Number
18
Nike Inc.
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When Michael Jordan ruled the basketball court, athletic footwear ruled the world—and Nike was the undisputed king of shoe business. This Oregon-based company had totally transfor med the once-humble sneaker into sporting gear-as-fashion statement. It unveiled a cool new slew of highly technical models designed expressly for highly specific activities, each year with more fanfare, features, and snappy names. Older fitness-conscious consumers went for it wholeheartedly, snapping up shoes for jogging, aerobics, walking, golf, and anything else that they could do on two feet. And when Nike hit upon the idea of signing popular athletes to endorse appropriate models, seemingly every kid on the planet suddenly wanted to be like Mike, Mia, or Tiger.
But just as surely as it had defined the parameters of this sporty but stylish revolution, Nike was singled out for both manipulating it and running it into the ground. The firm drew passionate criticism—sometimes deserved, sometimes not— for exploiting foreign workers, raising brand consciousness to an art form, driving prices to outrageous levels, inundating the airwaves (not to mention the sidelines) with its “swoosh” logo, even taking advantage of the millionaire athletes who participated in its omnipresent promotions.
To compound matters, Nike couldn’t sustain its performance on the field. For years, it was the hot ticket: between 1994 and 1997, when it was already a mature company, sales jumped nearly 150 percent to $9.2 billion. New brand extensions, like outerwear for bicyclists, constantly appeared on the market. Swooshes turned up everywhere. For a time, Nikes became the incontestable accessory for an entire generation. But then, almost without warning, the other shoe dropped. Hiking boots and casual leathers became the kids’ footwear of choice. Boomers slowed down a bit. Competitors homed in on particular niches. Nike disappeared from the “in” lists. Jordan retired.
Today, despite it all, Nike remains the driving force in its industry. It still offers some 500 generally well-regarded shoe models, and even more types of apparel. It operates giant Niketown superstores and is opening a few Jordan-themed specialty outlets. And it continues selling billions of dollars in product each year in more than 100 countries. But it doesn’t rule the world right now, and for Nike—accustomed as it is to coming in first—that’s an unacceptable position.
Back in 1962, few people would have picked Eugene, Ore., as the place to start a revolution. The local University of Oregon campus had long been home to a successful track program. Bill Bower man—head coach since 1948—unwittingly touched one off when he teamed up with Phil Knight to distribute Japanese-made Tiger athletic shoes under the BRS (or Blue Ribbon Sports) name. By 1964, they had sold 1,800 pairs. Four years later, a Bowerman design became the parent company’s best-selling model. Emblazoned with a little optimism and a lot of ideas, he and Knight decided to manufacture 330 pairs of their own latex-and-leather design. Its distinguishing feature was a unique lightweight sole that was made with a waffle iron belonging to Bowerman’s wife. The two sold out their entire supply at $3.30 a pair, and gave birth to a corporation, as well as a revolution.
Knight, who had trained under Bowerman before pursuing an M.B.A. at Stanford, began traveling to track meets to peddle these funny-looking new shoes from the trunk of his car. The pair’s combination of chutzpah and creativity caught on and helped their fledging effort catch fire. They unveiled the swoosh logo in 1971, and launched the Nike brand the next year at the U.S. Olympic Trials in Eugene. The world’s elite runners (including four of the top seven finishers in the 1972 Olympic marathon) soon began wearing them. By 1974, the company was well on its way with 250 employees, sales operations in Canada and Australia, a factory in New Hampshire, and $4.8 million in revenues.
Olympic runner Steve Prefontaine—another Bowerman protegee whose crusades on behalf of both better equipment and the sport itself—helped inspire the company’s direction until his tragic death in a 1975 car crash. The entrepreneur and the coach pooled their complimentary talents and forged ahead. Named for the Greek goddess of victory, their hot new company achieved one win after another in shoe design and the business world. Runners loved their product and retailers loved selling them. Tennis great John McEnroe became the first pro athlete to sign an endorsement deal with them. And at the end of the decade, with 2,700 employees and 50 percent of the market, they went public.
The early 1980s was a period of expansion in product line, market penetration, and consumer reputation. By the time its first apparel items appeared, Nike’s swoosh could be found in over 40 countries. Fifty-eight athletes at the Los Angeles Olympics, including Joan Benoit and Carl Lewis, captured 65 medals while wearing Nike shoes. And in one of the most serendipitous deals ever consummated between a corporation and an individual, Nike and Chicago Bulls rookie Michael Jordan agreed in 1985 to co-produce a line of Air Jordan basketball shoes and related sports clothing. One year after this monumental alliance, Nike’s annual revenues topped the magical $1 billion mark for the first time.
But even while its Jordan products were wholly redefining the sporting goods industry, Nike was experiencing problems that threatened its success. An assortment of distribution and sales-department ills—stemming from growing pains as well as the company’s notoriously insular culture—led to a series of earnings bumps. After some major internal introspection, various operational changes followed. The iconoclastic “Just Do It” campaign, along with an urban recreation program called P.L.A.Y. (Participate in the Lives of America’s Youth), along with various environmental efforts, also were launched. Technological advances, for which Nike was long known, remained on track. Within five years, the combination drove revenues steadily back to more than $3 billion. The addition of improved sports-specific apparel in the 1990s, along with the signing of a promising young golfer named Tiger Woods, elevated Nike even further into legendary corporate circles.
But then the shoe hit the fan. Ongoing criticism of the way its foreign workers were being treated gave the company a very public black eye. Footwear tastes shifted from Nike’s strengths, while some key up-and-coming trends were completely overlooked. Advertising, which was traditionally a Nike strength, fell flat. And it also failed to take early advantage of the World Wide Web. Nike still captured the lion’s share of the athletic footwear market with great shoes designed for everything from cross-country to cheerleading, but the juggernaut that had produced one of the world’s most recognizable brand names had indeed hit the wall.
Phil Knight, a maverick as well as a tough businessman knew its was time to stop playing around. (Even though he enjoys golfing with Tiger and motoring around in his black Acura with NIKEMN plates.) He admitted that the company’s globalization efforts had proceeded too fast and spread its resources to thin. He launched a massive restructuring program that included 1,900 layoffs and a significant reduction in the number of products carrying the Nike logo. He expanded the orientation for most new hires from a single hour to two full days, in hopes that everyone would more fully understand the historical basis under which the legendary Nike culture had developed. (New “tech reps” faced an even longer orientation—nine full days— which included running on Bowerman’s track and visiting the site of Prefontaine’s fatal car accident.) He also spun off the line of hardcore sports apparel called AllCondition Gear, or ACG, creating a separate operation with its own staff, budget, and marketing plan.
And, perhaps most significantly, Knight publicly began to examine Nike’s policies toward its low-paid labor force in developing countries. He admited, for the first time, that neither he nor his company had handled the matter very well in the past. To help change that, he brought Maria Eitel in from Microsoft to serve as Nike’s first vice-president for corporate responsibility. She now has a staff of 95, and her efforts (such as a literacy program for Indonesian workers, and the elimination of the harmful solvent toluene on most production lines) have been grudgingly acknowledged by even some of Nike’s harshest critics.
Using ACG and its newly formalized center, Nike is trying to bring back former customers who may have had their heads turned in recent years by other suitors. It also is working hard to attract the active young crowd that in the past never gave them a second look. The Internet, at last, is becoming a part of it. So are edgier commercials on TV and in print. The company is researching ways to shorten the cycle between design and manufacturing so it can react more quickly to new trends, and improve the supply lines with which it meets resultant retail demand. It also has been trimming expenses. Through it all, Knight has conveyed the unmistakable message that his company will not quit—and competitors better prepare for an exhausting sprint to the finish line.
The world may no longer be sneaker-crazy and Nikes may have fallen somewhat out of favor. But athletic footwear is here to stay. And a lot of people are betting that Nike, which led the revolution, will remain at the front of the pack.