NIKE PESTEL ANALYSIS

Abhijeet Pratap

November 23, 2023

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Nike is a global leader in the sports shoes and apparel industry. It is a well known brand in the world of marketing enjoying strong brand awareness and customer loyalty in most corners of the globe. The largest market of the company is the United States. However, Nike also has a strong customer base in several more markets of the world. Nike has continued to strengthen its market position and competitive advantage in the sports shoes industry.

The company is facing intense competition from the other brands in the sports shoes and apparel industry. Some of its leading competitors include Puma, Adidas, Lululemon Athletica and several more. Nike is globally well known as a marketer which has created a distinct and unique identity for itself. The swoosh logo is easily recognized in most corners of the world.

The key driver of Nike’s growth is its focus on product quality, innovation and customer loyalty. Its focus on customer experience has also helped the company grow its popularity and expand its market share.

Nike is operating in a highly competitive industry environment. It has outsourced its supply chain operations and focuses mainly on product innovation to bring outstanding products to the market.

In this pestle analysis of Nike, we will analyze how the forces in the macroenvironment of the sports shoes brand affect its business and market position.

Political:

Political factors have a significant impact on business operations of global brands. Government policies and important changes in the political environment of a market can have a significant impact on sales, supply chain and other aspects of business operations of international brands. Moreover, the government policies regarding foreign direct investment affect the operations of foreign brands in specific markets.

The main market of Nike is the UNited States, However, the company has outsourced its supply chain operations to suppliers and manufacturers in the Asian region. It is because of the availability of raw materials and cheaper labor in the Asian markets.

The geopolitical changes can significantly affect business operations. For example, the Russia Ukraine war has forced several western brands to leave the Russian market permanently. It includes the brands that had been enjoying significant sales in Russia. Nike has also exited Russia1.

Political stability is key to operating successfully in a market. However, political instability on the other hand can significantly affect business operations and disrupt supply chains. Relationships between nations and the level of cooperation in terms of business and investment also affects the operations of international businesses. The trade tensions between the US and China have also had a significant impact on the operations of the US based brands in China.

Economic:

Economic forces affect business operations and profitability of businesses significantly. It is because a lot of things depend on the economic environment of a market. When the global economy is performing well, companies can expect higher sales since the level of employment is higher and so is consumer confidence.

The performance of the local economies and currency exchange rates also affect businesses and their performance in those markets. If the economy is not performing well, it will affect the sales and profitability of businesses by affecting the local market. The level of employment and consumer spending on several products including spending on leisure products depends on the performance of the economy.

The global economy has recovered fast since the pandemic and in several regions including the United States, Nike has experienced impressive growth in sales. Its total sales in 2022 grew to $46.7 billion in 2022 which stood at $37.5 billion in 2020. Similarly, currency exchange rates in foreign markets also affect the income of Nike. a stronger dollar in foreign markets hurts its profitability.

Economic performance is directly related to several important factors like employment and consumer spending. It is why economic growth proves favorable for international brands like Nike. Moreover, it is easier for businesses to survive the negative impact of economic changes when their products are priced more competitively. However, for premium brands like Nike, it is important to consider the changes in the global economic environment and accordingly form their business and sales strategies.

Sociocultural:

Sociocultural factors also affect business operations and profitability as well as brand image in various markets. The local culture in different markets can affect consumers’ taste and preferences and in turn affect the sales of particular brands. Social and cultural awareness is important for businesses and marketers so that they can provide their customers a superior experience and create products according to customers’ preferences in various markets.

Nike has maintained a strong social image and it is also known as an excellent marketer. However, its products are most popular in the Western markets which is also because of the acceptance of the brand and its products is higher in the western societies and cultures.

Social changes also have a significant impact on businesses including those like Nike. Worldwide a large segment of Nike customers includes mainly the millennial consumers and the gen Z. the demographic changes in the composition of the global population has also affected businesses worldwide. The millennial consumers are very different from the previous generations in terms of product preferences. They are also more technologically inclined. However, Nike is creating more products that appeal to the younger generations.

Social trends also significantly affect the business and sales of Nike. Worldwide the athleisure trends have led to a growth in demand for Athleisure products and as a result Nike has released a nice range of Athleisure products that appeal to its consumers globally.

Technological:

Technology has proved to be the leading driver of changes for businesses across various industry sectors. Companies are investing in technology to expand their market share and strengthen their competitive edge. Nike is the leader when it comes to innovation in the sports shoes and apparel industry. The company invests a heavy sum in innovation each year. Apart from product innovation, it has also developed several manufacturing technologies that help it produce better quality products. Nike has outsourced its supply chain but also invests in innovative supply chain management.

The company uses modern technologies to streamline its supply chain operations which helps it respond to customer demand with higher efficiency. In recent years, the significant growth in Nike sales can also be attributed to Nike’s increased focus on technological innovation. Not just in terms of innovation, but in various other aspects of business operations also like supply chain management, sales and marketing, the company has invested in technology to grow its effectiveness. Its investment in technology has helped the business provide a superior customer experience along all touch points including sales, marketing and customer service touchpoints. For sales, the company is relying on its own digital channels apart from its stores. It has created direct to consumer sales channels to reduce its dependence on retailers and increase its profitability.

Overall, investing in technology has proved to be highly profitable for Nike which has been helped to significantly improve its competitive edge and grow its customer loyalty. Technology is a significant driver of competitive advantage across most sectors including sports shoes and apparel industry.

Environmental:

Environment and sustainability have emerged as factors of significant importance for businesses. Companies are investing in sustainability for several reasons. While it is important for businesses to do business in an environment-friendly manner, governments around the world have also created laws to reward businesses operating in a sustainable manner and to punish those which have a significant negative impact on the environment.

Worldwide environmental awareness among the public has also increased a lot since the pandemic. People are also more cautious regarding the environmental impact of businesses and how sustainably they operate. Investing in sustainability is also important with regards to maintaining a good social image.

Nike is also aware of the negative consequences it can face if it does not operate in an environmentally sustainable manner. The company is investing in sustainable business operations and maintaining sustainable supply chain operations.

Nike has set an ambitious target of zero carbon emission and zero waste by the year 2025. It has also taken several significant steps to being a more sustainable business and by investing in sustainable innovation2. The company has significantly increased its use of recycled material for production so that less waste is produced in Nike operations.

Nike is also investing in more environment friendly materials for creating its products and reusing its existing plastics, yarns and textiles for reducing its carbon footprint and waste. Overall, Sustainability is an important strategic focus at Nike and the company has taken significant steps towards minimizing its carbon footprint and reducing waste. Technology has also helped the company cover significant milestones in thai regard.

Legal:

Legal issues also have a significant impact on business operations and in several areas of operations, companies need to remain in compliance to avoid legal action and hefty fines. Nike has faced several legal issues in its history, some of which were related to the use of labor in its supply chain operations. Since the Nike sweatshops scandal, the company has faced a lot of legal scrutiny with regards to legal and ethical operations. The labor scandals and related legal issues have continued to haunt Nike even now. Nike had been accused of having breached OECD guidelines during the pandemic in its supply chain3.

There are several areas of operations where Nike is required to remain compliant to local and international laws. However, labor laws are just one of those several areas where Nike has faced legal trouble. Nike is also required to remain compliant with regards to product safety laws and other technology related laws since the company is operating ecommerce platforms of its own.

Legal compliance is critical for Nike since it does not just impact its business operations but also its social image. Operating legally and ethically is important for the business to maintain a strong social image. However, the company will first need to resolve all the labor related issues erupting from its supply chain. It will need to maintain more transparency with regards to its supply chain operations.