Nike's hard-driving methods hit nerve

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"It's all right to be Goliath, but always act like David." --Nike CEO Phil Knight in the September issue of Fortune

Sorry, Phil, but nobody's buying the act anymore. Not when you choose to hang out with maverick Dallas Cowboys owner Jerry Jones for ABC's "Monday Night Football" cameras. Not when your counterpart at much-hated rival Reebok International, Paul Fireman, is under fire from investors to reverse Reebok's fortunes--or else.

And not when your company is on such a roll, stealing market share and reaching record levels of revenue, that the response from trade and marketing partners is fear. Retailers are wary that Nike's recent rampage might mark the return of the arrogance and mistreatment of years past. And sports leagues like the National Football League are growing increasingly suspicious of the company's ambitions.

Nike's Goliath-like stature even concerns the company. Insiders say Nike is at a crossroads where it must put aside the fashionable role of rogue and act more appropriately to its station in the industry. And observers say executives are suffering and driven by anxiety, even paranoia, as one observer put it, over how to keep Nike swooshing along.

"That's not necessarily a bad thing," said Joe McCarthy, Nike's director of worldwide advertising, who nonetheless says "paranoia" may be a little strong. "Sure there's pressure, but I think it's a healthy pressure." When it comes to U.S. advertising this fall, Nike will play the role of both rogue and leader, while No. 2 Reebok sits on the ad sidelines with no new ads expected until the holiday season.

On the heels of a controversial spot from Wieden & Kennedy, Portland, Ore., in support of girls' sports, Nike in November will unveil new ads for men's and women's basketball. And the company will return to the Jerry Jones controversy with a campaign starring new Dallas Cowboy Deion Sanders. In addition, Nike will undoubtedly raise some eyebrows with an upcoming campaign about boxing.

"We don't have an overt strategy to be outrageous. But we're the leader in this industry, and if there's an issue facing our industry, we're going to use our advertising to take a stand and be provocative," Mr. McCarthy said. When its fiscal year ended May 31, Nike posted revenues of $4.8 billion, up 26% from 1994. By yearend, Nike is expected to own 38% of the global footwear market, up from 34% last year. Reebok is expected to either stay at 27% or slip a little.

The fourth quarter played a major role in that burst, with revenues shooting up 41% from the year before. Of course, marquee endorser Michael Jordan returned to the NBA during that time. But Nike also caused a marketing stir by relaunching its "Just do it" tagline with a campaign that illustrated the brand's ubiquity and the company's diversity. Nike reported increased revenues in nearly every category, including basketball (48%), women's fitness (23%) and outdoor (32%).

An area of marked improvement was international, which saw revenues reach $1.7 billion in '95, up 30% from $1.3 billion in '94. But Nike and Wieden are moving aggressively to grow even more. The agency, whose only other major office is in Amsterdam, responded to Nike's needs by forming a global alliance with McCann-Erickson Worldwide.

Nike now wants to move away from regional ad strategies, which have yielded mixed results, and speak with a distinctive voice to each country. Wieden is creating the first ads tailored to specific countries in Central and South America. China and Eastern Europe are next for Nike, but the company is moving carefully, as it builds its business and distribution infrastructures.

A challenge for Goliath in the U.S. will be not to alienate or take for granted its partners and competitors, regardless of their size. Nike has been trying for five years to get an apparel license from the NFL. The NFL has resisted, in part because of its concern over what Nike has been doing with its college team licenses, which is to not only market a team-identified jersey but a branded product of similar style. The NFL frets that Nike would do the same with an NFL license, and the branded merchandise would eat into sales of licensed goods--or even prove more popular.

A bigger, badder Nike also raises concerns in the retail community: "The buzz about Nike was the bigger they got, the harder they were to deal with when it comes to service, support and delivery," said Andrew Gaffney, editor at Sporting Goods Business.

Nike executives say that won't happen, because the firm's relationships with retailers will only become more important as it builds and expands its business. Nike, which owns the world's biggest hockey equipment company, Canstar, has been headhunting for product managers for a Nike-branded hockey division. Nike was rumored to be getting into the bicycle business, but the company has denied that. However, insiders talk about Nike evolving into a broad-based entertainment company, predicting that 10 years from now it could be competing against Disney and Sega in theme parks and videogames.

So is the race between No. 1 Nike and No. 2 Reebok over? Mr. Fireman and his Reebok team are under pressure from the board to make their aggressive sports marketing strategy pay off in sales and to revive its stock price, which hit a 52-week low last week of $34. But a former top executive says not to count his old boss out. "It's a long race, longer than we thought. But Reebok shouldn't stop chasing Nike," said Roberto Muller, the architect of Reebok's sports marketing strategy, who left the company this year to open a New York-based consultancy, the Muller Sports Group. "It must stay focused and consistent and not deviate from its strategy, despite all the distractions and turmoil. Reebok has the resources; they just need the courage."

Copyright September 1995 Crain Communications Inc.

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