#3. How Nike Displaced Adidas In The World Of Sport

Adidas versus Puma. Nike versus Under Armour. Not many markets are as competitive as the sportswear industry.

Having the best shoe design, the greatest athletes and the most efficient supply chain - there is a reason that the race for the market leader has been many times referred to as 'sneaker wars'.??

But the point is: the battle is long decided. There is no question who the number one is.

Today Nike’s value is more than Four times the market cap of Adidas, Puma and Under Armour combined. (Market Cap: Nike - $165.9b, Adidas - $ 31.2b, Puma - $ 9.3b, Under Armour - $ 3.2b)

And this not just since yesterday. This company from Oregon has been dominating its competitors since the 90s.

So, How did Nike manage to displace the German sportswear giants Adidas and Puma in the 90’s?

What strategy kept them on top for decades and what have they planned for the future?

Let’s take a deeper look into the strategy of the strongest sports brand in the world.

The Founding Story

For a long time before the millennium, the sportswear market was dominated by the German brands.

Adidas and Puma were the big names, they had all the resources and know-how and it didn't look like this would change very soon.

But Phil Knight, The Founder of Nike, had a different idea.

After graduating from the University of Oregon, he enrolled at Stanford for an MBA.

Being a competitive runner himself, he followed his interests and wrote a paper titled -

"Can Japanese Sports Shoes Do to German Sports Shoes What Japanese Cameras Did to German Cameras? ".

His ambition was to import high-quality and low-cost running shoes from Japan, where labor was cheaper, into the American market.

And that’s exactly what he did!

After his graduation from Stanford, he traveled to Japan and met with Onitsuka Tiger, the company that would later launch ASICS.

Impressed by the quality and low cost of their running shoes, Knight managed to secure the distribution rights for the western United States and ordered his first samples.

When Knight finally received the first shoes after more than a year of waiting, he mailed two pairs to his former track coach Bill Bowerman at the University of Oregon, hoping to gain both a sale and an influential endorsement.

To Knight's surprise, Bowerman, not only ordered the shoes, but also offered to become a partner and provide product design ideas.

The two men agreed to a partnership by handshake and Blue Ribbon Sports was born, the company that would later become Nike.

The founding story already reveals some important factors that explain the rise of Nike. First, Phil Knight showed strong analytical skills by realizing the potential of outsourcing the production to Japan.

Maybe even more significant were Nike's roots in sports, to be precise, in running.

Like the two Co-founders, many of the first employees were former runners. They sold their first running shoes to befriended athletes, often right on the track. One of them was Steve Prefontaine, who was a huge star in Oregon at the time and went on to become Nike's first sponsored track athlete.

Soon people realized that the fastest runners were suddenly not wearing Adidas shoes anymore, but this new, local brand.

Knight and his team quickly realized they had found their perfect marketing strategy. While Adidas was close to officials and putting their money on organizations like Fifa and the IOC. Nike was close to athletes and rather invested in individuals than institutions.

The idea of creating a shoe brand from athletes for athletes was also shown in their hands-on research and development.

The Beginning of Dominance

Nike’s dominance began with Bowerman’s fascination with optimizing the shoes of his runners.

In 1970s, the world was transitioning from Clay & Cinder running tracks to Asphalt & Synthetic tracks.

Bowerman was looking for shoes that would be suitable for multiple surfaces. And in the quest to find a solution, he noticed his wife making waffles in their kitchen & he had his Eureka moment.

He simply melted some plastic & poured it into his wife’s waffle iron. Which completely ruined the iron, but its grooves turned out to be a near perfect mould for a running shoe.

Bowerman's waffle trainer set a precedent for Nike's culture to innovate and redefine the status quo in sports equipment.

It was the first of many major innovations that helped Nike gain and expand the lead on its competitors. Inventions and designs like Air soles, the Air Force 1, Nike Free and Flyknit followed and revolutionized the sneaker industry.

The latest example is the Nike Vaporfly running shoe, that made headlines because it literally makes you run faster. It was initially developed to help Eliud Kipchoge break the 2 hour barrier for the marathon, which he did in 2019 in Vienna.

That event and the fact that Nike runners have dominated the major races in recent years, led the world athletics association to release new rules to regulate running shoes.

Banning shoes because they increase performance - that's a similar story to the NBA banning Michael Jordan's Air Jordan 1.

Nike couldn't have wished for better marketing.

Eliud Kipchoge and Michael Jordan are just two names from a long list of Nike athletes.

What started with Prefontaine (Nike’s 1st Sponsored Athlete) quickly developed into the most valuable sport portfolio in the world.

Other big names of that list: Tiger Woods, Serena Williams, Rafael Nadal, Michael Jordan, Ronaldinho, Roger Federer, LeBron James and Cristiano Ronaldo (and the real Ronaldo).

Their roster of athletes, clubs and federations is the heart of the Nike brand - which is one of the strongest in the world amongst all industries. Their marketing strategy has been praised many times - from their iconic swoosh logo and 'Just do it' slogan to multiple advertisements that have won Emmys.

But what's just as interesting as the marketing strategy itself, is how the organization behind that machinery works.

Nike’s "Matrix" Org Structure

Nike is a so-called matrix organization. That means that employees report to more than one supervisor. For example: If you are a sales manager for footwear, you might report to 2 people - the sales director and the director of footwear. The departments in a matrix organization can work closely together and communicate more frequently to resolve issues. This frequent information exchange allows managers to respond quickly to the needs of the customers and Nike’s business goals.

Nike’s matrix was previously structured to develop, market, and sell based on product type. This allowed them to be efficient in supply-chain and manufacturing, but it did not address the needs of the consumer.

The second coming of Nike

So in 2008, Nike made a change to organize based on sports instead of products.

An approach they called “Category Offense”. Nike’s categories include among others, Running, Global Football, Tennis, Basketball and Training. This change has proven very successful, as sales have grown by 70% to over $30 billion dollars since the realignment. Maybe you have even seen the effect of the Category offense yourself in a store near you.

As a market leader, Nike had so much influence on their retail partners, that stores changed their layouts to build entire sections of the store around each of Nike’s sports categories.

These sections featured footwear, apparel and equipment tailored to each specific sport, making the shopping experience more convenient for the consumer.

The change led to increases in overall spending for multi-sport consumers who now had a large selection of merchandise for each of their sports.

So instead of owning one pair of shoes to use for both running and the gym, people now buy one pair of running shoes and one pair of training shoes.

The Category Offense model has even improved Nike’s financial reporting and planning.

Now Nike tracks financial performance by sports category and is able to make targeted investments in the struggling categories. For example: if they see a decline in sales of football boots, they could decide to sign a football club to stimulate sales.

It is a perfect example of how Nike used their influence as a market leader to change the sports industry - from a focus on product silos to sports category. It explains how the company defended and expanded the lead over Adidas and Puma in recent years.

But what are Nike’s plans for the future? Their strategic outlook might be even more interesting than their past accomplishments.

What Does The Future Behold?

After the Category Offense in 2008, Nike’s leadership decided that it is time for another strategy change in 2017. They announced the ‘Consumer Direct Offense’ with the goal 'to better serve the consumer personally, at scale.'

That sounds very fancy, but basically means that they want to sell more online via their own website instead of selling to retailers like Footlocker & Amazon. By eliminating the middleman and selling directly to the consumer, Nike can charge the retail price instead of the wholesale price. That means they earn more money for every shoe they sell. In the end most of the strategic decisions are about the MARGIN - although sometimes it’s not obvious at first sight.

To better understand that, let’s look at another important pillar of Nike’s newest strategy: a strong focus on Women.

Now people could argue that this is just some shiny commercial for social greenwashing.

But Nike actually seems very serious about that shift of focus towards women’s sports.

That becomes clear when looking at their org structure again.

Nike’s new CEO recently announced a shift to ‘a new, simpler consumer construct of Men’s, Women’s and Kids’. Besides some changes to senior leadership, that means that the focus of Nike will be more tailored on the individual needs of the consumers in each of these categories. Supporting equality and women’s rights is a good cause and helps Nike sharpen its brand.

But it is not just marketing. The Women’s sportswear market is expected to grow rapidly - and has better margins. So just like Nike’s push on selling online directly to the consumer, their focus on women is essentially a focus on better margins.

Since we’re talking about the future, here are two futuristic innovations the Nike matrix produced recently. Ever wondered why NBA players are still sitting on foldable chairs? The Microclimate Chair is aiming to change that. It allows players to get quick heating or cooling therapy by simply sitting in the chair rather than hopping into an ice bath. It is also collecting data on the athlete’s recovery status, so the player can be brought back on the court at exactly the right time.

One step further on making the life of athletes more comfortable is this customized Boeing 787.

To extract the best performance out of players, the quality of travel is important. So they segregated the plane into: recovery areas, workout decks, sleep, and review zones for analyzing past game data. It is very unlikely that Nike will start selling airplanes in the future, but it shows they strive to keep innovating. And it might be a hint that they are willing to expand their product portfolio going forward, in order to achieve their own ambitious targets for growth.

The bottom line is: Nike keeps betting on the strengths that made them big: World-class Athletes, Adaptive Operations and Constant Innovation.