----------------------------------Aug 13, 2005 Nike versus Adidas Case Study and Competitive Analysis ----------------------------------Nike vs Adidas, market and

comprehensive competition analysis and case study EXECUTIVE SUMMARY Since the birth of the Internet in 1969 to its commercial adoption in the 1990s, the World Wide Web has enabled businesses and consumers to connect with one ano ther to exchange and share information, anywhere and anytime. The web has provid ed consumers and businesses with enormous advantages by reducing the transaction time and increasing the level of convenience. As we leap into the twenty first century, it seems as though everyone is on the Internet and more companies are establishing an online presence to maintain thei r competitive edge. Along with high speed Internet connections, the Internet has become an essential tool for any business to compete domestically or globally. In today's high speed environment, one would be hard pressed to find a Fortune 5 00 company conducting business with either other businesses or consumers to not have its own web site . Businesses are developing web sites to provide their con sumers and business partners with information and e-commerce. Large firms who ha ve not adopted e-commerce as part of their strategic initiatives will miss out o n opportunities to attain growth and competitive advantage. Nike and Adidas are two primary footwear companies along with their competitors who have adopted an online e-commerce strategy to increase their sales and produ ct awareness. Most importantly, companies like Nike and Adidas have invested hea vily into online brand building and image development. Nike launched the nike.co m web site in August 1996 primarily to provide information to its consumers. In 1996, there were no e-commerce capabilities present, however the web site served as a brand building tool for the company. In 1999, Nike redesigned their web si te with expanded e-commerce functionality. Adidas launched their web site in the spring of 2000, which was later integrated with e-commerce capabilities during that summer. Attaining market share is important to both Nike and Adidas. In order to maximiz e their market share, both Nike and Adidas have placed a great importance in dev eloping their branding and marketing strategies on the net through web appearanc e and user friendly functionalities such as ease of purchase, speed, and navigat ion. Nike and Adidas have adopted a merchant model which encompassed three pillars of their e-commerce strategy: pure-play e-tailer, bricks and clicks, and their onl ine store. The main purposes of acquiring relationships with pure-play e-tailers is to promote and market products; focus on the content to create new exposure and; gather, gain and transfer market knowledge to their business counterparts. The Internet has proven to be a useful tool for firms such as Nike and Adidas by increasing sales and reducing cost. But most importantly their web sites have p rovided them with an intangible asset such as market research and consumer buyin g behaviors. With the data retrieve from consumers, these firms are able to anal yze and monitor the buying behaviors of their consumers. The data can also be us ed to exploit new marketing campaigns and promotions. Furthermore, the data coll ected can be used to produce innovative designs and improve their research capab ilities.

Although, there are perceived benefits in conducting e-business over the Interne t there are also potential barriers. The major barrier of e-commerce with respec t to large firms such as Nike and Adidas is the technological barrier ranging fr om infrastructure to security. An ongoing battle the e-commerce industry faces i s security. With time and additional research and resources, this problem will b e mitigated. Meanwhile, both Nike and Adidas must minimize their technological r isks. While both Nike and Adidas currently have an essential advantage over their riva ls, there are chances that their advantages will not last forever. The Internet has redefined competition therefore changing the evolution of competition. Altho ugh, Nike and Adidas have engaged in e-commerce there are apparent gaps within t heir e-business strategy. E-commerce is only available in restricted regions suc h as the United States and the United Kingdom, therefore opportunities exists wi thin the global market to expand. The future will prove to be very interesting f or both Nike and Adidas, and those who move quickly will dominate the market. INTRODUCTION A daring dream began in 1920 when Adi Dassler fashioned his first shoe in Herzog enaurach, Germany. In 1948, Adidas was founded along with its identifying tradem ark, the three stripes. From its inception, Adidas has faithfully adhered to thr ee guiding principles embedded deep into its DNA: produce the best shoe for the requirements of the sport, protect the athlete from injury, and make the product durable. As time has passed, Adidas has evolved and is now one of the premier g lobal leaders in sporting brands offering athletic footwear, apparel and accesso ries. This feat has been cultivated through continuous innovation and a broad pr oduct portfolio. With time, Adidas discovered that in order to continue to evolv e further its strategy had to include the Internet. This led to the development of www.thestore.adidas.com, an e-commerce site focused on interactively profilin g Adidas's extensive product offerings accompanied by detailed product informati on. Initially, what started as Blue Ribbon Sports in 1962 became Nike Inc. in 1972, based in Beaverton, Oregon. Nike was named for the Greek winged goddess of victo ry. The founders were Bill Bowerman, a track & field coach and Phil Knight, a ru nner under Bowerman. From their modest start, Nike has grown to be a global lead er in the sporting goods industry. It is recognized as the world's leading desig ner, marketer and distributor of athletic footwear, apparel, and accessories for a wide variety of sports and fitness activities. For Nike, an established and g rowing organization, a strong Internet presence felt like a natural extension to their already globally focused strategy. Today www.niketown.com, Nike's e-comme rce site offers a unique experience, products and product information for its po tential and existing customers. ANALYSIS OF E-COMMERCE Attaining market share is important to both Nike and Adidas. In order to maximiz e their market share, both Nike and Adidas have placed a great importance in dev eloping their branding/ marketing strategies on the net through web appearance a nd user friendly functionalities. The analysis below represents the web site pos itioning map which identifies some of the key performance criterion in determini ng the web site positioning strategy for both Nike and Adidas. The upper right q uadrant indicates a high rating in both web site appearance and user friendly fu nctionalities. While the lower left quadrant indicates both a low web site appea rance and user friendly functionalities. It's apparent in the figure below that Nike has the most favourable web site with both high web site appearance and use r friendly functionalities. However, Adidas web site is slightly more favourable in user friendly functionalities while lagging on overall in web site appearanc e in comparison to Nike's web site.

OVERALL COMPANY VALUE CONFIGURATION The value curve below illustrates an evaluation of Nike and Adidas's focusing on the company as a whole but with the focal point of e-commerce extension. Nike.com Adidas.com The inputs to the e-commerce value configuration for both Nike and Adidas are: B rand Image, Price, Web site design, Service, and Innovation. Analyzing the graph , Nike.com has a slight edge over its arch rivals Adidas. Adidas with growing po pularity has narrowed the gap from previous years. The brand image for both Nike and Adidas is immense; however Nike has attained a considerable competitive adv antage due to its reputation for quality and innovation. In terms of e-commerce, both Adidas and Nike are analogous, however, Adidas' web site is a bit more use r friendly and navigation is fairly easy. The functionalities are identical in b oth cases. Overall, Nike's continued efforts in innovation coupled with its bran d image, is a unanimous leader of the athletic footwear and apparel industry. In terms of the e-commerce portion of the industry, Adidas with its web site desig n and functionality has narrowed the gap between the market leaders and the mark et follower. Nike.com's value proposition is an easy to use web site that is hig hly interactive, secure as well as its reputation and brand image of their produ ct. For Adidas.com, similar to Nike, the value proposition is an interactive web site that is secure and easy to use. For the soccer industry, Adidas.com positi ons itself as the leading brand in apparel and footwear. The value chain configuration for both Nike and Adidas is supply chain. The valu e configuration has multiple components. To the right is a table which summarize s these components and the respective percentages for a $100 product (footwear). Because the operations of both companies are similar, the table below only list s Nike's value chain breakdown. Adidas' value chain although slightly different, is similar in nature in comparison to the industry. Essentially, the breakdown of the value chain indicates for both Adidas and Nike that the cost to produce a nd sell an item over the Internet costs these companies almost 50% of the price of the item. ItemPercentage Material Cost16% Labour Cost2.6% Administration and Overhead4.6% Profit Margin1.9% Net Factory Price25.1% Shipping, Customs and Finance3.9% Net Landed Price29% Warehousing and distribution0.8% Royalties0.4% Quality Costs0.3%

Direct Ship Allowance0.2% Research and Development0.2% Other costs of sale0.1% Total Cost of Goods Sold31% Sales and discounts4.6% SG&A8.3% Corporate Overhead1.8% Interest Expense0.2% Income Taxes2.6% Total Nike Cost48.5% Financial Analysis of Nike and Adidas Below is the Nike and Adidas stock performance comparison in Euros. There is no question Nike is the market leader in not only the product aspect but also the f inancial aspect of this industry. However, over the last few years, Adidas has b een slowly eroding the market share from Nike. The financial comparisons of both companies indicate Nike having a substantial financial advantage over Adidas. T he operating margin and return on assets is slightly lower for Adidas. This coul d be indicative of the market leader and market follower relationship. Adidas ne eds to improve in both operating margin and return on assets to gain ground on N ike. Nike Adidas MeasureNikeAdidasIndustry Employees23,30014,71623,000 Market Cap16.36 Billion13.97 Billion240.81 Million Revenues10.70 Billion6.523 Billion 482.62 Million Operating Margin10.89%6.71%N/A Return on Assets11.97 %5.3%N/A Return on Equity 20.12%21.1 %N/A Below is a figure extracted from a study conducted at Cornell University, which illustrated the distribution of market shares in the U.S. and in foreign markets . This research was conducted in 1998, since this time, Adidas has comfortably m oved to the second spot in this highly competitive industry. For Nike to success fully remain as the market leaders, it must continue to innovate and produce lea ding edge designs that attract the diverse markets. One important point to highl ight is the market share Adidas has gained since 1998. Adidas evolved from a min or player in the industry to the second biggest company in the industry.

Footwear Market Share SWOT Analysis for Nike.com & Adidas.com Nike.comAdidas.com Position Market Leader Market Follower STRENGTHS Strong management team and good corporate strategy in both North American and ov erseas markets First movers advantage in e-commerce Brand recognition and reputation Trademark "Just Do It" Diversity and variety in products offered on the web (footwear, apparel, sportin g equipment, etc.) Strong control over its own distribution channel Strong customer base Strong financial position with minimal long term debts Innovative designs in footwear enabling consumers to design their own shoes onli ne Brand reputation and recognition Diversity and variety in products offered on the web (footwear, apparel, sportin g equipment, etc.) Adidas even offers items not available in its retail stores Emerging brand name Pricing strategy is competitive to Nike's Merger with Salomon will allow Adidas to gain a strong foothold in the Skiing In dustry Secondary web sites (i.e. soccerevolution.com to simply promote soccer, Adidas l eads the market in this sport) WEAKNESSES Negative image portrayed by poor working conditions in its overseas factories E-commerce is limited to USA The direct sale to consumers is creating conflicts with its own resellers Currently available supply chain, manufacturing, and fulfillment technologies ar en't easily integrated with online build-to-order systemsNot known for i ts research and development leading to innovative designs The e-commerce is limited to USA, however, has planned to expand to Canada and i

nternational in the near future Online customer service not "helpful" or easy to find OPPORTUNITIES Increasing demand in the industry for products available online Increase female participation in athletics E-commerce will reduce the cost of goods sold thus improving the "bottom line" New technology and innovation to stay on top of market needs Expand e-commerce to global markets Possibility of outsourcing the web development and e-commerce to a third party d eveloper Growing interest in the sport of Basketball. Partnering up with other retailers to sell basketball footwear and apparel Growing reputation in non-basketball sports will boost e-business E-commerce will reduce the cost of goods sold thus improving the "bottom line" Expand e-commerce to global markets Collaborate with other online retailers to offer Adidas products THREATS Negative image due to "sweatshops" Economic downturn in North America and Asian Countries Increase in the price of providing technological solutions (e-commerce) Strong competition from some of its major challengers in all branches of the bus iness Continuing challenges in import/export duties Negative image created by the sponsored athletes (i.e. Kobe Bryant and his sexua l assault case) Increase in the Price of Raw materials Nike's strong reputation in the footwear and apparel industry Continuing challenges in import/export duties Threats to free trade and foreign currency fluctuations Possibility of distress from growing beyond its capabilities Losing serious ground to Nike in the Soccer industry, which Adidas has a strongh old on Emerging competitors

Both Nike.com and Adidas have strong positions in the footwear and apparel indus try. Integrating e-business to its existing line of business is a key advantage to both companies relative to its competitors. For Nike, to overcome the potenti al threats, they must continue to be innovative and explore opportunities global ly. Furthermore, Nike must focus their energy towards reducing the channel confl ict caused by the introduction of e-commerce to Nike's strategy. Nike.com must b alance out its efforts to reassure traditional retailers while expanding its own line of business through e-commerce. Very similar to Nike, for Adidas to overco me some of the potential threats they must continue to improve their strategic p osition in the industry by increasing their e-commerce reach to the global marke ts. For both companies, it's important to increase the market "pie" rather than increase their market share away from their retailers. Furthermore, the informat ion, such as demographics and preferences, collected from directly selling to th e end consumers should be used to market new goods and products. PORTER'S FIVE FORCES Barriers to Entry - Low Due to the large scale of both Nike and Adidas, these firms are able to control their costs to retain performance advantage over emerging competitors in the ind ustry. Their web sites are more sophisticated and enticing to browse, both contr ibuted to their large marketing budgets. The capital injection into web site dev elopment is high and must be updated frequently with new promotions and added fe atures to attract online shoppers. There are many proprietary product difference s in the industry therefore brand identity has an immediate competitive advantag e. The Nike and Adidas brand is well renowned globally and plays a major role in consumer decision making. Selling footwear online is highly competitive; howeve r, barriers to enter into this e-commerce industry are quite low. The capital re quirement for setting up an online shop is comparatively lower than setting up a traditional bricks and mortar establishment. Therefore, the online footwear ind ustry is highly abundant with hundres of online merchants. Switching cost is low for the consumer, and may occur frequently depending on consumer preference and other factors affecting consumer buying decision, (i.e. price sensitive consume rs). Another major barrier is security. Although, Nike and Adidas have invested millions of dollars into their web site, there is an industry wide problem of se curing data over the Internet medium. Hackers may potentially lacerate into the site and could retrieve sensitive data such as consumer profiles, credit card nu mbers, and other corporate data. They could even redirect the company's web site traffic to another web site similar to the case of Nike in June 2000. Nike expe rienced a hijacking of its web site. The traffic from www.nike.com was redirecte d to a server at a Scotland-based Web hosting company Bargaining Power of Buyers - High There are a large number of buyers relative to the number of firms in this indus try. Therefore, companies like Nike and Adidas must continuously market their pr oduct and differentiate their brands against competitors, in order to increase s ales and market share. The use of online tools has helped to enhance the accessi bility and intimacy among users. For example, Nike's "nikeid.com" link allows co nsumers to customize and design their own footwear by permitting customers to sp ecify the desired colours and the option to personalize the footwear with their name. Brand identity plays a critical role in the buying behavior; strong identi ty will offer consumers trust and loyalty. Many online buyers are price sensitiv e and switching cost is low for the buyer. Bargaining Power of Suppliers - Low There are many suppliers in this industry. In essence, there is very little diff

erentiation among the suppliers which makes suppliers' bargaining power non-exis tent. Leather, rubber, and cotton are commodity items and are available abundant ly in the market place. Conglomerates such as Nike and Adidas have a definite ad vantage and power over their suppliers. These suppliers become dependent on thes e firms as their means to survival. Additionally, Nike and Adidas have standardi zed their input procedures pertaining to the materials used, their labor force, supplies, services, and logistics. Firms are able to switch between suppliers qu ickly and cheaply, due to the globalize networks of cheap labor on various conti nents. Additionally, inputs are readily substituted and there are an abundant nu mber of suppliers available. Threats of Substitutes - Low Buyers' propensity to substitute is low. Consumer substitutes for athletic footw ear products are low because there are little alternatives to switch, some subst itutes for athlete footwear could be boots, sandals, dress shoes or bear feet. C onsumers are not likely to substitute due to the performance specification of th e product. For instance, a basketball player would not wear boots to play basket ball. Therefore, there are no real substitutes for athletic footwear. Rivalry among Existing Competitors - High The rivalry among existing competitors in the footwear industry is quite high. L arge firms such as Nike and Adidas have grown immensely over the last two decade s. Their global reach has expanded through all continents; this is attributed to the emergences of the Internet and e-commerce. Online selling has enlarged the reach for these firms allowing them to increase sales while minimizing operating costs. Almost every large firm has a web site, and most of these web sites cont ain virtual stores which provide convenience to consumers. Most individuals in N orth America have access to high speed Internet and online purchasing has become the new trend for the twenty first century. Competition is fierce in the footwe ar industry and those who dominate or lead the market do so with high capital ex penditures, aggressive sales and marketing strategies, and strong brand identity . E-BUSINESS MODEL Nike and Adidas have adopted a merchant model which encompassed three pillars of their e-commerce strategy: pure-play e-tailer, bricks and clicks, and their onl ine store. The main purposes of acquiring relationships with pure-play e-tailers is to promote and market products; focus on the content to create new exposure and; gather, gain and transfer market knowledge to their business counterparts. Nike has landed a deal with Fogdog Sports which will sell their entire Nike prod uct line on its web site. Adidas signed an agreement with SportsLine.com and Spo rts.com. The benefits of building relationships with these pure-play e-tailers a re to provide global reach and coverage. Fogdog.com, Sports.com, and SportsLine. com have the initial coverage in the US, UK and eventually in Asia. Nike and Adi das will also operate their traditional bricks and mortar establishments, while selling their specialty products on their e-commerce web sites. This business mo del is referred to as "bricks and clicks." The primary goals of operating a bric ks and click site is to increase sales, reduce cost, increase market reach, appl ying competitive pressure, promoting new products, improving customer service, a nd progress in addressing user concerns. Additionally, Nike and Adidas have incl uded an affiliate link which allows consumers in varies regions to locate affili ated store locations such as Foot Locker and Champs. APPARENT EFFECTIVENESS OF E-BUSINESS Nike's ability to realize the potential of the Internet has placed them in the e -commerce leadership position among other sporting goods companies. Through its

initiative to be the first to market with its e-commerce web site launch back in 1999, Nike was able to understand early on what its 14 million visitors demande d and enabled itself to become established while competitors scrambled to join, simultaneously creating a temporary competitive advantage as a result. By contin uously relying on innovative companies to redesign the site, Nike acquired the l uxury of owning a site that's every bit as inspirational as it is informational, an important milestone for a market leader. Today, Nike's store enables online consumers to design key elements of the shoes they purchase. This program is the first time a company has offered such mass customization of footwear. All this online success has not come without a price. Significant amounts of money were i nvolved and a constant chilled reaction was received from its channel partners l ike Footlocker and Sports Chek with each site redesign as latest design containe d e-commerce - leaving some companies without Nike products to sell online. Adidas's approach to e-commerce was that of a follower since Nike was first. As a result, Adidas relentlessly pursued innovation and refreshing content to diffe rentiate itself from Nike. Adidas also realized that in order to be successful i t has to be fully committed to this initiative. That's why it included adidas.co m as part of its three pillar strategy along with pure play e-tailers, bricks an d clicks. The final result is a web site that successfully portrays Adidas's pro duct portfolio in an interactive and informational manner. The e-commerce presen ce required Adidas to adjust internally to be able to fully support and commit t o this initiative. With Nike being first to the punch there was no room for mist akes and experiments. The final product had to be attractive and able to compete . Also, just like Nike, Adidas had to consider the channel conflicts adidas.com created. Nike and Adidas seem to follow similar online strategies but Adidas experienced a greater transformation from being a minor, insignificant player back in 1998 t o the number two position in the athletic footwear and apparel industry. Part of this success is due to Adidas's ability to thoroughly leverage the Internet as a marketing and e-commerce medium, most of it at the expense of Reebok. In the N ike's case the online strategy ensured its strong leadership position in the int ensely competitive market. Both Adidas's and Nike's strategy seem to be well ahe ad of their competition contributing to their e-commerce success. No other athle tic footwear company is able to outshine these two firms when it comes to e-comm erce, at least for now and in the near future as this task would involve large i nfrastructure investment and more importantly thorough commitment. PROGNOSIS Although both Nike and Adidas currently have a significant advantage over their rivals, chances are this will not last forever. The Internet is a medium that is redefining competition and markets in sectors that previously did not embrace i t. With time more firms that deal with athletic footwear and apparel will join t he Internet rush providing customers with more choices. As more and more people engage in e-commerce it will become more relevant to show how and why a product is superior to the competition as opposed to more promotional e-commerce sites f ound today. Also, there will be an increased emphasis on customization and diffe rentiation of products, something Nike already pioneered with the shoe with your name. At this point in time both Adidas and Nike are not slowing down with thei r continuous web site innovations setting a high standard for the rest of the in dustry. An interesting issue with such development is the increased channel conflict it presents. As Nike and Adidas begin to significantly increase their online sales they might be reluctant to sell their products through smaller online retailers. Currently all retailers are already nervous of how this will affect their abili ty to sell Nike and Adidas products online. Nike holds a lot of leverage because of its significant market share and could choose to exclude certain retailers w

ithout suffering decreased sales. Adidas does not hold as favourable position as Nike but still has leverage over certain smaller retailers. But it is a fine ba lance as the larger retailers would not want to be eliminated and could combine efforts to ensure that they are not eradicated from selling athletic footwear fo rm main firms. The future should prove to be interesting and full of development s. It will be full of successes, failures and partnerships (between suppliers an d retailers). LIST OF REFERENCES: *Adidas, Annual Report 2002 *Adidas, Annual Report 2001 *Nike, Annual Report 2002 *Nike, Annual Report 2001 *Industry Sector Analysis of Sporting Goods, U.S. and Foreign Commercial Service , 1998 *Multex Fundamentals / ProVestor Plus Company Report, Nike Inc., October 2003 *ShoeStats 2002, AAFA, January 2003 *http://www.channelseven.com/newsbeat/99features/news19990624.shtml, October 200 3 *http://www.urlwire.com/newsarchive/062499.html, October 2003 *http://www.adidas-salomon.com/en/news/archive/2000/2000-07.asp, October 2003 *http://www.adidas-salomon.com/en/overview/welcome.asp, October 2003 *http://www.adidas-salomon.com/en/investor/strategy/default.asp, October 2003 *http://www.adidas-salomon.com/en/investor/reports/default.asp, October 2003 *http://www.adidas-salomon.com/en/overview/history/default.asp, October 2003 *http://www.cybersource.com/solutions/success_stories/nike.xml, October 2003 *http://www.nike.com/nikebiz/nikebiz.jhtml?page=1, October 2003 *http://www.nike.com/nikebiz/nikebiz.jhtml?page=15, October 2003 *http://www.nike.com/nikebiz/news/pressrelease.jhtml?year=1999&month=06&letter=d , October 2003 * "Nike - Channel Conflict." Graduate School of Business, Stanford University, F ebruary 2000 *Belch & Belch. "Advertising and Promotion." McGraw-Hill Irwin. New York. 2001. p.493 *"Companies point fingers over Nike Web site hijacking." Computerworld. June 30, 2000