Nike

NYSE: NKE
Porter’s Five Forces
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What is Porter’s Five Forces?
 Porter’s Five Forces is a model named after Michael E. Porter
that takes into consideration five market forces that play out
on any given company or industry. The five forces are: power
of buyers; power of suppliers; threat of substitutes; threat of
new entrants; and industry jockeying.
 This model examines these forces thereby helping to
determine a given company’s strengths and weaknesses.
 Porter’s Five Forces is also a way to view the potential risks to
which any given company may be exposed.
 Porter’s is a valuable yet somewhat subjective tool. It is a
starting point meant to encourage further discussion.

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Scoring
 Please note there is no official method to score the model.
This method is simply a way to further categorize companies.
 Each market force is scored on a scale of 1 – 5 with 1
representing the lowest threat and 5 representing the highest
threat.
 All five forces are totaled for a final score. The lowest possible
score is 5 and the highest possible score is 25.
implies a lower threat rating.
implies a medium threat rating.
implies a higher threat rating.

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Power of Buyers
 The buyers in the case of Nike are consumers
like you and me.
 Professional athletes are advertising. They
get the gear out there for us to see.
 Athletic gear/apparel/footwear is a $200
billion-plus market opportunity.
 All around the world Nike is synonymous with
sports.
 Consumers will often pay for what they really
want.
 Nike has been able to maintain a decent level
of pricing power on product; direct-to-
consumer is helping the cause as well.
 Score - 3

4
Power of Suppliers
 Suppliers are those that supply the materials
and produce the goods NKE sells.
 It’s difficult to forget the sweatshop issues
and abusive labor practices of the past.
 From the 10-K: “We have thus far
experienced little difficulty in satisfying our
raw material requirements.”
 Nike has led the way in supply chain
transparency since these issues arose.
 With a manufacturing presence of 719
factories in 44 countries spanning almost 1
million workers (contracts), suppliers do hold
some of the cards.
 Score - 2

5
Threat of Substitutes
 One of the greatest threats in virtually every
walk of retail is the threat of substitutes.
 Generally speaking there are plenty of
substitutes in athletic apparel/equipment.
 Materials and products exclusive to the brand
help to mitigate this threat.
 NKE’s reputation for excellence, leading
market position and powerful brand that
earns the stamp of approval from many
athletes do mitigate this threat somewhat.
 Top-line growth over the last decade has
been quite impressive.
 Competition will continue to keep pace for
the most part so innovation will be key.
 Score - 3
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Threat of New Entrants
 While the threat of new entrants is very
relevant in the retail space, NKE has built a
fiercely loyal customer base with both the
quality of the offering and the power of the
brand.
 Can new entrants come in and start taking
away NKE sales? Of course.
 Do new entrants force NKE to cut prices to
maintain market share? Doubtful.
 NKE’s leading position in the space and
reputation in the field protect it somewhat
from new entrants.
 Gross margin over time indicates a degree of
pricing power.
 Score - 2
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Industry Jockeying
 Sporting goods is a very large market
opportunity on a global scale.
 Signs of an active and competitive industry
can be seen in innovation, SG&A costs, social
media presence, etc.
 Constantly signing new athletes and
endorsements. Nike maintains its gold
standard, however competitors like Adidas,
Under Armour and others are capitalizing on
opportunities as well.
 NKE also capitalizing on direct-to-consumer.
 NKE has had to maintain spending, signs of a
robust and competitive market.
 Score - 4

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Score
 Power of Buyers – 3
 Power of Suppliers – 2
 Threat of Substitutes – 3
 Threat of New Entrants – 2
 Industry Jockeying – 4