Nike continues to dominate the sportswear market and the more specific sports equipment market. It also remains a significant competitor in the broader textile and apparel industry and the fashion industry. This article explores the industry and competitive positions of Nike using the Five Forces model of Michael E. Porter.
Analyzing Nike Using Porter’s Five Forces Model: A Look Into Its Industry and Competitive Positions
1. Industry or Competitive Rivalry
Competitive rivalry is a strong force for Nike. Competition is intense across the industry where it operates and the market it serves. Take note of the following factors that affect the intensity of competitive rivalry in the sportswear market and the broader textile and apparel industry:
• Low Market Growth Rate and Market Saturation: The sportswear market is populated by different companies and their respective brands. The same is true for the broader textile and apparel industry. Some of these brands are as established as Nike while others are smaller companies with growing following. The situation creates a plethora of alternative and substitute products that create little room for growth in the market share of involved companies
• Moderate Level of Firm-to-Buyer Concentration Ratio: It is true that there are several sportswear and sports equipment companies. There is also a wide selection of apparel and accessories companies. However, the firm concentration in these markets remains moderate because clothing items are essential goods and the overall market is large. However, the competition remains intense because dominant companies bank on their powerful competitive advantages and strategies.
• Aggressive Marketing and High Level of Ad Expenditures: Another factor that intensifies the competition in the sportswear market is the aggressive marketing strategies and tactics of involved companies. Brands such as Adidas, Under Armor, and Reebok utilize advertisements across different channels, sales promotions, and celebrity endorsements to communicate their presence. The same is true for other non-sportswear apparel companies such as fast-fashion brands and luxury brands.
Nike attempts to manage the impact of competitive rivalry through its consistent marketing initiatives that include advertising, celebrity endorsements, sales promotions, and public relations. It also continues to improve its production capabilities through innovation in product development and partnerships with outsourced manufacturers.
2. Threat of Substitutes
Product substitutes threaten sportswear brands. This is a moderate force for Nike. Other clothing items in the market compete against the purchasing power of consumers. Furthermore, not all consumers are into sportswear and even sports equipment. Below are the more specific factors:
• Presence of Companies or Brands With Substitute Products: Casual and formal footwear and clothes from fast-fashion and ready-to-wear brands are substitutes for sports shoes such as sneakers and specialized footwear, as well as sportswear including sweat pants and polyester-based sports shirts. Even high-end and luxury brands are also substitutes for sportswear products.
• Low Switching Costs and Moderate Price Levels of Substitutes: Footwear and clothing products from fast-fashion companies such as H&M and Zara tend to be more affordable than other ready-to-wear brands and sportswear brands with traditional production models. This means that the costs a consumer would incur from switching from sportswear to casual wear are low.
• Restricted Selling Propositions of Sportswear Products: Sportswear items such as sweat pants and sports footwear have also been worn as casual fashion items. However, the fact remains that true casual clothing items are still preferred by the average consumer. Sportswear also does not replace formal wear. The applications of sportswear outside the realms of their intended use are limited to street fashion.
Nevertheless, to address the threat of substitutes, Nike pours substantial resources to market its products alongside the promotion of the importance of having an active lifestyle. The company has been instrumental in promoting sports through celebrity endorsements and events promotion. Furthermore, it has a strong research and development team and thousands of patents to make its products as differentiated as possible without losing their utility.
3. Threat of New Entrants
Entering the sportswear industry through the production of sportswear products has become easier. There are different manufacturing companies in several manufacturing hubs around the world that startups can outsource. However, making a mark in the market is different. The threat of new entrants for Nike is a moderate force. Take note of the following:
• Availability of Manufacturing Outsourcing Companies: China remains the largest manufacturing hub in the world. Even brands such as Nike and Adidas outsource their manufacturing requirements to several Chinese firms. Countries such as Thailand and Indonesia also have established manufacturers. Startups can outsource from these companies to launch their own sportswear brands.
• Presence of Counterfeit Products as a Considerable Threat: It is also important to note that counterfeit products have flooded the global market for sportswear. These goods come from the same manufacturing hubs in countries such as China and Thailand. Nevertheless, the presence of counterfeits means that established brands such as Nike remain threatened by unbranded market entrants.
• High Cost of Brand Development and Other Facets of Marketing: Entering the sportswear market might be easy but making a noise and a mark are a whole different challenge. Brands like Nike are big ad spenders. It has a long tenure of making its brand a household name. Furthermore, the costs of specific marketing tactics can be as high or even higher than manufacturing sportswear products.
• Importance of Economies of Scale for Cost-Efficiency: Established and larger companies or brands are able to compete in a saturated market by taking advantage of economies of scale. Apart from having the best outsourced manufacturers in the world, they have a team of product developers and marketers, as well as a solid distribution network that allows them to reach and maintain regional or local markets.
It is true that the threat of new entrants impacts the business of Nike. However, it counters this threat through consistent marketing initiatives and offering newer and high-quality products. Marketing is one of its strengths. Adding to this is the fact that it has a demonstrated experience in making its operations as efficient and effective as possible.
4. Bargaining Power of Buyers
The bargaining power of buyers is also a moderate force for Nike. Remember that sportswear products have substitutes. There are also alternative products from other brands However, through its effective and consistent marketing strategies, the company has managed to maintain its prominence and appeal. Below are the specific factors:
• Price Sensitivity of Consumers and Low Switching Costs: Nike products are more expensive than other sportswear brands such as Reebok and New Balance. Those who do not have enough purchasing power would resort to inexpensive alternatives and even substitutes. The switching cost for existing Nike customers is low because of the presence of these more affordable alternatives and substitutes.
• Availability of Information About Alternatives and Substitutes: Remember that prominent clothing and footwear companies are aggressive when it comes to marketing their brands. The marketing messages coursed through different channels or mediums make market information more accessible to the target market. This forces other companies to be as aggressive as possible.
• Guarantee of Product Quality Attached to the Brand: However, despite being relatively pricier than alternative and substitute brands, the company has included product quality in its selling proposition. It has built a brand image centered on being the ideal sportswear brand for athletes, especially by using endorsements to attest to the durability and reasonability of its products while rationalizing its premium pricing.
Nevertheless, the bargaining power of buyers within the sportswear and broader apparel markets is a strong force by default. Nike manages and moderates this force through its consistent marketing efforts aimed at supplementing or improving its established reputation while expanding further awareness about its brand.
5. Bargaining Power of Suppliers
Suppliers are critical to the broader textile and apparel industry. They provide required inputs and even production capabilities to companies and brands. Even the success of smaller and startup firms depends on their ability to find dependable suppliers. However, the bargaining power of suppliers is a weak force for Nike. Take note of the following:
• High Availability of Supplies and Suppliers Across the World: There is an abundance of suppliers for inputs such as cotton and other fabric materials including polyester and rubber, among others. These raw materials can be sourced in countries in Asia, Europe, and Africa. Both the high availability of suppliers and the large number of suppliers create a low supplier-to-firm concentration ratio, weaken the collective bargaining power of suppliers, and lower supplier switching costs.
• Low Degree of Differentiation of Inputs or Raw Materials: Materials used in manufacturing sportswear are fundamentally the same. Remember that there is an abundance of supplies from different suppliers located in different parts of the globe. This means that these inputs or raw materials have a low degree of differentiation that allows firms to switch from one supplier to another with relative ease.
• Diversification in the Global Network of Distribution Channels: Clothing brands also depend on their capabilities to bring their products from production to end-use consumption. Their distribution network can make or break their success. Established brands such as Nike have a global distribution network composed of third-party retailers and authorized company-branded stores.
Nike is a large organization. It would make sense for top suppliers to transact with businesses with established market shares and a prominent brand image. Note that the company has also lessened its exposure to risks associated with a monotonous supply chain by outsourcing from different suppliers in different countries such as China, Thailand, Indonesia, and Vietnam.
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