Model Nike shoes
This article is about how NIKE makes money. Firstly, we explain the key business segments of Nike and how the company generates revenue from each of those segments. Then, we discuss key elements of NIKE business model. Finally, we share the revenues, the profits, and the profit margins of NIKE for 2015.
NIKE is one of the world’s largest supplier of athletic shoes and apparels and a major manufacturer of sports equipment, with revenues in excess of US$30 billion in its fiscal year 2015 (ending May 31, 2015).
NIKE Business Segments:
Key Elements of NIKE Business Model
NIKE has maintained its leadership position in the highly competitive sportswear equipment and apparel market with a business model design that focuses on:
NIKE Focus On Design & Development
NIKE has maintained its leadership position due to its continued focus on design, research and development. NIKE filed for 541 patents in year 2014. Along with 281 patents filed for shoes, it also filed 70 patents for technology and 39 for manufacturing. Some of the NIKE innovative products across its product line are: NIKE Air, Lunar, Zoom, Free, Flywire, Dri-Fit, Flyknit, Flyweave, and NIKE+. The company has invested heavily in partnerships with leading organizations globally for innovative technologies. Following partnerships are helping NIKE in building a sustainable business:
NIKE Focus On Contract Manufacturing
NIKE doesn’t own any manufacturing site and produces all its products through independent contractors. All footwear and apparel products are manufactured outside the United States, while equipment products are produced both in the United States and abroad. This strategy has helped NIKE improve its profit margins, reduce inventories, minimize price markdowns, and ensure that the customer receives the right product assortment on time.
NIKE Focus On Building Global Brand
NIKE is the world’s number one sports brand. Its brand value was estimated at $19 billion by Forbes magazine in 2014. It’s up from $15 billion in 2012 and $17.3 billion in 2013. Walt Disney Company’s ESPN was second with a brand value estimated at $16.5 billion, followed by Germany’s Adidas AG, the United Kingdom’s Sky Sports and fast-growing US brand, Under Armour Inc. Nike has built its brand over years using sponsorship agreements with celebrity athletes, professional teams and college athletic teams. Recent branding efforts also include using digital technologies to engage directly with the younger customer and receiving direct feedback about the overall customer experience. Nike+ running sensor developed in collaboration with Apple Inc. and Nike FuelBand are the examples of these digital initiatives.
How NIKE Generates Revenues?
NIKE generates its revenues by directly selling to customers or through dealers.
NIKE sells directly to customers through:
NIKE also reaches out to its customers through its widespread dealer networks that include Footwear stores, sporting goods stores, athletic specialty stores, department stores, skate, tennis and golf shops, and other retail accounts.
NIKE Revenues By Business Segment FY 2015
NIKE Profit Margins FY 2015
Of the $30.6 billion of NIKE total revenues in FY’15, $16.5 billion were the cost of sales. This resulted in $14.1 billion of gross profit and a gross margin of 46.0%. NIKE operating costs were $9.9 billion. These include Selling (demand creation) and administrative (operating overhead) expenses. This resulted in $4.2 billion of operating profit and an operating margin of 13.7%. After interest and other non-operating income and expenses and income taxes, NIKE had a net profit of $3.3 billion and a net margin of 10.7%.