Nike - Bargaining Power of Suppliers

Bargaining Power of Suppliers. Vendors have traditionally held considerable power over the industry and have been able to enforce policies and practices restricting distribution and pricing. Large members of the industry have been able to utilize economies of scale in negotiating more favorable wholesale prices, promotional allowances, and access to new models with the vendors. As a result, there are significant economies of scale available. Nonetheless, suppliers hold significant power due to the small number and large size of suppliers relative to the industry's members. As branded vendors, particularly Nike and Reebok, experience their own financial difficulties, the potential for vendors to cure their own ills by shifting costs to the industry cannot be ignored. Clearly, branded vendors have the power to do so if they choose. Therefore, the power of suppliers currently makes the industry unattractive.

Bargaining Power of Customers. The industry sells direct to the final consumer. While consumers are free to shop elsewhere, there are relatively few alternatives available within even the largest markets. Accordingly consumers have little if any power to extract concessions from industry members, making the industry attractive.

Threat of Substitute Products. The industry faces considerable potential for customers to switch to traditional footwear from athletic footwear. Indeed, recent data suggest that athletic footwear purchases dip for customers in their 20s. However, industry demand continues to be strong among teenagers and it remains to be seen if the current dip among those in their 20s will repeat as today's teenagers mature. Clearly, however, the industry must continue to appeal to upcoming generations as its current market ages. This is especially true for athletic specialty stores that are already losing older customers to mass discounters. Traditional shoes, however, lack the multiple