Weaknesses
High Advertising Costs: Part of the company’s marketing strategy involves locking up major sports stars in lengthy endorsement deals. This has proven to be a rather successful tactic, as evidenced by the global awareness of the NIKE brand and the company’s strong share positions in each of its categories. The strategy comes at a pretty high price tag, however. (Total advertising and promotion expenses were about $2.7 billion, or nearly 11% of sales, in fiscal 2013, which ended May 31, 2013.) Moreover, we see endorsement costs, or what the company calls “demand creation” expenses, drifting even higher over time, as competition from new sector participants heats up. This will likely weigh on margins a bit, though probably not enough to counteract the productivity advances (especially in the area of labor) and greater sales leverage we envision.