Category Offense at Nike

Nike's 2008 shift to focus on sports and athletes rather than product categories has led to massive sales growth for a corporation of their size.

Bring inspiration and innovation to every athlete* in the world.
*If you have a body, you are an athlete. [1]

The above statement, ascribed to the co-founder of Nike, Bill Bowerman, serves as the Nike mission statement to this day. Nike’s business model has always been to inspire people to consider themselves athletes and then provide these athletes with the best apparel, footwear, and equipment to play their respective sports. However, in 2008, Nike was seeing revenues flatten and profits decline [2]. Mark Parker, the recently appointed CEO, saw an opportunity to realign the company with the mission statement and refocus on the athlete. I have chosen to write about Nike’s subsequent operational changes and the impressive financial results that followed as an example of effective alignment of an operating model with a business model.

Nike was previously structured to develop, market, and sell based on silos of product type (footwear, apparel, equipment, etc..). This allowed them to be efficient in supply-chain and manufacturing, but it did not address the needs of their consumer, the athlete. As technological advances developed across industries and youth athletics became increasingly competitive globally, athletes of all levels wanted to be dressed head-to-toe in innovative products tailored specifically to their sport [3]. In 2008, Nike made a change to organize based on sports instead of products, an approach they called “Category Offense”. Nike’s new categories included Running, Global Football, Basketball, and Women’s Training. This change has proven tremendously successful, as sales have grown by 70% to over $30 billion since the realignment (Figure 1 below) [2]. Although the change started with only a reorganization of key personnel and reporting structures, the benefits of Category Offense quickly propagated through all facets of the business from product development to merchandising.

Figure 1: Nike Financial Results 2006-2015 [2]
Figure 1: Nike Financial Results 2006-2015 [2]
The reorganization based on sport categories fueled Nike’s innovation and product teams. Product development had a renewed focus on the unmet needs of the athletes playing sport in their category [4]. Nike also increased their digital presence, bringing the athletes closer to the product development teams. By focusing on a singular athlete playing one sport, Nike’s product designers understood the consumer better than ever and innovation followed, ultimately putting Nike at the forefront of technological advancement in each category.

The marketing and sales team also benefitted from the organizational shift. As Nike moved to an increasingly Direct-to-Consumer sales strategy, Nike stores were able to change their layouts to build entire sections of the store around each sport. These sections featured footwear, shirts, shorts, and equipment tailored to each specific sport category, making the shopping experience more convenient for the athlete. With one aligned team focused on each sport category, entire collections offering the range of products also arrived to retail stores together at the beginning of the sport’s season. This allowed Nike to capture a substantial portion of an athlete’s wardrobe at their most popular and convenient time of purchase [3]. The change to more sports-specific products also led to increases in overall spending for multi-sport athletes who now had a large selection of tempting merchandise for each of their sports.

The Category Offense model has even improved Nike’s financial reporting and planning. By tracking financial performance by sports category, Nike is able to make targeted investments in new products or professional athlete sponsorships in the struggling categories. As Nike’s Category Offense continues its immense success, Mark Parker has made an aggressive and public commitment to increase Nike revenues from $30 billion in 2015 to $50 billion by 2020. If Nike continues to put the athlete first throughout the span of their operations, this impressive growth seems like a real possibility.

Sources:

1. Nike Corporate. “Nike Mission Statement” http://help-en-us.nike.com/app/answers/detail/a_id/113/~/nike-mission-statement. December 6, 2015
2. Lashinsky, Adam. “Nike’s Master Craftsman” http://fortune.com/2015/11/12/nike-ceo-mark-parker/ November 12, 2015.
3. Blenko, Garton, Mottura, and Wright. “Winning operating models that convert strategy to results” http://www.bain.com/publications/articles/winning-operating-models-that-convert-strategy-to-results.aspx. December 10, 2014.
4. Wood, Urquhart. “Take a lesson from Nike’s customer diagnosis approach” http://www.bizjournals.com/bizjournals/how-to/marketing/2015/10/take-a-lesson-from-nikes-customer-diagnosis.html?page=all. October 6, 2015.

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4 thoughts on “Category Offense at Nike

  1. Great new take on a company that I thought I knew a lot about. The goal of nearly doubling revenue in the next 5 years (from $30B to $50) struck me as aggressive. I’m curious as to how much of that will come from existing sports/segments versus potentially new segments that haven’t yet launched or that have historically been small pieces of the business. It seems like the reorg into sport categories rather than product categories might give Nike the ability to scale new sports more quickly that they would have been able to in the past.

    1. Thanks for the reply. I have read that the main growth category that all Sports retail companies are looking at is Women’s training (one of Nike’s sports categories). Women, and probably men as well, are becoming increasingly interested in bringing style to their workouts and wearing these exercise clothes inside and outside the of gym/studio. Nike is starting to come out with more high-end pieces that can allow them to compete with the Lululemons of the world.

  2. Great post on the effectiveness of an organizational change on sales performance! As expected, profitability in 2009 declined immediately after the reorganization as costs have gone up due to the decline in supply chain and manufacturing efficiency. However, Nike seemed to be able to quickly adapt and improve its efficiency in the following year. Any idea what is causing the significant jump in profits for 2015?

  3. Thanks for the post! I’ve been buying Nike’s products for a long time and I actually never realized that they had made such a change. It is very interesting to see how a change in how people think about the business (in this case, think about the sports rather than the products) can have such a significant impact in the results of the company.

    I would be very curious to understand what were the implications of this change to the more operational areas of the company, such as manufacturing and supply chain. Were there any savings that resulted from the change? Or were there inefficiencies that arose from the change?

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