Vertical Integration Strategy Of Nike

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Forecasting in the fashion industry is usually a complicated due to the fact that the industry is characterized by high demand, short product life cycles and different varieties of product lines. As a result, managing customer demand tends to be difficult, for organizations have to avoid having large volumes of stock. In this industry, there is intense competition & Consumers who are price conscious; accordingly, these factors have slowed the growth of this industry. As a result, this made it difficult for the companies to create brands which can offer high quality products with cheap prices (Fernino et al., 2012). Nike is now the world’s leading supplier and one of the most popular brands throughout the whole world. The company designs, develops…show more content…
The first tier supplier of Nike is Located mainly in Taiwan and South Korea, which work closely with R&D personnel in Oreon making the most expensive footwear. Corporate level strategies that Nike implements include the vertical integration strategy. In general, the vertical integration strategy allows a firm to gain control over distributors, suppliers and competitors (Nike report, 2015). Nike has implemented forward integration by having its own retail locations throughout the United States, foreign countries & online stores.Every partner has a hugely significant role to play in the relationship because any partner/member pulling out would normally mean that the supply chain wouldn’t be completed. Nike takes all its partners seriously and tries most of the time to make sure that all the firms are in a close working relationship. While backwards integration is a strategy that seeks control or ownership over a firm’s suppliers,but this is not implemented by Nike currently. Horizontal integration refers to a strategy of seeking ownership of or increased control over a firm’s competitors. Nike’s portfolio of wholly owned subsidiaries (Cole Haan, Jordan Brand, Nike Golf...) is evidence that Nike engages in horizontal integration strategies since they are the ones that make the company remain competitive in the market. Nike’s level of inventory is 4,337…show more content…
The cost to the retailer is approximately 35.50$ which includes in the Research and development ($0.25), promotion/advertising ($4.00), Sales/distribution/admin ($5.00) and Nike’s operating profit ($6.23). While the cost to the consumer is approximately $70.00 which includes Retailer’s rent ($9.00), personnel ($9.50), other ($7.00) and Retailer’s operating profit ($9.00) (Break Down of Nike’s cost (1995). In the first quarter of 2015, the revenues for Nike increased 15% from 7.4$ to $8.0billion and the revenues for Converse were $575 million. Gross margin elevated 46.6%. “The increase was primarily due to a shift in the product mix to higher margin products, higher average prices and continued growth in the high-margin DTC business, partially offset by higher product input costs.” Selling/administrative expense exceeded 21% reaching to $2.5 billion. Operating overhead expense increased 19% to $1.6 billion due to higher costs of the expanding DTC business and investments in operational infrastructure. Other expense (income), net was $3 million; primarily of foreign exchange losses. Net income increased 23% to $962 million, while diluted earnings per share increased 27% to $1.09, reflecting a 3% decline in
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