Business Model

Nike (NYSE: NKE) is the largest seller of athletic footwear and apparel in the world. Nike does sell direct to consumers, through its retail stores and digital platforms (known as “NIKE Direct”).

However, most of Nike’s sales come from selling to sales representatives. It could be wholesale partners such as department stores, sporting goods specialists, and all the thousands of retail businesses. Nike would distribute its products to them, which in turns, then sell to shoppers.

Nike is also a globally diversified business with operations in hundreds of countries. So it is likely that no matter where you are living in, you will be able to buy Nike products!

Products

There are six key categories in Nike’s offerings: Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear.

NIKE’s products categories into (i) footwear, (ii) apparel and (iii) equipment.

Footwear

Nike is most famous for their sports shoes, with a wide variety of designs to choose from. You may even design your own pair of Nike shoes!

NIKE’s footwear products are designed for specific uses. Yet, a large numbers of the products are worn for casual purposes.

Currently, its Sportswear, the Jordan Brand and Running are the top-selling categories in footwear.

Apparel

If you visits a Nike store, you would know that besides shoes, Nike is huge on apparel as well. Sportswear, Training, Football (Soccer) and Running are currently the top-selling categories in apparel.

Equipment

Lastly, Nike sells performance equipment and accessories. These includes bags, socks, sport balls, eye wear, digital devices, bats, gloves, protective equipment and others.

Converse

Unknown to most, Converse is also a subsidiary of Nike. Converse designs, distributes and licenses casual sneakers, apparel and accessories as well.

Various Business Departments

Product Research, Design And Development

As consumers, we may see Nike as another company that sells shoes. But, Nike places considerable emphasis on innovation and high-quality construction. These ideologies are embedded in the development and manufacturing of its products.

Nike’s research and development efforts focus on producing products that help athletic performance, reduce injury and maximise comfort. In recent years, creating a sustainable manufacturing process and reducing waste have also became core focus for them.

To achieve that goal, Nike has its own staff of specialists on all these key areas. On to of that, the company also utilises research committees and advisory boards. These are athletes, coaches and other experts who Nike will seek advice from, to improve its product and manufacturing process.

Then, using these market intelligence and research, Nike’s design teams leverage on new technologies to respond to consumer preferences.

The constant innovative and pursue of excellence has build up the branding of Nike. This creates customer loyalty as Nike shows that it want to deliver the best to its customers.

Manufacturing

Today, almost all Nike’s footwear and apparel are manufactured outside of the United States. It has over 15 key independent contract manufacturers.

These factories are in countries such as Vietnam, China, Indonesia and Cambodia. Currently, Vietnam is the largest manufacturing hub for Nike. Approximately 51% of Nike footwear and 30% of Nike Apparel come from Vietnam.

Thesis

Nike has the largest market share in the global athletic footwear and apparel market. And because of its continuous development, it should be able to retain its dominant position.

The global athletic footwear industry generated $109.70 billion in 2020. This huge industry is still expected to grow. It is anticipated to generate $165.00 billion by 2030, providing a CAGR of 4.2% in the next decade. Since Nike is the dominant player in this industry, I am expecting it to grow with the industry.

In fact, management has given guidance of high single-digit to low double-digit revenue growth for the next few years. They are confident that its earnings per share can grow even faster.

Nike Customer Experience

Another big innovation Nike is working on is its customer service. Nike is revamping to the way it sells its products to customers. It is becoming more selective in choosing retailers to partner with. And it is shifting its focus more towards direct sales as e-commerce takes up a bigger portion of its sales.

To consolidate its distribution channels, Nike identifies only 40 retail partners to work with. These retail partners need to offer the best access to the customers and must deliver a differentiated retail experience.

Nike is cutting off generic resellers that are not able to provide an above average retail experiences to customers. Their goal is to generate 80% of its North American wholesale business through these differentiated retailers in 2023, up from 40% in 2017.

Next, Nike is also pushing to have a greater percentage of its sales made through its own channels. These includes its suite of apps, including SNKRS, where it launches limited release products.

Direct sales tend to have better margins as there is no middleman. It also gives Nike more direct connections to customers and their data; and they allow Nike to have more control of its brand.

By 2025, it expects direct sales, led by its digital channels, to reach 60% of its business. Currently, direct sales represented 39% of Nike’s total sales as of FY21.

Shift to Online

Nike’s decision to evolve into a digital-first organization has proved wise. More consumers are turning to its website and app to shop for sneakers and apparel. This is true even as retailers started reopening after the pandemic.

The company is on track to have its digital sales represent 50% of total revenue in coming years. Nike has embraced the structural shift of consumer shopping habits from traditional brick-and-mortar to digital very successfully.

Yet, Nike has not capture the full potential of e-commerce sales. Therefore, the growth of its digital sales will continue to be a key contributor going forward.

Financials

Its revenue grew an average of 8.27% CAGR from 2011 to 2021.

Revenue Breakdown -Product Type

Footwear makes up about two-thirds of Nike’s revenue. Its apparel segment takes up less than a-third of Nike’s revenue. And equipment is only a small percentage of Nike’s revenue now.

Apart from that, Converse makes up about 5% of Nike’s total revenues.

Revenue Breakdown – Sales Channel

Currently, its sales to wholesale customers is about 61% of Nike’s total revenues. Its Nike Direct constitutes about 39% of sales.

In fiscal 2021, the pandemic-plagued year, NIKE Direct grew 30%, driven by 60% growth in digital, while wholesale revenues only grew 10%.

Many consumers have to turn to Nike’s online stores during the lockdown. This shows how crucial it is for Nike to have a digital strategy to keep up with the shift in consumers’ consumption habits.

Revenue Breakdown By Geography

Today, the main portion of Nike’s revenue is still derived from North America. 41% of total revenue came from North America, 27% from EMEA, 19% from Greater China and 13% from Asia Pacific.

Risk: Highly Competitive Industry

When it comes to risks, Nike faces troubles with its supply chain and factories. However, I feel competition might be its biggest challenges right now.


The athletic footwear, apparel and equipment industry is highly competitive globally. Nike competes with a significant number of established brands, including Adidas, Anta, ASICS, Li Ning, Lululemon Athletica, Puma, Under Armour and V.F. Corporation, among others. So Nike would need to continue to spend huge amount on innovation and marketing to win the hearts and minds of consumers.

Summary

Nike is one of those companies which leaves a deep impression in your mind. Its “Just Do It” tagline is one of the most successful marketing campaigns of all time. The brand created a strong moat and a reputation for delivering high quality sports footwear and apparel.

While already of considerable size, Nike still considers itself to be a growth company. There are key growth area for the company. For example, its digital commerce provides the biggest growth opportunity for the company now. Other growth opportunities include increased demand for its “Women” and “Kids” segments. Lastly, the rise of developing countries like China will also be a key growth area for Nike.

With a durable business and an innovative culture, I feel Nike is one of the most stable businesses going forward.

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