Is your organization vulnerable?

Nike will be 60 years old next year. With such a long history behind it, you would think Nike, the leading brand in the global footwear market, is protected against changing industry factors.

Let’s see if that premise is correct!

For this exercise, we will do a PESTEL business analysis.

What is the PESTEL business analysis?

PESTEL is a framework for helping entrepreneurs and business people understand the impact of macro-environmental factors on their business.

The PESTEL acronym stands for?

• Political
• Economical
• Social
• Technological
• Environmental
• Legal

How political factors have affected NIKE

PESTEL’S political factors = the degree to which a government intervenes in the economy or a certain industry and how its decisions affect the present and the future of the company.

The United States is a core market for Nike, with the company generating approximately 43% of its overall revenue there. Nike shoes are manufactured in 36 factories in the US and 517 manufacturing facilities outside the US, most of which are in China and Vietnam. China is one of the largest markets for Nike with revenues growing 22% in 2019.

As an international company, Nike has to take into account the tariffs that its shoes and other goods are subject to. In the US, for example, shoe companies pay as much as 25% in tariffs, one of the highest duties compared to other industries.?

Overall, the US government has developed many initiatives centred on growth. But that changed in 2019 when the U.S.-China trade tensions began to escalate after Former President Trump threatened to increase tariffs on Chinese goods — including all types of footwear, from sneakers to sandals by 10%. The estimated cost for American customers? An additional $7 billion per year.

In an open letter to Trump, Nike and other 173 footwear companies urged him to reconsider his tariffs on shoes made in China and “bring this trade war to an end.”

Industry experts argued that the company would have been affected by the increase in tariffs to a small degree since only 10% of Nike goods produced in China are exported to the American market.

Nike’s solution to protect itself from the financial consequences of political power: geographically diverse supply chain.

How economic factors have affected NIKE

PESTEL’s economic factors = the economy’s performance by examining economic growth, exchange rates, interest rates, unemployment rates, the state of the country’s infrastructure, and taxes.

This factor affects the purchasing power of customers and could change the demand and supply dynamics of the market which, in turn, affects the prices of products and services.

During the economic crisis caused by the COVID-19 pandemic, Nike lost sales due to widespread physical store closures with global revenues dropping by 38%. This revealed the brand’s heavy reliance on high-street shops and its influence on the business.

To balance out the negative consequences of shops closing down, Nike accelerated its efforts toward its eCommerce business.

The company’s digital sales rose to 30% of overall revenues during the pandemic. New membership registrations among Nike apps more than doubled to 25 million during the period, half of which belonged to women.

Nike’s solution to protect itself from the financial consequences of plummeting sales: ongoing digital strategy.

How social factors have affected NIKE

PESTEL’s social factors = the behaviour patterns of customers.

Within the footwear market, an interesting culture has been growing since the late 1970s-early 1980s – the sneakerhead culture.

Nike knew who its customers were, what they were about and who they were looking up to. At the time, Michael Jordan was winning every game on the basketball court doing his iconic jump. Every kid around the world had a poster of Michael Jordan in his room.

Nike’s partnership with basketball all-time-star Michael Jordan has contributed to the sneakerhead culture rise and global development. Today the sneaker resale market is estimated to reach 2 billion dollars.

Nike is also well aware of the changes taking place in society and how the values of their most important customers transformed over the years. Launching its 2018 Dream Crazy ad, Nike knew it would run into controversy and possible backlash from a certain segment of its customer base (people taking to the streets and burning Nike shoes). The company was not concerned because this ad was targeted to a specific customer base that the company was looking to connect with.

Nike’s solution to protect itself from the financial consequences of societal change: reflect its customers’ values and beliefs.

How technological factors have affected NIKE

PESTEL’s technological factors = technology disrupting operations across almost every industry.

We’ve talked about how important is digital and mobile to Nike’s ecosystem of sales, marketing and community engagement.

Technological developments have been equally important to the company’s product design and manufacturing. The brand’s mission is to expand human potential. And to achieve that, Nike creates new products through game-changing innovations.

Most innovations come from the brand’s own lab, the Nike Sport Research Lab.??

The latest innovation is Nike Fit, a foot-scanning solution designed to find every person’s best fit using a combination of computer vision, data science, machine learning, artificial intelligence and recommendation algorithms.

Nike’s solution to protect itself from the disruptive power of technology =? turning into a tech company.

How environmental factors have affected NIKE

Businesses are now called to account for any negative impact their operations have on the environment. Companies big and small are expected to reduce their carbon footprint, take action to reduce waste and pollution and preserve the environment.

Over the past twenty years, Nike has made great strides in becoming environmentally conscious and sustainable.

Today Nike pledges to use only renewable energy and reduce its shipping emissions. The company designed a line of sports jerseys and sneakers crafted from recycled waste plastics and announced its commitment to switch to 100% renewable energy by 2025.

Nike’s solution to adapt to the new challenges brought by environmental factors: become environmentally conscious and sustainable.

How legal factors have affected NIKE

PESTEL’s legal factors = laws and regulations of the industry.

Over the years, Nike has been in a number of legal battles.

The company has a long legal history with Adidas over patent infringements and other footwear rivals for copying its design patents.

The global athletic footwear industry is expected to rise to an estimated value of 96.10 billion dollars by 2026 so the competition is fierce.

Nike’s solution: protect its design patents in court.

Attend the BUSINESS STRATEGY MASTERCLASS, on October 27 and learn future-proof business strategies for your organization from Costas Markides, Professor of Strategy & Entrepreneurship at London Business School.

Tickets at www.brandminds.com