Nike's Competitive Advantage

Understanding Nike
Founded in 1964 by University of Oregon track athlete Philip Knight and his coach Bill Bowerman, Nike has become a leading player in the athletic footwear and apparel industry. Over the past 40 years, the company has built several competitive advantages:

-- Strong Brand: Nike has been able to establish strong emotional connections with athletes by building one of the most widely recognized brands in the world. Interbrand puts Nike in the 26th position of its Best Global Brands 2012 Ranking, well above Adidas (NASDAQOTH: ADDYY  ) , which is in the 60th position.

-- Pricing Power: Nike's strong brand has enabled the company to set high prices, and therefore enjoy a higher gross margin in footwear than most of its competitors. Just in the latest quarter, the company posted an increase of 110 basis points in gross margin to 43.9%!

-- Global Supply Chain: With more than 1000 factories worldwide and 1 million workers employed, Nike's supply chain overshadows any other competitor. The company has the resources needed to supply the world with top-quality shoes without any trouble.

Countries with Nike factories Source: Nike.


-- Permanent Innovation: The company is committed to finding and investing in new ideas. Each of Nike's cash cows -- the running business unit alone is worth $3.7 billion alone -- started out as a simple idea. In 2012 the company expanded NIKE+ into Basketball, unveiled new uniforms for the NFL, and developed a shoe upper with a single piece of thread using Flyknit technology, a set of patents that allows Nike to precisely engineer yarns and fabric variations needed for featherweight.


These advantages have allowed the company to more than double its revenue in the past 10 years. As earnings per share grew at a compounded rate of 15%, management returned over $15 billion to shareholders via dividend payments and share repurchases. The key behind these figures is massive growth. It took the company 18 years to earn its first $2 billion in revenue. By growing 8% in 2012, the company added that much in just 12 months.