Nike's Rise, 1997 Decline, and the Tiger Woods Decision

Nike's Founding and Early Success

Nike was founded by Phil Knight in 1964 when he put his MBA project into practice alongside his former track coach, Bill Bowerman. At that time, established companies were manufacturing sports shoes in high-wage economies, whereas Knight's project showed that reducing transport costs could allow a company to source products from countries with lower labor costs. Keeping this in mind, Nike began importing shoes from Japan. However, when Bowerman invented the waffle trainer one night, the company transformed from an importer into a designer brand. The strong personalities and shared love of sport of both Knight and Bowerman played a significant role in defining Nike's purpose, and this attracted many confident, young employees to the company. Nike's logo became widely popular, conveying a "no-nonsense emphasis on speed and performance" and being recognizable to ninety-seven percent of people. The company's tagline, "Just Do It," also became the most recognizable slogan in America.

The early recognition Nike received enabled the company to establish its products with a sense of superiority that continued to grow and strengthen the brand. Between 1980 and 1997, the company's share price grew by 3,686%, and in 1988 Nike overtook Reebok to become the leader in sports shoes. Its market share increased from 32% in 1994 to 45% in 1996. In 1997, the company's group size tripled, generating nine billion dollars in sales and eight hundred million dollars in profits. With this success, Nike decided to position itself as a leader in sports and fitness more broadly, not just in footwear.

In an interview with the Harvard Business Review, Knight stated that the company had long considered itself production-oriented, emphasizing product design, but had come to recognize that it also markets its products exceptionally well — a key reason its sales had spread across the world. After making this claim, Nike also began to think of itself as a market-oriented company. The brand expanded further into retailing, opening Nike stores around the world and receiving strong initial responses from journalists and athletes alike.

Building on this momentum, Nike pursued growth through a joint venture with a Hollywood talent agency. The aim was to package events featuring Nike endorsers such as Michael Jordan and Charles Barkley, and sell these packages to media companies and sponsors. Nike's director of advertising argued that this would elevate the company's image and increase sales. By 1996, Nike was manufacturing everything from footballs and hockey sticks to sunglasses and batting gloves. The company's Vice President declared that Nike was no longer just a shoe company — it covered everything related to sport.

Factors Behind Nike's 1997 Decline: An ESTEMPLE Analysis

Nike was a leading sports company before the mid-1990s, with strong financial liquidity that supported numerous growth opportunities. However, the company faced a sharp fall in profits in 1997 that forced its leadership to reconsider its strategies. A series of compounding events contributed to this decline, with the company's market share dropping from 47% to 40% and profits falling by 96%.

Several economic forces converged to undermine Nike's performance. The European Union was in the process of establishing a single currency, creating uncertainty across markets. The Asian financial crisis of 1997, which originated in Thailand, produced severe macro-level effects that rippled across the global economy. American economic growth was also decelerating, and currency, gold, and crude oil rates became increasingly unstable. Rising crude oil prices pushed up the costs of raw materials, transportation, and energy, simultaneously eroding consumer purchasing power (The Nike Company's Position in Athletics, 2011).

Consumer tastes shifted during this period, with athletic shoes becoming more fashion-oriented. Nike users no longer regarded the brand as cool, and even Peter York, Nike's marketing guru, acknowledged that there was an air of desperation within the company and that it was not in the position it needed to be. Nike responded by introducing numerous limited editions and special runs, but its efforts to maintain a cool image were largely unsuccessful.

At the same time, media investigators and protest groups began focusing on alleged abuses of workers in Nike's contract factories. Allegations included children being sold to factories by brokers, poor air quality caused by petroleum-based solvents that made breathing difficult, workers not receiving full wages, and an absence of compensation and sick pay. Anti-Nike sentiment was further amplified by the emergence of websites such as www.nike-sucks and www.boycottnike (Harrison & Scorse, 2004).

Nike's response to these allegations made matters worse. Initially, the company distanced itself from the factories, claiming that the conduct of contractors was not its concern. It then argued that, given population growth, working in a shoe factory was preferable to not working at all. These statements intensified public outrage (Harrison & Scorse, 2004).

Nike's image deteriorated further when a U.S. ambassador visited Nike plants in China, Vietnam, and Indonesia and described them as modern and clean. It later emerged that Nike had paid for the trip and that the ambassador had been shown only a limited number of facilities. Britain's magazine The Big Issue called on its readers to boycott Nike, alleging that the company had pressured the Brazilian football federation to make Ronaldo — a Nike endorser — play in a final despite being injured.

Nike's use of petroleum-based solvents rather than water-based alternatives created suffocating air conditions inside its factories (The Nike Company's Position in Athletics, 2011). The company also develops its products using an integrated system (The Nike Company's Position in Athletics, 2011).

The petroleum-based solvents and glues used in Nike's manufacturing processes created an unhealthy working environment. Documented health effects among factory workers included dizziness, nausea, and breathing difficulties (The Nike Company's Position in Athletics, 2011).

Media attention during this period focused almost exclusively on Nike's alleged abuses in foreign factories and on rifts with endorsers, including Mike Tyson and Ronaldo (The Nike Company's Position in Athletics, 2011). Nike's attempts to distance itself from contractors and to deploy public relations spokespersons to deflect criticism only intensified negative coverage (The Nike Company's Position in Athletics, 2011). The Big Issue's call for a boycott and the proliferation of anti-Nike websites compounded the reputational damage (Harrison & Scorse, 2004).

The formation of autonomous labor unions had been barred in both China and Vietnam, limiting workers' ability to organize or seek redress. Nike's payment for the U.S. Ambassador Andrew Young's factory visit became public knowledge and was widely condemned (Harrison & Scorse, 2004). Nike also showed no regard for international labor standards or the environmental regulations in the countries where it operated. The company violated labor codes by employing children under the age of 18, in breach of legal working-age requirements, and paid little attention to working conditions or worker safety (Harrison & Scorse, 2004).

Labor ethics were systematically disregarded in Nike's supply chain. Workers were subjected to extended working hours, sexual harassment, physical and verbal abuse, and were paid at or below minimum wage levels (The Nike Company's Position in Athletics, 2011).

Conclusion

The ESTEMPLE analysis reveals that Nike's 1997 difficulties stemmed from a confluence of powerful external forces. The Asian financial crisis, originating in Thailand, contributed to economic instability across the globe, pushing up the costs of raw materials, energy, and transportation, while reducing revenue — contributing to a 69% drop in Nike's profits. Violations of codes of conduct in Indonesia and Vietnam added further pressure (The Nike Company's Position in Athletics, 2011).

Nike's later handling of the Tiger Woods scandal suggests that the company did learn from these earlier crises. Rather than repeating the knee-jerk public distancing that had backfired in the 1990s, Nike demonstrated measured loyalty and strategic restraint — reflecting a more mature approach to managing reputational risk in a volatile media environment.

References

Business Week Archives. (2000, February 20). Can Nike still do it? Business Week.

Harrison, A., & Scorse, J. (2004). The Nike effect. UC Berkeley.

The Nike Company's position in athletics. (2011).