store and find “big” releases on shelves, those same shoes often are returned to vendor by accounts. These RTVs find their way to Nike’s Clearance and Factory Stores at this reduced price which looks like an even better deal for customers, but consider that the shoe marked down from 200 to 129.99 is still 29.99 above wholesale!!!!!!

Nike = Genius… that is until the people decide to become punk again which I honestly don’t think will happen in an Instagram world.