How Nike shed its sweatshop image to dominate the shoe industry
Between its Nike and Jordan lines, the company controls a shocking 62% of athletic footwear brand share in the US, more than four times the combined value of competitors Adidas, Skechers, and Asics.
While many companies strive to focus on a specific demographic, Nike, which has annual sales of $28 billion, appeals to every generation.
In a recent survey, Nike was named the favorite brand among millennials, beating out names like Apple, Coca-Cola, and Nintendo.
And teens are also wild about the brand, choosing it as their preferred clothing and footwear retailer in another recent survey.
Nike has also managed to be popular with older consumers, who buy its gear for hobbies like running.
But Nike nearly lost its ubiquitous popularity.
Two decades ago, the company was under major fire for abusive labor practices after outsourcing labor overseas because it was cheaper.
The public was shocked by reports of Indonesian Nike workers earning as little as 14 cents an hour. Disturbing allegations of abuse included stories that a Vietnamese sub-contractor ran women outside until they collapsed for failing to wear regulation shoes.
Customers staged embarrassing public protests at the Olympics and at Nike stores. People began boycotting the brand in droves.
The perception that Nike abused its workers lasted for more than seven years.
"The sweatshop perception was one of the biggest challenges Nike has faced," branding expert and University of Southern California professor Jeetendr Sehdev told Business Insider. "It seemed impossible they could ever shake the perception."
Layoffs and a turning point
By 1998, Nike had to lay off staff amid declining sales. That's when then-CEO Phil Knight started to aggressively and publicly make changes within the company. The key to Nike's turnaround was being honest and transparent about the labor issues it faced.
"The Nike product has become synonymous with slave wages, forced overtime, and arbitrary abuse," Knight said in a public address at the time. "I truly believe the American consumer doesn't want to buy products made under abusive conditions."
Nike also raised the minimum wage it paid workers, improved oversight of labor practices, and made sure factories had clean air.
Workers pack shoes at a Nike factory in Tangerang in West Java province. By raising wages and being more transparent about labor practices, Nike has been able to cultivate a better image.
These admissions and changes helped public sentiment toward Nike turn more positive, Sehdev said.
"Nike admitted it wasn't perfect, and that it was flawed," Sehdev said. "This gave it more credibility with consumers."
In many ways, Nike has become even more transparent than its competitors about its labor practices, publishing a 108-page report revealing conditions and pay in its factories and acknowledging widespread issues, as well as a complete list of factories it contracted with.
To this day, Nike continues to publish public reports of conditions in its factories.
After years of effort, the athletic shoe brand finally shook the perception that it abused workers.
Challenges today and in the future
The retailer's new biggest challenge is mounting competition from companies like UnderArmour, New Balance, Adidas, and Lululemon.
The arms race to capture "athleisure" shoppers has led to a rush of innovation, and products that consumers can't resist. And Nike has retained its stronghold.
"Everything we do starts with the consumer," CEO Mark Parker told investors during a recent conference call. "It's our obsession with serving the consumer that sharpens our focus and drives our growth."
For instance, Nike's Flyknit shoes have been wildly successful.
The Flyknit material, which debuted two years ago, is lightweight, minimalist, and fits like socks.
Nike uses "automated, high-tech knitting [technology] to 'weave' the shoe's upper" half into one piece, instead of several pieces that are stitched together, according to a recent research note by Deutsche Bank.
New running shoes include the LunarTempo, which is designed for distance runners. Nike is also innovating running apparel to better compete with Lululemon, Under Armour, and Adidas.
The company also revamped its Nike+ running app.
Nike+ lets runners track their route, distance, pace, time, and calories. It also lets them share photos and compare progress with their friends.
Nike's innovation is a huge advantage for the company, according to Sehdev.
"The new products Nike is constantly innovating keeps the brand fresh and interesting for audiences," Sehdev said. "It's why people of all ages want to wear Nike."
Big consumer trends are promising for Nike's future.
The number of people participating in running events has grown an average of 9% every year since 2005, according to Morgan Stanley. Data also shows that millennials believe exercise is essential for health, while their parents only focused on diet.
"Increased activity leads to increased athletic apparel and footwear spending," the analysts write. "We see athletic footwear and apparel as more than a fashion trend."
While the popularity of yoga pants and sneakers is often cited as a fashion trend, Morgan Stanley analysts believe that shoppers are hooked on casual comfort.
The analysts believe that shoppers will continue to choose this kind of apparel over denim.
This bodes well for Nike, which just opened its first store for women.
As this trend continues, the company could continue to expand assortments - and rake in profits.