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Originally published September 11, 2013 at 5:40 PM | Page modified September 12, 2013 at 5:25 PM

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Nike hits Dow 30 basket via marketing resilience

Nike’s addition to the Dow Jones industrial average is a testament to the Oregon company’s ability to shrug off hard times and transform itself from a shoe company founded for $1,000 in 1965 into a global behemoth with 48,000 employees and sales of $25 billion.

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Nike’s addition to the Dow Jones industrial average is a testament to the company’s ability to shrug off hard times and transcend its U.S. origins, making its swoosh logo known from Beijing to Buenos Aires.

The world’s largest maker of sporting goods will join the 30-member gauge along with Goldman Sachs Group and Visa when the market opens Sept. 23. They are replacing Bank of America, Hewlett-Packard and Alcoa.

Nike has transformed itself from a shoe company founded for $1,000 in 1965 by a former University of Oregon runner, Phil Knight, and his coach, Bill Bowerman, into a global behemoth with 48,000 employees and sales of $25 billion.

While Nike is struggling to reignite growth in China and offset rising labor costs, it has caught up with Adidas in soccer, pushed into wearable technology and deployed sports figures from basketball player Kobe Bryant to soccer star Cristiano Ronaldo to sell its wares around the world.

“I often describe them as a marketing company that makes shoes,” said Matt Powell, an analyst for researcher SportsOneSource, who has followed Nike for more than a decade.

Nike stock reached an all-time high Wednesday, gaining 1.2 percent to $67.59. The shares have advanced 30 percent this year, compared with an 18 percent gain for the Standard &Poor’s 500.

By this time, many enterprises of Nike’s size and age are mature businesses, their best days behind them. Yet Chief Executive Mark Parker, who started out as a shoe designer before becoming CEO in 2006, sells Nike to investors as a growth company.

While the financial crisis crushed sales in 2009, the Beaverton, Ore.-based company has turned in 10 percent compound annual sales growth in the past three years, and it expects those gains to continue and for sales to reach as much as $30 billion in 2015.

Nike has had some missteps along the way. Revenue is slipping in China, once one of Nike’s fastest-growing markets, after the company expanded too quickly. Nike is now discounting items to clean out excess inventory.

It has blamed the reversal in China on changing consumer tastes after failing to notice that local shoppers, like their U.S. counterparts, have come to expect a more tailored fit.

Such fashion misses aren’t unheard of in the U.S., where apparel sales have flagged lately as shoppers focus on cars and housing-related merchandise.

“The majority of athletic footwear is bought for fashion purposes, and that’s the big risk here,” said Brian Yarbrough, an analyst with Edward Jones in St. Louis who has a hold rating on the company’s shares. “With basketball and running, things come and go.”

Rising labor costs in Asia are also weighing on profit. Gross margin, the percentage of sales left after costs of goods sold, has declined for eight of the past 10 quarters. The company has responded by raising prices, which it can pull off because of its brand strength.

Nike’s growth is largely two-pronged: pushing into a new sport or taking share from competitors in an established business. Since it’s a force in every major sport, there are few opportunities to branch out into new categories that will have a substantial impact on sales, so Nike mainly focuses on expanding an existing unit.

Exhibit A: how Nike caught up in soccer after flailing in the 1990s.

Germany’s Adidas had dominated the market since the 1950s with other European brands such as Puma. Nike didn’t get serious about building a legitimate soccer business until the 2000s, when it started spending lavishly on endorsement deals, including $440 million on a 13-year agreement with Manchester United that began in 2002.

Since then, Nike has essentially drawn even with Adidas in soccer, with sales reaching $1.9 billion last fiscal year.

Besides providing Nike a third leg for its running and basketball businesses, soccer gave Nike legitimacy as an athletic brand outside the U.S. That in turn lifted the rest of its merchandise, Powell said.

Now the company generates about 60 percent of revenue outside its home market.

“They tried to become a true international brand for a number of years and couldn’t get it going until they fully committed to being a soccer brand,” said Powell. “That’s when their international business took off.”

The widespread adoption of casual attire has also lifted Nike, which sells everything from hoodies to tank tops. Running shoes in particular have been a post-recession panacea. While the company sells performance shoes for serious runners, many of its best-sellers are worn day to day.

For many men, sneakers are a form of retail therapy, as handbags are for women. Last year, running-shoe sales surged 16 percent to $4.3 billion.

“They’re in a class by themselves,” Powell said.

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