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St rategic Analysis of Nike, Inc.

Submitted to: A.J. Almaney, Ph.D. ISS 395 DePaul University Chi a!o, I" #$#$% &ar h '%, ($$$

Submitted by: )rou* ' +im ,nderle

Dan -irs h "isa &i .a /rian Savin! Sheetal Shah 0atiana S1er2ins.i

TABLE OF CONTENTS
,3e utive Summary44444444444444444444444444.4444*.% -istory4444444444..4444444444444444444444444..*.# Pro5ile o5 C,64444444.4444444444444444444444444..*.7 Com*etitor8s Pro5ile4444.44444444444444444444444444.*.7 Industry Pro5ile44444444444444444444444444444444..*.9 Com*any Analysis4444444444444444444444444444444*.9 Industry Analysis444444444444444444444444444444......*.(% 0o* Com*etitor Analysis4444444444444444444444444444.*.(5 6ther ,3ternal :or es44444444444444444444444444444.*.(# +ey 6**ortunity44444444444444444444444444444..4.4*.(7 +ey 0hreat4444444444444444444444444444444444*.(7 &a;or and Subordinate Problems4444444444444444444444.44*.(9 Strate!i &at h4444444444444444444444444444444...*.(9 Primary Strate!i &at h Position444444444444444444444444.*.3$ Strate!i Plan44444444444444444444444444444444..*.33 Con lusion444444444444444444444444444444444...*.39

LIST OF EXHIBITS

'. (. 3. %. 5. #. 7. 9. 9. '$. ''. '(. '3. '%.

Sales 0rends )ra*h44444444444444444444444444444*.5 <et In ome 0rends )ra*h44444444444444444444444444.*.5 <i.e /oard o5 Dire tors 0able444444444444444444444444...*.'' 0able o5 +ey :inan ial =atios444444444444444444444444...*.(( <et In ome 0rend )ra*h4444444444444444444444444.4..*.(% Primary Strate!i &at h Position Chart44444444444444444444..*.3$ Industry Attra tiveness &atri3444444444444444444444444..*.3' /usiness Stren!th>Com*etitive Position Chart44444444444444444..*.3( )rand Strate!y Chart4444444444444444444444444444 *.3% &ar.etin! Short?term Strate!y Chart444444444444444444444..*.35 Produ tion Short?term Strate!y Chart444444444444444444444.*.3# =esear h and Develo*ment Short?term Strate!y Chart4444444444444..*.37 -uman =esour es Short?term Strate!y Chart44444444444444444...*.37 :inan e Short?term Strate!y Chart.4444444444444444444444.*.39

EXECUTI E SU!!A"#
<i.e In . 2as 5ounded in '9#( by /ill /o2erman and Phil +ni!ht as a *artnershi* under the name, /lue =ibbon S*orts. 6ur modest !oal then 2as to distribute lo2? ost, hi!h?@uality Ja*anese athleti shoes to Ameri an onsumers in an attem*t to brea. )ermanyAs domination o5 the domesti industry. 0oday in ($$$, <i.e In . not only manu5a tures and distributes athleti shoes at every mar.etable *ri e *oint to a !lobal mar.et, but over %$B o5 our sales ome 5rom athleti a**arel, s*orts e@ui*ment, and subsidiary ventures. <i.e maintains traditional and non?traditional distribution hannels in more than '$$ ountries tar!etin! its *rimary mar.et re!ions: United States, ,uro*e, Asia Pa i5i , and the Ameri as Cnot in ludin! the United StatesD. Ee utili1e over ($,$$$ retailers, <i.e 5a tory stores, <i.e stores, <i.e0o2ns, Cole -aan stores, and internet? based Eeb sites to sell our s*orts and leisure *rodu ts. Ee dominate sales in the athleti 5oot2ear industry 2ith a 33B !lobal mar.et share. <i.e In . has been able to attain this *remier *osition throu!h F@uality *rodu tion, innovative *rodu ts, and a!!ressive mar.etin!.F As a result, 5or the 5is al year end '999, <i.eAs ($,7$$ em*loyees !enerated almost G9.9 billion in revenue. ' $ro%&cts 6ur *rimary *rodu t 5o us is athleti 5oot2ear desi!ned 5or s*e i5i ?s*ort and>or leisure useCsD. Ee also sell athleti a**arel arryin! the same trademar.s and brand names as many o5 our 5oot2ear lines. Amon! our ne2er *rodu t o55erin!s, 2e sell a line o5 *er5orman e e@ui*ment under the <i.e brand name that in ludes s*ort balls, time*ie es, eye2ear, s.ates, bats, and other e@ui*ment desi!ned 5or s*orts a tivities. In addition, 2e utili1e the 5ollo2in! 2holly?o2ned subsidiaries to sell additional s*orts?related mer handise and ra2 materials: Cole -aan -oldin!s In ., <i.e 0eam S*orts, In ., <i.e I-&, In ., and /auer <i.e -o .ey In . 6ur most *o*ular *rodu t ate!ories in lude the 5ollo2in!:

=unnin! /as.etball

Cross?0rainin! 6utdoor A tivities 0ennis )ol5 So er /aseball :ootball /i y lin! Holleyball Erestlin! Cheerleadin! A@uati A tivities Auto =a in! 6ther athleti and re reational uses

Sales an% Inco'e Tren%s =evenues in the 5is al year ended &ay 3', '999, de lined by 9B over the *rior year to G9.777 billion. As illustrated in the !ra*h belo2, this mar.ed the 5irst time sin e '99% that revenues have de lined. =e!ardless o5 this yearAs de line, <i.e In . a hieved 3$$B revenue !ro2th over a '$? year *eriod, risin! 5rom '99$ sales o5 G(.(35 billion. Exhibit 1

I 6btained 5rom <i.e, In . '999 Annual =e*ort

Althou!h revenues de lined in '999, net in ome in reased by '3B over the *rior year. As the !ra*h belo2 illustrates, net in ome has been volatile in the latter hal5 o5 the 9$As. Shar* de reases in '999 and '999 net in ome 2ere due to restru turin! har!es. I5 these har!es had not been in urred, in ome 2ould have been 5lat 5or both years. ,55i ien y in ost ontrol and inventory mana!ement has allo2ed net in ome to in rease 2hile revenues de reased in '999. <ote that the lar!est !ro2th rate 2as %3B in '997 over the *rior year 2ith net in ome o5 G795.9 million. Exhibit 2

I 6btained 5rom <i.e, In . '999 Annual =e*ort

C(allenges 6ur !reatest hallen!e in ($$$ 2ill be to maintain the o*erational and 5inan ial initiatives 2e 2or.ed so hard to im*lement in '999 and '999. Ee must maintain our inventory levels lo2 enou!h that 2ill allo2 us to ada*t to @ui .ly han!in! mar.et trends. :inan ially, 2e must remain

onservative in our ost stru ture. Cuts to o*eratin! e3*enses o5 almost G($$ million this *ast year demonstrated that 2e are in a *osition to be nimble in li!ht o5 our industry?dominatin! si1e. Eith the !radual e onomi re overy in the Asia Pa i5i re!ion, 2e an a*itali1e on ustomers 2ho are 5inan ially stron!er. 6ur s*onsorshi* o5 the ($$$ 6lym*i )ames in Sydney, Australia, and the ($$( Eorld Cu* in Ja*an and +orea 2ill be the start o5 many o**ortunities to brin! s*orts events into the mainstream 5or re!ional and !lobal mar.ets. Eith added e3*osure, 2e are hallen!ed to res*ond to a mar.et demand 5or 5ashionable athleti 5oot2ear and a**arel. In this @uest, 2e 2ill su eed i5 2e .ee* @uality and *er5orman e at the ore o5 our business. 0he Internet is a ra*idly han!in! medium. As the 5irst om*any in our industry to o55er e? ommer e a*abilities, 2e must *ro eed 2ith aution and stealth in order to sele t an endurin! strate!y that 2ill om*lement our e3istin! distribution hannels.

HISTO"#
/ill /o2erman and Phil +ni!ht 5ounded <i.e In . as /lue =ibbon S*orts in '9#(. 0he *artners be!an their relationshi* at the University o5 6re!on 2here /o2erman 2as +ni!ht8s tra . and 5ield oa h. Ehile attendin! Stan5ord University, +ni!ht 2rote a *a*er about brea.in! the )erman dominan e o5 the U.S. athleti shoe industry 2ith lo2?*ri ed Ja*anese shoes. In an attem*t to reali1e his theory, +ni!ht visited Ja*an and en!ineered an a!reement 2ith the 6nitsu.a 0i!er om*any, a manu5a turer o5 @uality athleti shoes, to be their sole distributor in the United States. In '9#(, +ni!ht re eived the 5irst shi*ment o5 ($$ *airs o5 0i!er shoes to his *arent8s !ara!e in 6re!on. 0he shoes 2ere bou!ht by /lue =ibbon S*orts C/=SD, the name o5 the *artnershi* bet2een +ni!ht and /o2erman that they 5ormed 2ith only G',$$$ in a*ital. +ni!ht *eddled 0i!er8s shoes at lo al tra . meets !rossin! G9,$$$ o5 sales in their 5irst year. In '9##, /o2erman, 2ho had *reviously desi!ned shoes 5or his university athletes, 2or.ed 2ith 0i!er to desi!n the Cortez runnin! shoe. 0he shoe 2as a 2orld2ide su ess 5or the 6nitsu.a 0i!er Com*any and 2as sold at the 5irst /=S store. In '97', /=S, 2ith reditor su**ort, started manu5a turin! their o2n line o5 shoes. "ater that year, the 5irst /=S shoe 2as introdu ed. 0he shoe 2as a so er shoe that bore the <i.e brand name, re5errin! to the )ree. )oddess o5 Hi tory, and the S2oosh trademar.. A student desi!ned the S2oosh trademar. 5or a *altry 5ee o5 G35. 0he S2oosh 2as meant to symboli1e a 2in! o5 the )ree. )oddess. '97( mar.ed the brea.u* o5 the /=S>0i!er relationshi*. /=S soon han!ed its name to <i.e, In . and debuted itsel5 at the '97( 6lym*i trials. In '973, Steve Pre5ontaine 2as the 5irst *rominent tra . star to 2ear <i.e shoes. 0he late 7$8s and early 9$8s also sa2 John & ,nroe, Carl "e2is, and Joan /enoit s*ortin! <i.e shoes. <i.e *o*ularity !re2 so mu h that in '979 they laimed 5$B o5 the U.S. runnin! mar.et. A year later 2ith (,7$$ em*loyees, <i.e 2ent *ubli sellin! ( million shares on the <e2 Jor. Sto . ,3 han!e. 0he '99$8s 2ere mar.ed by the si!nin! o5 &i hael Jordan as a *rodu t s*o.es*erson, revenues in e3 ess o5 G' billion, the 5ormation o5 <i.e International "td., and the FJust Do ItF am*ai!n. <i.e also e3*anded its *rodu t line to in lude s*e ialty a**arel 5or a variety o5 s*orts. In '99$, <i.e

sur*assed the G( billion mar. in onsolidated revenue 2ith 5,3$$ em*loyees 2orld2ide. In addition, 2e o*ened the <i.e Eorld Cam*us in /eaverton, 6re!on. In '99', <i.e *ushed revenues to G3 billion, u* 5rom G( billion the *rior year. 0his mar. 2ould ontinue to !ro2 throu!hout the 9$8s, 2ith revenues in '999 rea hin! G9.9 billion. 0hese revenues !re2 based on im*rovements in shoe te hnolo!y and su ess5ul mar.etin! am*ai!ns. International revenues 5ueled a !reat *ortion o5 this !ro2th 2ith an 9$B in rease in '99' 5rom the *rior year. In '99( international revenues to**ed G' billion 5or the 5irst time and a ounted 5or over one?third o5 our total revenues. Su h !ro2th ontinued throu!hout the '99$As as 2e ontinued to 5o us our mar.etin! e55orts on ma;or s*ortin! events li.e the Eorld Cu*, and the ne3t !eneration o5 elebrity endorsers, su h as 0i!er Eoods, "an e Armstron!, and the *layers o5 2omenAs *ro5essional bas.etball CE</AD. At the end o5 the 9$8s, <i.e8s !oal, as stated in our om*any 2eb site, is to be ome a truly !lobal brand.

$"OFILE OF THE CEO


Philli* -. +ni!ht, Chairman and Chie5 ,3e utive 655i er, is the o?5ounder o5 <i.e, In . -e has been the drivin! 5or e behind our om*anyAs su ess sin e its in e*tion in '9#% under the name /lue =ibbon S*orts. +ni!ht is #' years o5 a!e and holds an under!raduate de!ree 5rom the University o5 6re!on and an &/A 5rom Stan5ord University. +ni!ht *ra ti ed as a CPA and tau!ht at Portland State University *rior to 5oundin! the om*any .no2n today as <i.e. -e has been an innovative visionary in the industry o5 athleti 5oot2ear and a**arel. -is e55orts have hel*ed to establish <i.e as an industry leader in both national and international mar.ets. +ni!htAs mana!erial mode is one that is hara teri1ed by strate!i *lannin!. 0his mode is re*resentative o5 an o*en?minded C,6, one 2illin! to ta.e al ulated ris.s and ma.e onservative de isions based on are5ul analysis o5 e3ternal and internal environments. +ni!htAs de ision?ma.in! style 5avors the *arti i*ative a**roa h. -e is not hesitant to ma.e unilateral de isions, but *re5ers to loo. to his trusted mana!ement team 5or their insi!ht and ideas be5ore hoosin! a ourse o5 a tion.

$"OFILE OF THE CO!$ETITO"


=eebo., in terms o5 their *rodu ts, is not entirely di55erent 5rom <i.e. =eebo. is involved in the desi!n and mar.etin! o5 both athleti and non?athleti 5oot2ear and a**arel, as 2ell as other various 5itness *ro;e ts. =eebo.8s mar.et share is a distant third in the 5oot2ear industry at ''.(B C om*ared to 3$.%B and '5.5B 5or <i.e and Adidas res*e tivelyD. =eebo.8s 5inan ial *osition has been !radually sli**in! 5or a number o5 years. 0his is evident in their de linin! sto . *ri e, 2hi h has 5allen by over 9$ *er ent in the last 5our years. =eebo.8s 5inan ial 2oes are illustrated in their de linin! net sales. =eebo.8s net sales de lined 9B durin! the 5irst three?@uarters o5 5is al year '999. Durin! that same *eriod, net in ome de lined '7B. 0a.in! these and other 5a tors into a ount leaves =eebo.8s urrent 5inan ial *osition, as a 2hole, loo.in! blea..

$"OFILE OF THE IN)UST"#

In%&stry Si*e In '999, Ameri ans s*ent a**ro3imately G39 billion to *ur hase more than '.' billion *airs o5 shoes. 0he 2holesale value o5 athleti shoes 5or the US mar.et totaled G9.7 billion in '999 do2n 9.5B 5rom the year be5ore. A ordin! to the S*ortin! )oods &anu5a turers Asso iation, athleti 5oot2ear a ounts 5or almost 35B o5 all 5oot2ear *ur hases. In !eneral, onsumers are s*endin! less 2orld2ide 5or athleti 5oot2ear. 0he urrent domesti industry 5o us is on asual and om5ortable shoes. Althou!h athleti 5oot2ear sales a**ear to be re overin!, demand is still leanin! to2ard the Fbro2n shoeF asual 5oot2ear 2ith a om5ortable and ru!!ed desi!n. 0his s2it h is due to the in reasin! number o5 2or.*la es ado*tin! asual dress odes. In%&stry $rofita+ility 0he athleti 5oot2ear industry is a hallen!in! and saturated mar.et. Intense om*etition, 5ashion trends, and *ri e ons ious onsumers have slo2ed !ro2th in this industry. &anu5a turers are ombatin! slu!!ish sales 2ith radi al ne2 styles, alon! 2ith o55erin! more styles at lo2er *ri e *oints. Com*anies are loo.in! 5or ne2 2ays to boost sales by a*itali1in! on dire t Internet sales to onsumers. &any om*anies are also in reasin! *ro5itability by trans5errin! *rodu tion to hea*er o55shore 5a ilities. 0his se!ment has rea hed a *oint o5 maturity in the domesti mar.et and an loo. 5or2ard to only modest sales !ro2th 5or the lon! term. -o2ever, sales are im*rovin! sli!htly, es*e ially in the areas o5 runnin! shoes, ross?trainers and bas.etball shoes. 0here5ore, om*anies 2ith stron! brands 2ill in reasin!ly turn to international mar.ets 5or !ro2th. In%&stry Seasonality 6verall, sales in the athleti 5oot2ear industry remain stable throu!hout the year. 0he !lobal varian e in our mar.et balan es the seasonal 5lu tuations. 0y*i al trends in seasonality a**ear 5or s*rin! a**arel, the ba .?to?s hool season, and the Christmas holiday season. In%&stry Cyclicality In 5is al year '999, the e onomy 2as relatively 5avorable 5or 5oot2ear manu5a turers. 0he 5oot2ear industry and its *ro5itability are losely tied to e onomi y les. &odest in5lation, lo2 unem*loyment, and a boomin! sto . mar.et 2ill all ontribute to healthy onsumer s*endin!. 0he theory behind the slo2do2n in sales is that !ro2th in athleti 5oot2ear and a**arel is y li ally sensitive to the 6lym*i s. -istori ally, years o5 the 6lym*i )ames have demonstrated sur!es in !ro2th 5ollo2ed by di55i ult sales *eriods. 0he outloo. 5or in reased sales trends is o*timisti due to the u* omin! 6lym*i )ames slated 5or this year. <i.e an also loo. 5or2ard to a boost in demand 5rom the Eorld Cu* events. In%&stry Entry an% E,it Barriers

,ntry /arriers 0he athleti 5oot2ear industry is a very om*etitive and mature mar.et. 0he leaders o5 this industry are very 2ell established. "eaders li.e <i.e and =eebo. have made the industry 2hat it is today. Conse@uently, lon!?time om*etitors li.e Sau ony and +?S2iss have been stru!!lin! 5or years ;ust to .ee* their brands alive. 0his utthroat environment has hindered the entry o5 ne2 om*etitors. , onomies o5 s ale also ontribute to the la . o5 ne2 omers into this mar.et. In order to have an ed!e over the leaders, om*anies must be able to om*ete at all levels su h as reasonable *ri in!, e55i ient *rodu tion, and hi!h *rodu t @uality. 0hese thin!s are di55i ult to a hieve 2ithout the resour es o5 an established manu5a turer. Another .ey barrier to entry is the a ess o5 traditional distribution hannels. Ehen ombin! the shelves at stores li.e S*orts Authority and :oot"o .er, it is evident that the leaders dominate the shelves. "esser?.no2n brands are vie2ed by retailers as bein! too ris.y to re*la e an established brand name li.e <i.e or =eebo. on the shel5. 0hese 2alls seem to be brea.in! do2n 2ith the hel* o5 the Internet. 0he osts o5 overhead that ome alon! 2ith traditional bri . and mortar retail distributors are bein! si!ni5i antly diminished. <e2 entrants are no2 able to slide into mar.ets 2ithout these hi!h startu* osts, ma.in! it more *ro5itable to be!in *rodu tion. ,3it /arriers Ehen a om*any de ides to e3it 5rom this industry it must be a2are o5 thin!s su h as indebtedness and its ability to meet those obli!ations. A om*any must also be o!ni1ant o5 la2suits 5iled by its sta.eholders and laims made on any residual assets.

CO!$AN# ANAL#SIS
Strengt(s an% -eaknesses of t(e Cor.orate/B&siness Le0el Strategic !anagers /oard o5 Dire tors ? Stren!th <i.e8s board o5 dire tors onsists o5 both mana!ement dire tors and inde*endent dire tors. 0he ombination o5 these t2o ty*es o5 dire tors bene5its <i.e in that there is a *resen e o5 those dire tly involved 2ith <i.e as 2ell as others indire tly involved 2ho brin! outside e3*erien e, *rovide another 5rame o5 re5eren e and an assist the overall board in thin.in! Foutside the bo3.F <i.e8s board 2ould be lassi5ied as an oversi!ht board, *layin! an a tive role 2ith re!ards to mana!ement8s de isions in the area o5 strate!y 5ormulation. /oard o5 Dire tors ? Eea.ness

0he avera!e a!e o5 <i.e8s board is #(, the youn!est member bein! %9 and oldest bein! 79. 0his onstitutes a *ossible 2ea.ness in that there is a la . o5 youn!er members o5 the board 2ho ould serve to brin! a ne2 *ers*e tive to the om*any and assist in a hievin! <i.e8s !oals.

Exhibit 3 Nike, Inc. 1222 Boar% of )irectors3

0homas ,. Clar.e President and Chie5 6*eratin! 655i er, <i.e, In ., /eaverton, 6=

Jill +. Con2ay

Hisitin! S holar, &assa husetts Institute o5 0e hnolo!y, /oston, &A

=al*h D. De<un1io

President, -arbor Point Asso iates, In ., <e2 Jor. City, <J

=i hard +. Donahue

Hi e Chairman o5 the /oard, "o2ell, &assa husetts Delbert J. -ayes, <e2ber!, 6=

Dou!las ). -ouser

Assistant Se retary, <i.e, In ., Partner K /ullivant, -ouser, /ailey, Pender!rass L -o55man Attorneys, Portland, 6=

John ,. Ja@ua

Se retary, <i.e, In ., Partner K Ja@ua L Eheatley, P.C. Attorneys, ,u!ene, 6=

Phili* -. +ni!ht

Chairman o5 the /oard and Chie5 ,3e utive 655i er, <i.e, In ., /eaverton, 6=

Charles E. =obinson

President, =obinson L Asso iates, Santa :e, <&

A. &i hael S*en e

Dean, )raduate S hool o5 /usiness, Stan5ord University, Palo Alto, CA

John =. 0hom*son, Jr.

:ormer -ead Coa h, )eor!eto2n University, Eashin!ton, D.C.

Eilliam J. /o2erman

Dire tor ,meritus

I <i.e, In . '999 Annual =e*ort

0o* &ana!ement ? Stren!th Co?5ounder, Phili* -. +ni!ht, has been 2ith <i.e sin e its in e*tion. As a result, he has mu h .no2led!e and e3*erien e about the om*any and the industries in 2hi h it om*etes. +ni!ht8s strate!i *lannin! mana!erial style serves as a stren!th in that his a tions are *lanned and al ulated, allo2in! 5or both ris.y and onservative de isions based on are5ul thou!ht and analysis. -is *arti i*ative de ision?ma.in! style an also be vie2ed as a stren!th su h that +ni!ht is 2illin! to listen to others to !enerate ideas. -e does not limit the om*any8s o*tions to one?sided ideas and de isions. En0iron'ental Analysis

Internal K Stren!th <i.e8s mana!ement analy1es its internal environment and ma.es de isions based on that analysis. /e ause o5 <i.e8s mar.etin! resear h, the om*any has de ided to revam* its a**arel division to be more 5ashion savvy. As a result o5 *rodu t and *ri in! resear h, <i.e has de ided to ontinue to 5o us on the hi!h end mar.et 2hile in reasin! its mar.et share in the middle and lo2 *ri e ran!es in an attem*t to broaden <i.e8s *rodu t s*e trum. ,3ternal ? Eea.ness <i.e8s 5ailure to 5oresee *roblems in relation to labor and 5a tory onditions at *rodu tion lo ations has resulted in bad *ubli ity and de linin! sales as so iety and onsumers all 5or more Fso ially res*onsibleF om*anies. Strategy For'&lation &ission ? Eea.ness <i.eAs Cor*orate &ission Statement: F0o be the 2orldAs leadin! s*orts and 5itness om*any.F <i.e8s mission statement resembles a vision statement and is there5ore a 2ea.ness. Ehile the mission does broadly identi5y the business 2e are in, namely the s*orts and 5itness industry, it is not s*e i5i as to 2hat *rodu ts and servi es 2e *rovide. 0he mission statement also omits any mention o5 distribution hannels and ustomers. It does, ho2ever, *ortray mana!ement8s belie5s and values o5 our desire to be number one and maintain the leadin! *osition in the s*orts and 5itness shoe and a**arel industry. Cor*orate 6b;e tives K Eea.ness <i.e has no *ublished or*orate ob;e tives in relation to the overall om*any. 0his la . o5 or*orate ob;e tives re*resents a 2ea.ness. Sta.eholders should be 2ell a2are and in5ormed o5 a om*any8s or*orate ob;e tives to better understand the nature o5 the om*any and its dire tion. <i.e has established or*orate ob;e tives in relation to our *er eived or*orate res*onsibility. 6ur ob;e tive is to Flead in or*orate iti1enshi* throu!h *ro!rams that re5le t arin! 5or the 2orld 5amily o5 <i.e, our teammates, our onsumers, and those 2ho *rovide servi es to <i.e.F 0his or*orate ob;e tive re*resents a 2ea.ness as it does not meet the t2o re@uirements o5 bein! measurable and havin! a time 5rame in 2hi h to om*lete or a om*lish said ob;e tive. <i.e8s ob;e tive is immeasurable and broad la .in! any time s*e i5i ations 5or im*lementation o5 *ro!rams to meet this ob;e tive. )rand Strate!ies ? Stren!th

:or our !rand strate!y, <i.e utili1es innovation to *rodu e to* @uality athleti 5oot2ear and a**arel. As a result o5 devotin! vast resour es to the resear h and develo*ment o5 its *rodu ts, <i.e has a*tured the lar!est mar.et share in the athleti 5oot2ear and a**arel industry and ontinues to be the leader o5 @uality *rodu ts. Com*etitive Strate!ies ? Stren!th 0he om*etitive strate!y that <i.e introdu ed at the end o5 the '99$As on entrates on honin! the 5o us o5 our mar.etin! strate!ies and *rodu t o55erin!s throu!h *rodu t di55erentiation. Ee reali1e that the team?mentality that a*tured the s*irit o5 athleti s in the late '99$As and early '99$As has been re*la ed by a sense o5 individualism. Joun!er onsumers es*e ially, loo. to e3treme s*orts and retail outlets su h as Amber rombie L :it h and 6ld <avy to 5ind a sense o5 individual style. Ee are res*ondin! to this movement in a number o5 2ays. Ehile retainin! our om*anyAs lon!? standin! tradition o5 *la in! *er5orman e throu!h ne2?*rodu t develo*ment as a to* *riority, a never?be5ore seen element o5 5ashion 2ill re eive a se ond?*la e *riority built into our *rodu ts and ima!e. :or the '999 ba .?to?s hool season, 2e ondu ted 5ashion sho2s in t2elve U.S. ities. In addition, an element o5 individualism is most obvious in our Eeb site. Customers an sele t the olor and desi!n a mono!rammed heel?insi!nia 5or our made?to?order athleti shoes. Strategy I'.le'entation Cor*orate Culture ? Stren!th <i.e has reated a or*orate ulture ri h 2ith em*loyee loyalty and team s*irit. =ed FS2ooshesF 5loat a ross everythin! 5rom s reen savers to o55ee u*s at the om*anyAs head@uarters in /eaverton, 6re!on. 0he om*any hooses to all its head@uarters a F am*usF instead o5 an o55i e. ,m*loyees are alled F*layers,F su*ervisors are F oa hesF and meetin!s are Fhuddles.F 0hese terms !o a lon! 2ay to ma.e the daily 2or. e3*erien e less than dull 5or the lu .y em*loyees in /eaverton. In '995, thirteen years a5ter the om*any 2as 5ounded, <i.e 2as blindsided 2hen =eebo. develo*ed its multi olored aerobi shoes. It 2as then that 2e de ided to reinvent our business and ulture, be omin! hi!hly motivated about sellin! s*orts and a F<i.e 2ay?o5?li5e.F Eith this de ision the om*any also restru tured its mar.etin! am*ai!n, 5o usin! more on an ima!e rather than ;ust *rodu t advertisin!, a strate!y 2hi h led to the FJust Do ItF mantra. Sin e then, <i.e has been strivin! to2ards an inner ulture that re5le ts this mantra. ,m*loyees are !iven an hour and a hal5 5or lun h to *lay s*orts or sim*ly 2or.out. 0he ne2 <i.e is not ;ust about shoes and slam?dun.s, but about *romotin! a li5estyle. All ne2 em*loyees vie2 a video o5 s*orts hi!hli!hts a om*anied by a soundtra . that dis usses the soul o5 the athlete and the om*etitive s*irit. In addition, mana!ement sends 2ee.ly emails to u*date em*loyees on the re ent su esses o5 <i.e?s*onsored athletes, and o5ten hosts s*o.es*eo*le to motivate and than. its sta55 5or ontributions to the s*orts 2orld. It is not sur*risin! that an athleti ba .!round hel*s a *ros*e tive em*loyee. In .ee*in! 2ith its s*orts a**roa h <i.e as.s its *layers to 2or. by t2o *rin i*als above all others ?? F-onesty 5irst, and om*etition se ond. Com*ete 2ith yoursel5 not your ollea!ues.F

<elson :erris, a %7 year?old head o5 its or*orate edu ation de*artment states that, F0he S2oosh re*resents somethin! other than ;ust a om*any. It re*resents a 2hole value system.F ( :erris, a lon!time em*loyee, even has a S2oosh tattooed above his an.le. FIt sto*s bein! a ;ob and starts to be ome a 2ay that your are de5inin! the 2ay your are livin! on earth.F ( Communi ation ? Stren!th In late s*rin! o5 '999, <i.e =etail, <i.eAs subsidiary onsistin! o5 the <i.e 0o2n sho*s and em*loyee stores around the 2orld, u*!raded their hard2are and so5t2are. 6ur 5ormer te hnolo!y o55erin!s onsisted o5 I/& %#9$?series *oint?o5?sale ash re!isters runnin! on the 6S>( o*eratin! system. Ee have u*!raded to PC?based systems runnin! the more so*histi ated Eindo2s <0 o*eratin! system. 0he so5t2are 2e have been usin! 5or the *ast 5e2 years alled, Conne t: =emote, made by Sterlin! Commer e In ., is also bein! u*!raded to the ne2 o*eratin! *lat5orm. Cor*orate o55i e ommuni ations a*abilities 2ith these bran h lo ations 2ill be im*roved dramati ally. Sales and inventory data an be monitored in real?time. ,le troni ;ournalin!, redit authori1ation, and sales re on iliation *ro essin!?e55i ien y 2ill in rease due to the addition o5 in? store databases. &odems transmittin! data at 5#+ /PS, or even 2ith di!ital te hnolo!y, 2ill re*la e the 9#$$ /PS modems and *rovide 5or @ui .er *ro essin! times. All o5 these innovations 2ill allo2 e3e utives at the or*orate o55i e and in other bran hes to better mana!e o*erations. "eadershi* ? Stren!th <i.e8s to* mana!ement8s leadershi* style an be hara teri1ed by the team mana!ement a**roa h. 0o* mana!ement onsists o5 a ommitted !rou* o5 e3e utives all brin!in! to!ether vast e3*erien e and .no2led!e. 0he !rou* is team oriented, but is a*able and does 2or. inde*endently re o!ni1in! the ommon sta.e that ea h *la es in <i.e. 0his style o5 leadershi* leads to relationshi*s o5 trust and res*e t. 0he om*any ulture lends a hand to the 5a t that to* mana!ement8s team2or. style has s*read throu!hout the or!ani1ation. &otivation ? Eea.ness Ehile <i.e em*loyees have been loyal and ommitted 2or.ers, a5ter the ost?redu tions that too. *la e in the 5ourth @uarter o5 '999 resultin! in a redu tion o5 the number o5 em*loyees, 2e have had to *la e !reater em*hasis on motivation amon! the retained em*loyees. &orale also 5ell as a result o5 bad media overa!e over re*orts o5 substandard 2or.in! onditions 5or our Asian 5a tory 2or.ers. Ehile initiatives have been set to in rease overall em*loyee morale, this area remains a hallen!e to the om*any. Strategy Control ,stablishment o5 Standards ? Stren!th A om*rehensive establishment o5 *ro5itability standards has assisted <i.e in our evaluation o5 individual *er5orman e as 2ell as a om*arison to other om*etitors. <i.e utili1es standards su h as net *ro5it, earnin!s *er share, return on investment, return on e@uity, sales !ro2th and asset !ro2th. Per5orman e standards are also established and he .ed re!ularly. Some o5 the areas in

2hi h our om*any has established standards are *rodu tivity o5 *rodu tions sites, om*etitive *osition in the United States relative to the !lobal mar.et, te hnolo!i al leadershi* in om*arison to om*etitors and overall so ial res*onsibility and the *ubli 8s *er e*tion. ,valuation o5 Per5orman e ? Stren!th <i.e thorou!hly e3amines and om*ares the a5orementioned *er5orman e standards to the a tual results that have o urred as a result o5 im*lementin! strate!ies to meet or e3 eed *er5orman e standards. 0hese standards are im*ortant to <i.e as a om*arison o5 *ast *er5orman e to *resent *er5orman e as 2ell as in our attem*t to 5ore ast 5uture results in these areas. Corre tion o5 Deviation ? Stren!th 0hou!h <i.e has established *ro5itability and *er5orman e standards, orre tion o5 dis overed deviations has been a slo2er and less timely *ro ess. &ana!ement8s slo2 res*onse time an be attributed to the are5ul analysis that is *er5ormed *rior to ma.in! any de isions. Ehile in !eneral this is a !ood *oli y to abide by, at times <i.e 2ould be better served by a mana!ement team that an rea t more @ui .ly to !iven in5ormation. Strengt(s an% -eaknesses of t(e F&nctional Le0el !arketing &ar.et Share ? Stren!th <i.e8s !lobal mar.et share 2as an im*ressive 3$.%B in '999. Des*ite a sli!ht de line 5rom *rior years, <i.e ontinues to have the !reatest mar.et share in the U.S. branded athleti 5oot2ear mar.et. In '999, the losest om*etitor, Adidas, held '5.5B o5 the mar.et share 2hile =eebo. held ''.(B. 0he remainin! om*etitors, in ludin! :ila, 0imberland, Asi s, Converse, and <e2 /alan e, amon! others, ea h hold a**ro3imately 3?5B o5 the remainin! mar.et share. Ehile <i.e8s mar.et share is still in the lead, it is e3*e ted to in rease 2ith ne2 *rodu ts. <i.e8s mar.et share is e3*e ted to do es*e ially 2ell as a result o5 s*onsorin! the summer 6lym*i s in ($$$ in Sydney, Australia, the ($$( Eorld Cu* in Ja*an and +orea, and the U.S. S*eeds.atin! team in the ($$( Einter 6lym*i s in Salt "a.e City, Utah. Distribution throu!h ,? ommer e ? Stren!th <i.e has ta.en the lead in e? ommer e by bein! the 5irst to mar.et 2ith its e? ommer e 2eb?site. <i.e laun hed its e? ommer e site in A*ril '999 by o55erin! #5 styles o5 shoes to the U.S. mar.et 5or *ur hase. <i.e in reased its e? ommer e *resen e by laun hin! <I+,iD in <ovember '999. <I+,iD enables online onsumers to desi!n .ey elements o5 the shoes they *ur hase. 0he *ro!ram re*resents the 5irst time a om*any has o55ered mass ustomi1ation o5 5oot2ear. <i.e8s 5uture *lans in lude o*enin! an online sho* 5or the Ja*anese mar.et ne3t year 5ollo2ed by !lobal rollout. /y bein! the 5irst to mar.et, <i.e enables itsel5 to be ome established 2hile om*etitors rush to ;oin us.

Advertisin! and Promotion ? Stren!th <i.e8s brand ima!es, in ludin! the <i.e name and the trademar. S2oosh, are onsidered to re*resent one o5 the most re o!ni1able brands in the 2orld. 0his brand *o2er translates into bottom?line revenues. 0he <i.e name and asso iated trademar.s have a**eared every2here 5rom *layersA shirts, *ants, and hats to stadium banners and 2alls. A!!ressive advertisin! am*ai!ns, elebrity endorsements, and @uality *rodu ts enhan e the brand. <i.e demonstrated an e3am*le o5 <i.e8s brand *resen e at the '999 <CAA /as.etball tournament 2hen %( o5 the #% teams *arti i*atin! 2ore shoes *rovided. <i.eAs most re ent brand?buildin! endeavors are 5o used on stren!thenin! our asso iation 2ith 2omen8s s*orts. Some e3am*les are our s*onsorshi* o5 the '999 EomenAs Eorld Cu* So er 0ournament and our s*onsorshi* o5 the U.S. S*eeds.atin! team in the u* omin! ($$( Einter 6lym*i s. Produ ts ? Stren!th 0hou!h <i.e leads the a**arel division amon! industry om*etitors, <i.e has not laimed to be leadin! the ra e amon! the a**arel industry as a 2hole. Due to in reased em*hasis by onsumers on 5ashion in relation to s*orts2ear, 2e have had to ma.e strides to a**eal to a 5ashion savvy mar.et. 6ur a**arel line is not only bein! hallen!ed by our ty*i al industry om*etitors su h as Adidas and =eebo., but also by lothin! and a essories retailers su h as 6ld <avy and Aber rombie L :it h. Continuous mar.etin! resear h ould *rove to be .ey in assessin! the mar.et. <i.e is *lannin! on initiatin! 5ive stru tures 2ithin the a**arel division to 5o us on the 5ollo2in! areas:
o o o o o

Eomen &en +ids s*orts !ra*hi s and a*s strate!i res*onse inde*endently

Ee are also s*endin! more time on ontinuin! to su**ort and develo* *ro!rams to !ain a better understandin! 2hat our ustomers 2ould li.e to see in the mar.et. Produ ts ? Eea.ness <i.e has had mu h su ess as a result o5 ollaboratin! 2ith other om*anies 2ithin the s*orts and 5itness industry. -o2ever, at times 2e e3*anded into mar.ets 5or 2hi h 2e 2ere not strate!i ally suited. An e3am*le is the de rease in brands made available due to de linin! sales o5 in?line s.atin! and roller ho .ey *rodu ts at /auer <i.e -o .ey. As a result, 2e have had to e3it t2o manu5a turin! o*erations at our /auer <i.e subsidiary. Ee had to terminate 5' em*loyees. -ad 2e anti i*ated the de line sooner, *erha*s !radual han!es ould have been made so that the end result may not have been as 5inite in nature. 0he desire to *revent situations su h as these 5rom ontinuin! to o ur, 2e have initiated a more a!!ressive *ro!ram to revie2 *rodu t ollaborations that are outside o5 our ore basis o5 *rodu ts. Pri in! ? Eea.ness

In !eneral, <i.e8s *rodu ts are onsidered to be o5 hi!her @uality and as a result have hi!her *ri es relative to our om*etitors. Ehile the *ri es are realisti !iven the nature o5 the *rodu ts 2e o55er to our onsumers, at times our onsumers may not a!ree. 0his *resents a 2ea.ness. 0o miti!ate any 5uture *roblems in our hi!h @uality>hi!h *ri e lines, 2e are *la in! a rene2ed em*hasis on emer!in! te hnolo!y and innovation to2ards the develo*ment o5 ne2 *rodu ts, s*e i5i ally the <i.e Al*ha Pro;e t, a revolutionary ne2 line o5 athleti shoes. Des*ite the 5a t that in the *ast 2e may have overloo.ed the mid? to lo2er?*ri e?*oint *rodu ts, *resentin! another 2ea.ness 2ith room 5or im*rovement, 2e are dedi atin! our time and money to better develo* our om*etitive *osition at all *ri e *oints to build stren!ths at ea h o5 these levels. Ee see mu h *otential in the lo2er *ri e *oints and *lan to meet the needs o5 those mar.ets. &ar.etin! =esear h ? Stren!th <i.e *rimarily ondu ts mar.etin! resear h on a ontinual basis to assist in maintainin! our om*any8s *osition as the leader in the athleti 5oot2ear and a**arel industry. /e ause o5 su h resear h, 2e have de ided to revam* our a**arel division, an area in 2hi h 2e an still !reatly im*rove. <i.e 2ill be or!ani1in! the internal business by !ender as o**osed to s*ort ate!ory and ondu tin! in reasin! amounts o5 resear h addressin! the buyin! habits o5 men, 2ho tend to be item?driven, and 2omen, 2ho tend to be olle tion?driven, 2ith s*e i5i ally tar!eted *rodu t lines. $ro%&ction "o ation o5 :a ilities ? Stren!th <i.e8s 5a ilities are lo ated throu!hout Asia and South Ameri a. 0he lo ations are !eo!ra*hi ally dis*ersed 2hi h 2or.s 2ell in our mission to be a truly !lobal om*any. 0he *rodu tion 5a ilities are lo ated lose to ra2 materials and hea* labor sour es. 0hey have been strate!i ally *la ed in their lo ations 5or ;ust this *ur*ose. In !eneral, the 5a ilities are lo ated 5urther 5rom most ustomers, resultin! in hi!her distribution osts. -o2ever, the ost savin!s due to the *la ement o5 our *rodu tion 5a ilities allo2s 5or hea*er *rodu tion o5 our *rodu ts des*ite the hi!her osts o5 trans*ortin! our *rodu ts. As <i.e ontinues to e3*and in the !lobal e onomy and in rease its mar.et throu!hout the 2orld, these dis*ersed 5a ilities 2ill *rove to be bene5i ial. <e2ness o5 :a ilities ? Eea.ness 6ur 5a ilities abroad have attra ted bad *ubli ity in re ent years. 0hou!h our 5a ilities om*ly 2ith lo al labor standards, !enerally, they have not met U.S. standards. Ee 2ant to be a leader and set a res*onsible or*orate e3am*le 5or other businesses to 5ollo2. As *art o5 <i.e8s ne2 labor initiative, 2e ommit to:
o

,3*andin! our urrent inde*endent monitorin! *ro!rams to in lude non? !overnmental or!ani1ations, 5oundations and edu ational institutions. Ee 2ant to ma.e summaries o5 their 5indin!s *ubli M Ado*tin! U.S. 6 u*ational Sa5ety and -ealth Administration C6S-AD indoor air @uality standards 5or all 5oot2ear 5a toriesM

:undin! university resear h and o*en 5orums to e3*lore issues related to !lobal manu5a turin! and res*onsible business *ra ti es su h as inde*endent monitorin! and air @uality standards.

Ehile establishin! these *oli ies is a ste* in the ri!ht dire tion 5or <i.e, the di55i ult tas. at hand 2ill be the im*lementation o5 the a5orementioned !oals to ensure the su ess o5 the *ro!ram. "esearc( an% )e0elo.'ent :o us ? Stren!th Althou!h <i.e ondu ts ontinuous, basi resear h that bene5its numerous 5a ets o5 the s*orts and 5itness industry, our *rimary 5o us is dire ted to2ards a**lied resear h. A**lied resear h 5o uses on short?term initiatives su h as su ess5ully develo*in! ne2 *rodu t lines. 0his *roves to be a stren!th in that this method o5 resear h is less ostly than basi resear h, and less ris.y due to the short?term nature. Su ess5ul *ro;e ts an reali1e immediate *ro5itability 2hile unsu ess5ul *ro;e ts may be dis ontinued 2ithout endurin! materially lar!e losses. :o us K Eea.ness :o usin! on a**lied resear h an be a 2ea.ness as 2ell. &any ne2, innovative ideas ome into e3isten e as a result o5 basi , uns*e i5i resear h. 0hou!h more ris.y and e3*ensive, <i.e 2ould bene5it 5rom in reasin! the amount o5 basi resear h 2e ondu t 2ith ho*es o5 un overin! *otential o**ortunities o5 2hi h <i.e ould ta.e advanta!e. Posture ? Stren!th 6ur *osture is *rimarily innovative, 2hile at times ad;ustin! to a *rote tive *osition, and other times a at h?u* stan e. <i.e *rides itsel5 on bein! a *remiere *rovider o5 hi!h @uality s*orts 5oot2ear and a**arel. Innovation has been the .ey to aidin! <i.e in se urin! its *osition as the leader in the mar.et. Due to the lead <i.e *ossesses in the industry, 2e an a55ord to loo. lon!?term and *la e a !reater em*hasis on innovation as o**osed to other om*anies 2ith a short?term outloo. attem*tin! to im*rove u*on e3istin! *rodu ts and servi es. At times, 2e need to ad;ust our *osture in relation to a *arti ular *rodu t line or area o5 *rodu ts. In these instan es, <i.e may hoose a de5ensive strate!y to remedy the urrent situation. Ee may also hoose a at h?u* strate!y and mimi 2hat is 2or.in! 2ell 5or other om*anies in the industry. H&'an "eso&rces -uman Ca*ital ? Eea.ness <o su ess5ul om*any an e3ist and su eed 2ithout utili1in! its human a*ital. Ehile <i.e has had various *oli ies in *la e, 2ea.nesses still e3ist in re!ards to labor *oli ies in overseas lo ations. Ee re eived mu h bad *ubli ity as 2ell as e3*erien ed a de rease in sales as a result o5 *oor labor *oli ies and la . o5 *oli ies established abroad. /e ause o5 this and <i.e8s !oal to be

a res*onsible iti1en o5 the or*orate 2orld, <i.e has ommitted to !oals to better the *roblems as *art o5 the a5orementioned labor initiative:
o o o

In reasin! the minimum a!e o5 5oot2ear 5a tory 2or.ers to '9, and minimum a!e 5or all other li!ht?manu5a turin! 2or.ers Ca**arel, a essories, e@ui*mentD to '#M ,3*andin! edu ation *ro!rams, in ludin! ;unior and hi!h s hool e@uivalen y ourses, 5or 2or.ers in all <i.e 5oot2ear 5a toriesM In reasin! su**ort o5 its urrent mi ro?enter*rise loan *ro!ram to ',$$$ 5amilies ea h in Hietnam, Indonesia, Pa.istan, and 0hailand.

Ehile establishin! these *oli ies is a ste* in the ri!ht dire tion 5or <i.e, the di55i ult tas. at hand 2ill be the im*lementation o5 the a5orementioned !oals o5 the ne2 labor initiative to ensure the su ess o5 the *ro!ram. $&+lic Affairs ,thi s K Eea.ness A usations o5 unethi al behavior, 2hether or not they are true, only serve to in;ure <i.e8s ima!e, and, as a result, *rodu t sales. 6ne su h e3am*le o5 @uestionable behavior relates to Hietnam and the trade embar!o *la ed on the ommunist ountry as a result o5 United States P6Es>&IAs. In '993, United States President, /ill Clinton, *romised to .ee* the embar!o in *la e until the U.S. re eived an a urate *i ture o5 the situation. -o2ever, t2o years later President Clinton normali1ed trade relations to the dismay o5 the P6E>&IA 5amilies involved, yet to the deli!ht o5 the or*orations o*eratin! in Hietnam. Ehite -ouse do uments have revealed lar!e donations to the Demo rati <ational Committee by om*anies 2ith an interest in seein! the embar!o li5ted. 0he author o5 the arti le, F<i.e8s Dirty "ittle Se ret,F alludes to the 5a t that <i.e 2as *resent on this list. 0he ima!e o5 *ro5itability bein! more im*ortant than Ameri an P6E>&IAs has led to an un5avorable ima!e 2ith armed 5or es, 5amilies and Ameri ans as a 2hole. 0his, ombined 2ith the Fs2eatsho*F o*erations in <i.e 5a ilities in Hietnam and other ountries, has ne!atively im*a ted <i.e8s ima!e. Ehile the 2orst is over, <i.e is still 2or.in! on initiatives to han!e the urrent situations throu!hout 5a tories. Ehether true or not, the om*any still su55ers 5rom this unethi al ima!e and must s2ay the minds o5 the onsumer and !ive them a rene2ed 5aith in the res*onsibility o5 <i.e. So ial =es*onsibility ? Stren!th In res*onse to a usations by onsumer !rou*s over un5air labor *ra ti es, <i.e has develo*ed a Cor*orate =es*onsibility Poli y that dis usses ho2 2e 2ill im*rove 2or.in! onditions 5or our international em*loyees. 0he Poli y outlined on our 2eb?site has the 5ollo2in! mission, F0o lead in or*orate iti1enshi* throu!h o*erations that re5le t arin! 5or the 2orld 5amily o5 <i.e, our teammates, our onsumers, and those 2ho *rovide servi es to <i.e.F 0he *oli y in ludes, but is not limited to, the 5ollo2in! initiatives: raisin! a!e limits in 5a tories to '9 years, se urin! inde*endent monitorin! 5or our 5a tories, e3tendin! a ommitment to the environment, im*rovin! sa5ety and health onditions, and develo*in! *ro!rams to *rovide edu ational *ro!rams. 0he

*oli y sho2s <i.e8s ommitment to res*ondin! to the on erns o5 onsumers, as 2ell as a ommitment to our em*loyees around the 2orld. Finance/Acco&nting 4For t(e follo5ing, see E,(i+it 6, Ta+le of 7ey Financial "atios on .age 889 &ana!ement o5 Cash ? Eea.ness 6ur om*any8s urrent ratio is (.(#, ;ust sli!htly belo2 the industry avera!e o5 (.(9. 0he urrent ratio, 2hile not a ma;or stren!th, sho2s that <i.e is inline 2ith the industry on ernin! ease o5 onvertin! assets to ash to over short?term obli!ations. 0he @ui . ratio o5 '.%3 is above the industry avera!e o5 '.'7. /ein! sli!htly above the industry indi ates that 2e ould sell less o5 our inventory than 2hat other om*anies in the industry 2ould have to sell to meet urrent obli!ations. <either the urrent or @ui . ratio e3 eeds the industry avera!e substantially enou!h to be onsidered a true stren!th. 0he 5a t that 2e are not leaders is ultimately a 2ea.ness. &ana!ement o5 Inventories ? Stren!th <i.e8s inventory turnover o5 7.3( e3 eeds the industry avera!e o5 %.3%. =edu in! inventory levels 2as a .ey initiative 5or <i.e in 5is al year '999. Due to our ability to @ui .ly turnover inventory, <i.e bene5its 5rom !reater ash 5lo2s, redu ed stora!e osts, and less s*oila!e. In addition, @ui . turnover redu es <i.e8s inventory o5 out?o5?style shoes and lothin!. Com*any mana!ement stated, FEe *ut a onsiderable amount o5 e55ort into im*rovin! *rodu t buyin! *o2er *atterns and as a result the om*osition and levels o5 inventory resulted in im*roved !ross mar!ins relative to a year a!o.F Inventory levels are bein! redu ed due to in reased sales in the om*anyAs o2n bran h retail stores.

&ana!ement o5 A ounts =e eivable ? Eea.ness <i.e does *ermit sales in ash, ash e@uivalents and on redit. 6ur olle tion *ro edures have been la3 om*ared to others in the industry resultin! in slo2 *ayers and de5aultin! ustomers. 6ur olle tion *eriod al ulates to #3.'7 days 2hile the industry avera!e is only 7.7' days. Ste*s are bein! ta.en to alleviate the *roblem o5 olle tin! a ounts re eivable in a more timely 5ashion. Ee have ;ust re ently han!ed our olle tion *eriod 5rom 9$ days to #$ days as an attem*t to en oura!e 5aster *ayment. &ana!ement o5 Debt ? Stren!th 6ur debt?to?total?assets ratio is '5.3#B, 2hi h is 5ar belo2 the industry avera!e o5 %$.#9B. <i.e is not as levera!ed as om*etitors in the industry and uses less debt 5inan in! to 5inan e 5irm o*erations. 0his an be inter*reted as a stren!th as 2e do not rely as heavily as our om*etitors on debt 5inan in!. -o2ever, our hi!hly li@uid *osition !ives us the ability to in rease debt 5inan in!

should 2e need or desire additional a*ital 5or om*any o*erations, resear h and develo*ment, or other han!es as to* mana!ement sees 5it. &ana!ement o5 Debt ? Eea.ness Des*ite the lo2er *er enta!e o5 assets that are borro2ed to 5inan e <i.e, our times interest earned ratio is 2ea.er than the industry avera!e. 6ur ratio o5 '9.%3 re5le ts the number o5 times 5unds available 5rom earnin!s an over interest *ayments. 0he industry avera!e o5 ('.99 indi ates that the industry as a 2hole is in a sli!htly better *osition to over its interest har!es. Pro5itability ? Eea.ness <i.e8s *ro5itability is 2averin! in om*arison to the industry avera!e. 6ur *ro5it mar!in o5 5.'%B to the industry8s 5.#9B is *artially due to de reasin! sales. 0hou!h net in ome did in rease 5rom '999 to '999, this 2as in *art due to a redu tion o5 our mar.etin! bud!et by G'$$ million and terminatin! 7B o5 our em*loyees. 6ur return on e@uity o5 '3.5%B in relation to the industry mean o5 '9.77 indi ates that <i.e is reali1in! a lo2er *er enta!e o5 earnin!s on sto .holders8 investment. <i.e8s lo2 =6, an be lin.ed to the dro**in! sto . *ri e as a re5le tion o5 sto .holder on5iden e in our om*any.

Exhibit 4 Ta+le of 7ey Financial "atios Calc&lation : "ATIO: For'&la: Cin millionsD Li;&i%ity Current Current assets> urrent liabilities Current assets? Inv.> urrent liabilities 3(#%.9 '%%#.9 3(#%.9?''99.3 '%%#.9 N'.%3 times N'.'7 times N(.(# times N(.(9 times NI7E: In%&stry :

Oui .>a id test

977#.9 Acti0ity Inventory turnover Sales>inventory ''99.3 N7.3( times N%.3% times

Colle tion *eriod

A ounts =e .>Avera!e sales *er day Sales>total assets

'5%$.' 977#.9>3#$ 977#.9 N#3.'7 days N7.7' days

0otal assets turnover

5(%7.7

N'.#7 times

N'.#9 times

9$#.( Le0erage Debt to total assets 0otal debt>total assets 5(%7.7 95#.9 %%.' N'9.%3 times N('.99 times N'5.3#B N%$.#9B

0imes interest <et o*eratin! earned in ome>Interest e3*ense

%5'.% $rofita+ility Pro5it mar!in <et in ome>net sales <et in ome>net 2orth 977#.9 %5'.% =eturn on ,@uity )istincti0e Co'.etency <i.e8s distin tive om*eten y lies in the area o5 mar.etin!, *arti ularity in the area o5 onsumer brand a2areness and brand *o2er. Ehile the reasons that <i.e is su ess5ul in mar.etin! our *rodu ts are numerous, this .ey distin tive om*eten y to2ers over our om*etitors. As a result, <i.e8s mar.et share is number?one in the athleti 5oot2ear industry. Cat h *hrases li.e, FJust Do It,F and symbols li.e the <i.e FS2oosh,F ou*le 2ith s*orts i ons to serve as instant reminders o5 the <i.e em*ire. 02o .ey attributes o5 a distin tive om*eten y are its inability to be easily re*li ated and the value or bene5it it o55ers to onsumers. As <i.e be omes a more inte!rated *art o5 Ameri an and 2orld ulture, our brand *o2er be omes in reasin!ly di55i ult to re*li ate. 0he *remise o5 a trademar. and a slo!an is that they are a om*any8s 5in!er*rints. <i.e is able to a*itali1e on its uni@ue identity due to our industry?leadin! 5inan ial stren!th. <i.e rea hes millions o5 onsumers throu!h lar!e?s ale mar.etin! am*ai!ns made *ossible by si!ni5i ant bud!etary a**ro*riations. :e2 333%.9 N'3.5%B N'9.77 B N5.'%B N 5.#9B

om*anies have su h a re o!ni1able ima!e and the resour es to *romote it. 0his ultimately translates into added value 5or onsumers. 0he *ubli bene5its 5rom the stren!th o5 <i.e8s ima!e at the *oint o5 *ur hase. :or de ades, onsumers have ome to asso iate the <i.e ima!e 2ith @uality *rodu ts. /y asso iatin! star athletes and motivational slo!ans li.e, FJust Do It,F 2ith mar.etin! am*ai!ns that em*hasi1e 5itness, om*etition, and s*ortsmanshi*, onsumers identi5y their *ur hases 2ith the *ros*e t o5 a hievin! !reatness. Joun!er onsumers es*e ially bene5it 5rom this *ositive in5luen e. 0his ima!e is somethin! that om*etin! om*anies an not easily du*li ate by sim*ly enhan in! the *hysi al hara teristi s o5 their *rodu ts. 7ey -eakness 0he .ey 2ea.ness o5 <i.e, In . resides in our 5inan ial status. Ehile 2e are not in 5inan ial trouble, 2e re o!ni1e that stren!thenin! the 5inan ial 2ell bein! o5 the om*any an only assist our om*any in the short? and lon!?run. Ee have many areas hallen!in! our ontinued su ess su h as in reasin! our *ro5itability and betterin! our mana!ement o5 ash, a ounts re eivable, and debt. <i.e su55ered a blo2 to sales and revenue s*ar.ed by bad *ubli ity in '997 about our international labor *oli ies. Sin e then, 2e have attem*ted to over ome the bad *ress by raisin! and en5or in! minimum a!e re@uirements 5or em*loyees in overseas 5a tories. <i.e attem*ted to re!ain its mid?9$As momentum as sho2n in '9998s re overy, but the loss o5 &i hael Jordan as our s*o.esman and the Asian 5inan ial risis *ut a dam*er on !ains that year. Durin! '999, the om*any made some han!es in its *rodu ts and dee*ly ut osts. 0hese initiatives, in addition to the stabili1ation in the Asian 5inan ial *i ture, 2ill ombine to 5uel the re overy that <i.e e3*e ts in the near 5uture. <i.eAs re ent allian e 2ith :o!do! S*orts, an Internet s*ortin! !oods retailer, and our *resen e in the ($$$ Sydney 6lym*i !ames 2ill also aid in sales !ro2th. Exhibit 5

I <i.e, In . '999 <i.e Annual =e*ort

As a result o5 redu in! our mar.etin! bud!et by G'$$ million and eliminatin! 7B o5 our em*loyees, <i.e8s net in ome has in reased 5or 5is al year '999. In 5is al year '999, the om*any in urred a one?time restru turin! har!e to better ali!n our overall ost stru ture and *lanned revenue levels. 6verall, <i.e is re overin! 5rom a lar!e de line in '9978s numbers. As noted above, the labor ontroversy has been the bi!!est 5a tor in the han!es sho2n.

Com*etitors an e3*loit our 5inan ial 2ea.ness by em*hasi1in! their o2n individual stren!ths and attem*tin! to !ain !reater shares in the mar.et 2hile 2e are revam*in! *ro esses 5rom 2ithin. 0his ould be a .ey time durin! 2hi h other om*anies in sound 5inan ial ondition, su h as Adidas, ould utili1e their resour es in an attem*t to overshado2 our e3istin! and ne2 *rodu t lines.

IN)UST"# ANAL#SIS
O..ort&nities

0he athleti 5oot2ear and a**arel industries 2ill bene5it 5rom the urrently stron! e onomi ba .dro* in the United States. S*endin! is hi!h and is e3*e ted to result in sales !ro2th industry?2ide. Athleti shoes and a**arel have be ome a sta*le in 2ardrobes 2orld2ide. 0his is due to both the in reasin! numbers o5 *eo*le e3er isin! and the trend to2ards asual a**arel. Com*etition is 5ier e at all levels in 2ithin the industry, es*e ially amon! the leaders. 0his reates a sense o5 se urity 5or the om*anies that have been able to reate a ni he. Cost uttin! due to restru turin! o5 o*erations 2ill !ive many om*anies the han e to *ri e *rodu ts more om*etitively. 6ne area in the industry that is ever han!in! is resear h and develo*ment. 0he stron! de*artments 2ill surely a*itali1e on the trends o5 tomorro2 i5 their e55orts are su ess5ul. In reasin! 5inan ial re overy in overseas mar.ets *roves to be an area o5 e3*ansion 5or the athleti 5oot2ear and a**arel industry. ,?tailin!, or ustomer?desi!ned internet mer handise, is threatenin! the traditional distribution hannels, thus eliminatin! the Fmiddle?manF distributors and allo2in! 5or in reasin! *ro5itability.

T(reats

0he industry has rea hed a level o5 maturity. Ehile style and te hnolo!y in athleti a**arel and 5oot2ear has rea hed a levelin!?o55 *oint, the im*ortant as*e t no2 is 5or om*anies to di55erentiate their lines. In5lation is loomin! over the U.S. e onomy, 2hi h may s*ar. a utba . in onsumer s*endin!. Consumers are be omin! savvier and may lean to2ards dis ounted items. In terms o5 mar.et saturation, many o5 the .ey manu5a turers in this industry have been around 5or many years. Consumers may be s annin! the mar.et 5or ne2 and di55erent 5oot2ear and a**arel *rodu ts.

TO$ CO!$ETITO" ANAL#SIS


)istincti0e Co'.etency < !arketing 4Cons&'er Loyalty9 Des*ite the tou!h times =eebo. has re ently ome u*on, reasons 5or o*timism remain. =eebo. has mana!ed to hold the loyalty o5 a lar!e *ortion o5 the industry8s 5emale onsumers mar.et. Ehile =eebo.8s s*endin! on advertisin! has 5lu tuated, individual *rodu t desi!ns have ome and !one, 5emale onsumers have, as a !rou*, remained loyal to =eebo. and their *rodu ts. Can Reebok use this distinctive competency to inflict damage on ike! Jes, =eebo. an use their distin tive om*eten y to 2ound our om*any. I5 =eebo. an e3*and their a**eal to in or*orate 5emale onsumers 2ho are not urrently =eebo. ustomers, =eebo. ould e3*and their mar.et share and ta.e ustomers a2ay 5rom <i.e *rodu ts. Can ike protect itself against this threat! Jes, 2e an *rote t our mar.et share amon! 5emale onsumers 2ithin the industry by tar!etin! some o5 our *romotions to 5emale onsumers. <i.e8s s*onsorshi* o5 the '999 Eomen8s Eorld Cu* So er 0ournament 2as a !reat e3am*le o5 ho2 <i.e is a**ealin! to 5emale athletes. Co'.etitor=s 7ey -eakness > !arketing > 4A%0ertising/$ro'otion9 0he leadin! ause o5 =eebo.8s re ent tumbles stemmed 5rom *roblems relatin! to *oor mar.etin!. =eebo.8s short omin! in the area o5 mar.etin! is their .ey 2ea.ness. Ehile other athleti shoe om*anies bombard the air2aves 2ith ommer ials *ushin! their *rodu t lines, =eebo. remains out o5 si!ht and out o5 mind. Ehile =eebo.8s om*etitors are .no2n by 5amiliar slo!ans li.e <i.eAs FJust Do It,F =eebo.8s, FAre Jou :eelin! It,F does not e@uate to their brand name in the eyes o5 most onsumers.

Can Reebok"s key #eakness damage their competitive position! Jes, =eebo.8s han es o5 !ro2in! their mar.et share are slim as lon! as their advertisin! endeavors remain to be so unsu ess5ul. :or =eebo. to rebound 5rom their urrent e onomi 2oes, they 2ill have to im*rove the @uality o5 their overall mar.etin! o*erations. Can ike take advantage of our competitor"s key #eakness!

Jes, <i.e an ta.e advanta!e o5 =eebo.8s mar.etin! 2oes by doin! one o5 the thin!s 2e do best: mar.etin!. Continuin! our su ess5ul mar.etin! *ro!rams should allo2 <i.e to ourt the ustomers =eebo. 5ails to dra2 in 2ith their 2ea. mar.etin! initiatives.

OTHE" EXTE"NAL FO"CES


)e'ogra.(ics 6**ortunity <i.eAs on e loyal mar.et is urrently a!in!. 0his means that our ustomers are not as athleti as they may have been in the *ast. -o2ever, this *oses as an o**ortunity 5or <i.e be ause they have the ability to in5luen e the ne3t !eneration o5 <i.e ustomers. 0he older !eneration o5 <i.e brand *ur hasers have the *o2er to in5luen e their hildren ? *art o5 the ne3t !eneration o5 <i.e loyalists. In addition, by mar.etin! di55erent ty*es o5 shoes to this mar.et, these e3istin! ustomers 2ill ontinue to be loyal to <i.e. 0hreat 0he *henomenon o5 the a!in! o5 our most loyal mar.et se!ment @uestions 2hether there is a threat that the ne2 !eneration 2ill not be e3 lusively loyal to <i.e. In the urrent mar.et there are a number o5 other om*etitors that are not mainly athleti ally oriented. ,3am*les in lude su h manu5a turer?retailers as 0he )a* and 6ld <avy. 0heir lothin! and shoes are om*etin! 2ith <i.eAs. In addition, <i.e is not .ee*in! u* 2ith the latest trends and styles li.e some o5 its om*etitors have been. :or that reason, the ne2er !eneration is attra ted by Adidas and 0ommy -il5i!er. $ress&re gro&.s 6**ortunity An o**ortunity *rodu ed by *ressure !rou*s is the ability to rea t in a *ositive manner to on erns o5 the *ubli as 2ell as ustomers. Consumer 2at h !rou*s are *ayin! es*e ially lose attention to <i.eAs use o5 s2eatsho*s and hild labor to *rodu e our *rodu ts. <i.eAs o**ortunity lies in bein! able to sho2 the onsumer 5or e that 2e are indeed ta.in! ste*s to redu e and eventually eliminate s2eatsho*s and hild labor throu!h ne2 *oli ies and stri t im*lementation *ro edures. Also, by res*ondin! to su h onsumer a tivism, 2e are *ortrayin! a *ositive ima!e in that 2e are *romotin! ethi s even 2hile 2e are tryin! to be e55i ient and e onomi al. 0hreat In the same manner, not res*ondin! to these onsumer a tivist !rou*s *oses a threat to <i.e. 0he ne!ative *ubli ity that <i.e has re eived thus 5ar has lo2ered its ima!e to that o5 bein! an ethi al om*any. Su h *ubli ity has the *otential to ruin a om*any *ermanently. /y disre!ardin! the

voi e o5 on erned iti1ens, 2e are disre!ardin! our ustomers, one o5 our most im*ortant sta.eholders.

7E# O$$O"TUNIT#
0he .ey o**ortunity 5or <i.e, In . urrently is the boomin! e onomy o5 the United States. Currently the om*any has the ability and the resour es to e3*loit this o**ortunity. <i.e has a*itali1ed on the re ent e onomi boom 2ith hi!her sales and in ome. -o2ever, 2e are not usin! our resour es to the 5ullest de!ree. 0here are urrently many areas in 2hi h <i.e is not *ayin! attention. Ee have not atered to a lar!e *ortion o5 the ne2 !eneration that demand the latest trends and styles. Also, <i.e must ta.e into a ount the han!in! demo!ra*hi s in this ountry. 0here is a mu h hi!her *ro*ortion o5 -is*ani s, Asians, and A5ri an Ameri ans than there 2as be5ore. 0hese !rou*s have some2hat di55erent tastes that <i.e should be able to satis5y. 0o e3*loit this o**ortunity, <i.e needs to 5o us on 2ho the ne3t !eneration o5 loyal ustomers 2ill be and ater to their needs. In addition, the 2orld e onomy is re overin! urrently, 2hi h allo2s <i.e to ma.e an im*ression in 5orei!n mar.ets as 2ell. <i.e is stron! in many 5orei!n ountries, but 2e need to 5o us on the youn!er mar.et o5 onsumers. <i.e has been doin! a !reat deal o5 resear h and develo*ment, but i5 2e 2ant to .ee* the lead in mar.et share, 2e must loo. at trends 2hile maintainin! our hi!h standards o5 @uality.

7E# TH"EAT
0he .ey threat 5or <i.e, In . is mar.et saturation. 0he *roblem is that the athleti shoe mar.et is already 5ull o5 di55erent brands and om*anies. <o2, there is very little room 5or ne2 om*anies. 0here is also very little room 5or ne2 *rodu t innovation and !ro2th o5 mar.et share 5or om*anies li.e <i.e, In . Sin e <i.e is urrently holdin! the lead in the mar.et as 5ar as mar.et share, there is little room 5or them to e3*and. In 5a t, 2e must hold onto our mar.et share be ause i5 anythin! it is ours to lose. <i.e, In . is no2 om*etin! 2ith other athleti om*anies as 2ell as om*anies that ;ust sell lothin! or other ty*es o5 shoes. I5 all o5 these other om*anies merely !ain a small *er enta!e o5 the mar.et, <i.e 2ill be one o5 the main om*anies to start losin! mar.et share. In res*onse to this threat, 2e 2ould 5o us on .ee*in! our mar.et share and ma.in! sure that om*etitors li.e 6ld <ay do not steal a2ay our mar.et share. Ee 2ill do this by 5o usin! our e55orts on a broader mar.et. 0his 2ould in lude the youn!er !eneration that is interested in s*orts as 2ell as e3treme s*orts. Ee need to ma.e sure that 2e not only stay abreast o5 the athleti shoes mar.et but also are om*etitive in the athleti a**arel mar.et.

!A?O" AN) SUBO")INATE $"OBLE!S

!a@or $ro+le': :inan e Sy'.to': De linin! sto . mar.et *ri e Ca&ses: '. (. 3. %. De lines in net in ome o5 G3%%& 5rom '997 to '999. De lines in sales revenues o5 G%'$& 5rom '997 to '999 '(. =e ent de lines in mar.et share in the United States. 6*eratin! in a mature mar.et 2ith minimal o**ortunity 5or !ro2th.

Subordinate Problem: Strate!y :ormulation, Com*etitive Strate!ies Symptom: "oss in mar.et share 5or shoes and a**arel to non?traditional athleti 6ld <avyD. Causes: '. Poor mana!ement 5oresi!ht in *redi tin! onsumer and 5ashion trends movin! a2ay 5rom athleti shoes. (. Cy li ality in 5oot2ear and a**arel industries. 3. <i.e8s *rodu t o55erin!s are limited to athleti 5oot2ear and a**arel. Subordinate Problem: &ar.etin! Symptom$ Dro* in sales revenues in '999 5rom '999. Causes: '. An over relian e on &i hael Jordan as a entral mar.etin! 5i!ure, his de*arture aused a de line in sales. (. =e ent mar.etin! am*ai!ns are va!ue, 5o usin! on relatin! <i.e to a non?related item. Poor re e*tion o5 these ads by onsumers. Subordinate Problem: Publi A55airs Symptom: Publi outra!e over manu5a turin! and labor *ra ti es. om*anies Ce.!.

Causes: '. Undera!e em*loyment in 5orei!n o*erations dis overed by onsumer 2at h !rou*s. (. Poor 2or. environments in 5orei!n o*erations re*orted in the national media. 3. :orei!n 2a!es *aid are onsidered un;ust 2hen om*ared to U.S. 2a!es.

-(y FinanceA Ee hoose 5inan e as our ma;or *roblem be ause ontinuin! su ess 5or <i.e is based on our ability to !enerate 5uture ash 5lo2s by *rodu in! hi!her revenues and net in ome. :uture *ositive ash 5lo2s are re@uired to invest in resear h L develo*ment, mar.etin! am*ai!ns, and a*ital im*rovements re@uired by our *rodu tion a tivities. 0his hoi e is also onsistent 2ith 5inan e bein! identi5ied as our om*any8s .ey 2ea.ness Csee *a!e (3D. Additionally, 5inan ial *er5orman e e55e ts the *ubli *er e*tion o5 <i.e in the mar.et*la e. :or these reasons, 2e hose 5inan e as our ma;or *roblem.

ST"ATEBIC !ATCH
Le0erage Stren!th: 6**ortunity: Effective %arketing Recovering &nternational Economies Constraint Eea.ness: 6**ortunity: 'eclining (rofitability Robust Economy !aintenance Stren!th: 0hreat: )argest %arket *hare %arket *aturation &lnera+ility Eea.ness: 0hreat: (oor Competitive *trategy Changing 'emographics

$"I!A"# ST"ATEBIC !ATCH $OSITION


B&siness Strengt(/Co'.etiti0e $osition !atri,

Exhibit + S&ccess Factors '. &ar.et Share .$7 /readth o5 Produ t "ine Sales Distribution ,55e tiveness Pri e Com*etitiveness Advertisin! ,55e tiveness :a ilities lo ation and ne2ness Produ tion Ca*a ity =elative Produ t Ouality = L D *osition Caliber o5 to* mana!ement Customer Servi e ,3*erien e Curve Cor*orate Culture .'$ .$# .'$ .'% PI .$% .'$ .'9 .$3 PI .$5 .$5 -eig(t

Against A%i%as "ating33 5 5 % 3 5 P 5 % % 5 P 5 5 Score .35 .5$ .(% .3$ .7$ P .($ .%$ .7( .'5 P .(5 .(5

Against "ee+ok "ating33 % 3 3 ( 3 P % 3 3 % P % 3 Score .(9 .3$ .'9 .($ .%( P .'# .3$ .5% .'( P .($ .'5

Pro5itability =atios

.$9 '.$$

.%$ %.%#

.3( 3.'7

060A"

I P means that the riterion is not a**li able II ' means that the 5irm8s om*etitive *osition is very 2ea. 5 means that the 5irm8s om*etitive *osition is very stron!

Exhibit , In%&stry Attracti0eness !atri,

E0al&ation Criteria '. Industry )ro2th

-eig(t .$9

"anking ( % ( 3 3 ( % (

-eig(te% Score .'# .(% .'( .$9 .$9 .$( .($ .'#

Si1e Pro5itability Cy li ality Seasonality ,ntry>e3it barriers Customers Com*etitors

.$# .$# .$3 .$3 .$' .$5 .$9

Su**liers )overnment =e!ulations "abor unions Demo!ra*hi s Culture , onomy Politi s 0e hnolo!y Pressure !rou*s

.$# .$( .$( .'( .'$ .'( .$( .'$ .$%

3 ( % 3 ( 5 % 3 (

.'9 .$% .$9 .3# .($ .#$ .$9 .3$ .$9

060A" '.$$ I P means that the evaluation riterion does not a**ly to the *arti ular industry II ' means that the evaluation riterion Cor the industry onditionD is very unattra tive 5 means that the evaluation riterion is very attra tive Primary Strate!i &at h Position 3.$$

Avera!e /usiness Stren!th>Com*etitive Position Inde3 N 3.9( Industry Attra tiveness Inde3 N 3.$$

Exhibit -

B&siness Strengt(/Co'.etiti0e $osition Lo5 Hig( In%&stry Attracti0eness A0erage

Hig( )everage Constraint

A0erage

%aintenance Lo5 .ulnerability

THE ST"ATEBIC $LAN


!ission State'ent 6ur mission at <i.e is to be a om*any that sur*asses all others in the athleti industry. Ee 2ill maintain our *osition by *rovidin! @uality 5oot2ear, a**arel and e@ui*ment to institutions and individual onsumers o5 all a!es and li5estyles. Ee *led!e to ma.e our *rodu ts easy available 2orld2ide throu!h the use o5 retail outlets, mail order and our om*any 2eb site. <i.e8s mana!ement believes that our su ess lies in the hands o5 our teammates, ustomers, shareholders and the ommunities in 2hi h 2e o*erate. Ee vo2 to .ee* this in mind 2ith the e3e ution o5 every de ision 2ithin our om*any. al&es State'ent <i.e 2ill 5o us its ommitment to all sta.eholders by ontinuin! to ma.e strides to2ards bein! a om*any that sets the *re edents in so ial res*onsibility. <i.e is ontinuously ma.in! e55orts to ensure that all em*loyees and members o5 its surroundin! ommunities are treated in a manner that is inline 2ith our mission. <i.e has made many allian es 2ith human ri!hts or!ani1ations in an attem*t to ensure labor ri!hts 5or em*loyees o5 the industry overseas. Ee are ommitted to treatin! our em*loyees 2ith the utmost res*e t, 2hi h is re5le ted in our om*ensation and human resour e *oli ies. Ee are also ommitted to ma.in! sound de isions in re!ards to our environment, resour es, and the 5i!ht a!ainst *ollution. ision State'ent At <i.e, our vision is to remain the leader in our industry. Ee 2ill ontinue to *rodu e the @uality *rodu ts that 2e have *rovided in the *ast. &ost im*ortantly, 2e 2ill ontinue to meet the ever? han!in! needs o5 our ustomers, throu!h *rodu t innovation.

Alternati0e Strategic Slogan <i.e4as al2ays, a ste* ahead o5 the restQ Alternati0e !arketing Slogans

<i.e, try to at h us. C"isaD )ive yoursel5 an ed!e. C/rianD :or the to* athlete in all o5 us. C+imD :inish :irst. CSheetalD

III0-, EI<<,=4Se ond Pla e is 5or "osers CDanD Long<Ter' Cor.orate O+@ecti0es 0he 5ollo2in! are <i.e In .As 5?Jear lon!?term or*orate ob;e tives:
o

Continue our im*rovement in sto .holdersA return on e@uity to a hieve a ($.$B return in ($$%. 0his 2ould be an in rease o5 almost #.5B 5rom '999. In rease earnin!s *er share to G(.7$ *er diluted share by ($$% in an overall e55ort to bolster the lon!?term resilien e o5 our sto .As value. 0his 2ould sur*ass our '997 re ord hi!h.

S(ort<Ter' Cor.orate O+@ecti0es 0he 5ollo2in! are <i.e In .As short?term or*orate ob;e tives 5or 5is al year ($$$:
o

In rease net in ome to G55$ million by the end o5 5is al year ($$$ in order to rea h our lon!?term !oals o5 im*roved return on e@uity and hi!her ,PS. 0his ((B in rease 5rom '999 is realisti in li!ht o5 ombined ' st L (nd Ouarter in ome already 3(B hi!her om*ared to the same time last year. =e over the mar.et *ri e o5 our sto . 5rom its 5(?2ee. lo2 o5 G(#.5$ *er share on :ebruary 9, ($$$, to a value that a**ro3imates its 5(?2ee. avera!e o5 G5$ *er share.

Bran% Strategy <i.e In . an utili1e the om*lete stru tured a**roa h to sele t a !rand strate!y in arryin! out the above or*orate ob;e tives. 0he table belo2 on ludes that 5o usin! on *rodu t develo*ment 2ill allo2 <i.e to ontinue to build u*on our 5oundin! tenant that has se ured us a *osition that borders on levera!e and maintenan e 2ithin the athleti 5oot2ear, a**arel, and a essories mar.ets.

/e ause <i.e has su h a stron! history o5 e55e tive mar.etin! in .ey !lobal re!ions, on entration is an alternate strate!y. &ar.et develo*ment is a third strate!y 5or onsideration due to <i.eAs ability to !eo!ra*hi ally e3*and our *rodu t o55erin!s. 0he three strate!ies are very losely lin.ed. 0o determine 2hi h 2ould *revail as our overridin! strate!i *osition, 5our evaluation riteria 2ere 2ei!hted a ordin! to ea h strate!y: distin tive om*eten y, ulture, timin!, and demo!ra*hi s. Eith a total 2ei!hted s ore o5 %.%$ *rodu t develo*ment sur*asses se ond *la e, on entration, and third *la e, mar.et develo*ment.

Exhibit /

E0al&ating Le0erage/!aintenance Strategies << Str&ct&re% A..roac( $ro%&ct )e0elo.'ent -eig(te% Score333 '.75 '.(5 .#$ .9$ %.%$

Concentration -eig(te% Score333 '.%$ '.$$ .9$ .9$ %.$$

!arket )e0elo.'ent -eig(te% Score333 '.$5 '.$$ .9$ .#$ 3.%5

E0al&ation Criteria '. Distin tive Com*eten y (. Culture 3. 0imin! %. Demo!ra*hi s 0otal

-eig(t3 .35 .(5 .($ .($ '.$$

"ating33 % % % %

"ating33 5 5 3 %

"ating33 3 % % 3

I re*resents the value o5 the riteria to <i.e II e55e tiveness o5 strate!i o*tion in terms o5 its ability to satis5y the riteria: ' N undesirable 5 N desirable III C2ei!htD 3 C riteriaD 0he ore o5 our business is our *rodu ts. Produ in! mer handise that is hi!h in @uality, te hnolo!i ally advan ed, and 5ashionable 2ill allo2 us to a hieve our or*orate ob;e tives o5 *ro5itability and shareholder value. Utili1in! this strate!y 2ill also allo2 us to a*itali1e on our .ey o**ortunity. 0he !lobal e onomy is be omin! so stron! that by im*rovin! our *rodu ts in order to e3tend their li5e y le 2e 2ill be ma.in! a lon!?term investment in this 5inan ial boom. 6ur *rodu ts

2ill be able to better 2ithstand the ris. o5 *assin! 5ads. In or*oratin! 5ashion into our *rodu ts is one 2ay to a hieve this strate!y. 0he t2o alternate mar.etin! strate!ies 2ill be ;ust as ne essary in order to in or*orate our *rodu ts into the sho**in! habits o5 onsumers. Co'.etiti0e Strategy In the *ast, our om*any has utili1ed *rodu t di55erentiation as our om*etitive strate!y. As our re*utation di tates, 2e 2ill ontinue to *la e our em*hasis in this area. <i.e has built its business on *rovidin! *rodu ts that rise above all othersM it has made us the su ess that 2e are today. <i.e is .no2n 5or its te hnolo!i ally advan ed *rodu ts. Ee are the leaders in this area, 2hi h allo2s our *rodu ts to stand out 5rom the rest. 6ur 5o us also allo2s us to maintain a some2hat narro2 ni he that enables us to e55e tively a*ture the needs and 2ants o5 our onsumers. <i.e 2ill also 5o us on ma.in! a stron! e55ort in *ri e leadershi*. 6ur *rodu ts in the *ast have been on entrated in the hi!her end o5 the *ri in! ate!ory. Ee 2ill no2 ma.e an entran e into lo2er *ri e ate!ories 2ith our @uality *rodu ts. 0his 2ill enable us to a*ture an even !reater hold on mar.et share. O.erational 4F&nctional9 Strategies !arketing O+@ecti0es "on!?0erm: In rease our mar.et share in the Asia Pa i5i re!ion 5rom (#B to 3$B by ($$%. Short?0erm: In rease our mar.et share in the Asia Pa i5i re!ion 5rom (#B to (7B by 5is al year end ($$$. Exhibit 10 S(ort<Ter' Strategy Start )ate %arket Research '. -ire a mar.et resear h 5irm 5amiliar 2ith Asia, s*e i5i ally the boomin! mar.et o5 Ja*an, to study the buyin! habits o5 Asian onsumers. Determine 2hat 5a tors motivate their athleti 5oot2ear and a**arel *ur hases. 3>' Co'.letion )ate3 5>'

B&%get G%$$,$$$

Sa0ings

(. Condu t 5o us !rou*s in Asia to !et 5eedba . on our e3istin! *rodu ts, as 2ell as our *rototy*es. 5>' 3>' (ricing '. Determine *ri e *oints 5or our Asian *rodu t o55erin!s that are *ro*erly ad;usted 5or re!ional buyin! *o2er, om*etition, and urren y valuation. 1dvertising and (romotion '. S*onsor re!ional s*ortin! events 5or *ro5essional, amateur, and olle!iate teams. In lude s*onsorshi* o5 the ($$( Eorld Cu* in +orea and Ja*an. (. =un advertisements in the most *o*ular 5orms o5 re!ional media: television, ne2s*a*er, ma!a1ines, billboards, and>or radio. 3. 655er rebates and dis ounts 5or ertain late?model shoes to en oura!e sales and inventory turnover. %. Condu t 5ashion sho2s at to* retail venues to dis*lay our latest mer handise o55erin!s to onsumers and the media. 3>' G9$,$$$

%>'

5>3' 3>' G5,$$$,$$$

5>3' 3>' G'$,$$$,$$$

5>3' 3>' 5>' 3>' 0otal 3 months G'$$,$$$ G'#,59$,$$$ G',$$$,$$$

I om*letion date based on a 5>3' 5is al year end. $ro%&ction O+@ecti0es "on!?0erm: De rease our ost o5 sales 5rom #(.59B o5 sales to 59B o5 sales by 5is al year end ($$%. Short?0erm: De rease our ost o5 sales 5rom #(.59B to #(B in 5is al year ($$$. Exhibit 11 S(ort<Ter' Strategy Start )ate )ocation2 e#ness2 and )ayout of 3acilities '. -ire inde*endent industrial en!ineers and analysts to 2or. 2ith manu5a turin! 5a ilities in order to ma3imi1e e55i ien y o5 o*erations: sho* layout, *ro esses, et . &nventory '. =edu e inventory at all levels o5 *rodu tion: ra2 materials, 2or.?in? *ro ess, and 5inished !oods. (. Eor. 2ith 3rd *arty shi**in! a!ents to mana!e the 5lo2 o5 orders 5rom 5a tories to distribution enters. 3. Eor. 2ith su**liers to im*lement the ne3t !eneration o5 ele troni data inter han!e C,DID te hnolo!y in an attem*t to a hieve ;ust?in?time inventory. 5>3' 3>' 5>3' 3>' G',$$$,$$$ G%$,$$$,$$$ 3>' Co'.letion )ate3 5>'

B&%get G'$,$$$,$$$

Sa0ings G3$,$$$,$$$

5>3' 3>' G'$,$$$,$$$

G($,$$$,$$$

0otal

3 months

G($,$$$,$$$ G9',$$$,$$$

I om*letion date based on a 5>3' 5is al year end. "esearc( C )e0elo.'ent O+@ecti0es "on!?0erm: &aintain a ran!e o5 =LD e3*enditures that does not 5lu tuate more than '.5B or less than .75B o5 *ro;e ted sales in the ne3t 5 years. Short?0erm: In rease s*endin! on =LD to '.(B o5 *ro;e ted revenues in 5is al year ($$$ to a hieve in reased mar.et share. Exhibit 12 S(ort<Ter' Strategy Start )ate 3ocus '. Shi5t 5undin! to a**lied resear h in Fu*?and? omin!F s*orts. ,3*eriment 2ith uttin!?ed!e 5ashion. 4udget '. In5use ne2 5undin!, in addition to shi5tin! urrent bud!etary allo ations, 5or resear hin! s*orts that ould be *o*ular in the 5uture. 0otal I om*letion date based on a 5>3' 5is al year end. H&'an "eso&rce O+@ecti0es "on!?0erm: In rease availability o5 edu ational assistan e *ro!rams 5or 2orld?2ide manu5a turin! em*loyees 5rom 5$B o5 5a tories to '$$B by ($$%. 3>' %>' G'5,$$$,$$$ 3>' Co'.letion )ate3 5>3'

B&%get

Sa0ings

3 months

G'5,$$$,$$$

Short?0erm: In rease availability o5 edu ational assistan e *ro!rams 5or 2orld?2ide manu5a turin! em*loyees 5rom 5$B o5 5a tories to 7$B by ($$$.

Exhibit 13 S(ort<Ter' Strategy Start )ate Recruitment and *election '. -ire 5a tory 2or.ers 2ho e3*ress an interest in edu ational *ro!rams. 0hese em*loyees 2ould a hieve the ma3imum bene5it 5rom edu ational assistan e *ro!rams by bein! more loyal and *rodu tive. 5raining and 'evelopment '. 655er !eneral edu ation lasses 5or 5a tory 2or.ers 2ho 2ant to learn ho2 to read, 2rite, or 5ill any !a*s in their hildhood edu ation. (. Condu t seminars and 2or.sho*s 5or su*ervisors in 5a tories so that they may im*rove their *rodu tion and mana!ement s.ills. Compensation '. In rease salaries o5 5a tory 2or.ers 3>' Co'.letion )ate3 5>3'

B&%get

Sa0ings

5>3' 3>' G5,$$$,$$$

5>3'

2ho are *romoted as a result o5 om*letin! our edu ational assistan e *ro!rams.

3>'

G3,$$$,$$$

5>3' 3>' 0otal I om*letion date based on a 5>3' 5is al year end. Finance O+@ecti0es "on!?0erm: In rease net in ome 7$B to G7#7 million by 5is al year end ($$%. Short?0erm: In rease net in ome ((B to G55$ million in 5is al year ($$$. Exhibit 14 S(ort<Ter' Strategy Start )ate %anagement of 1ccounts Receivable '. Im*lement stri ter redit terms 2ith retailers to minimi1e bad debt e3*ense. (. -ire '$ additional em*loyees in the or*orate A ounts =e eivable De*artment to maintain and olle t a!in! a ounts. 3>' 3>' Co'.letion )ate3 5>3' %>' G%$$,$$$ 3 months G5,$$$,$$$ G'3,$$$,$$$

B&%get

Sa0ings G($,$$$,$$$ G(5,$$$,$$$

5>3'

G5$,$$$,$$$

%anagement of 5otal 1ssets '. Sell non?*rodu tive e@ui*ment or buildin!s to redu e de*re iation and maintenan e e3*enses. 0otal I om*letion date based on a 5>3' 5is al year end. 3>' G3$$,$$$

3 months

G7$$,$$$

G95,$$$,$$$

CONCLUSION
<i.e, In . is a om*any rooted in om*etition. :rom e@ui**in! athletes 2ith the 5inest s*orts e@ui*ment in the 2orld to ontinuously im*rovin! our o2n 5inan ial *er5orman e, <i.e dominates its om*etitors. Phil +ni!ht and /ill /o2erman *robably ould not have ima!ined in '9#( to 2hat de!ree their G5$$ investments 2ould yield in ($$$. 0hey did .no2 that *rodu t @uality and innovation 2ould hel* athletes to a hieve !reater !oals. <i.e still o*erates on this *hiloso*hy today. It is one that has hel*ed athletes and sta.eholders ali.e to reali1e athleti and 5inan ial !reatness. Des*ite a han!in! mar.et*la e 5or athleti 5oot2ear, 2e 2ill ontinue to e3*and our *rodu t lines and mar.etin! rea h to be ome a more *o2er5ul !lobal brand.
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