Digital Transformation in the Sports Apparel Industry. The Case of Nike, Inc.

Table of Contents

AFFIDAVIT

ABSTRACT

ACKNOWLEDGEMENTS

LIST OF FIGURES

1 INTRODUCTION
1.1 Research Aims and Objectives
1.2 Thesis Structure

2 LITERATURE REVIEW
2.1 Sports Apparel Industry
2.1.1 Market Overview
2.1.2 History of Sports Apparel Industry
2.1.3 Sales and Distribution Channels
2.2 Digital Transformation
2.2.1 Opportunities
2.2.2 Risks
2.3 Customer Research
2.3.1 Customer Evolution
2.3.2 Customer Journey Mapping
2.4 Theoretical Frameworks
2.4.1 Porter's Five Forces
2.4.2 The Value Chain
2.4.3 Digital Transformation Roadmap

3 NIKE, INC
3.1 Corporate History
3.2 Industry Analysis
3.2.1 Industry Rivalry
3.2.2 Threat of Entry
3.2.3 Threat of Substitutes
3.2.4 Bargaining Power of Buyers
3.2.5 Bargaining Power of Suppliers
3.2.6 Industry Attractiveness
3.3 Value Chain Analysis
3.3.1 Primary Activities
3.3.2 Support Activities
3.4 Digital Transformation Roadmap of Nike, Inc

4 METHODOLOGY
4.1 Triangulation Approach
4.2 Research Instruments
4.2.1 Interview
4.2.2 Survey
4.3 Survey-based Hypotheses
4.4 Data Analysis

5 RESULTS AND DISCUSSION
5.1 Customer Survey
5.1.1 Descriptive and Analytical Statistics
5.1.1.1 Demographics and Product Preferences (Questions 1-4 and 6)
5.1.1.2 Shopping-specific Insights (Questions 7-16)
5.1.1.3 Satisfaction with Nike, Inc. Products and Services (Questions 17-23)
5.1.1.4 Brand Attachment (Questions 24-27)
5.1.1.5 Digital Perception and Nike, Inc.'s Positioning
5.1.1.6 Concluding Questions
5.1.2 Validation of Survey-based Hypotheses
5.1.2.1 Survey-Based Hypothesis 1
5.1.2.2 Survey-Based Hypothesis 2
5.1.2.3 Survey-Based Hypothesis 3
5.1.2.4 Survey-Based Hypothesis 4
5.2 Expert Interviews
5.2.1 Major Digital Innovations
5.2.2 Need for Innovation
5.2.3 Future Industry Trends
5.2.4 Development of Shopping Experience
5.2.5 Nike, Inc.'s Digital Positioning
5.2.6 How to Innovate to Ensure Customer Interest
5.2.7 Customer Evolution
5.2.8 Customer Expectations
5.2.9 Sales Uplift Potential through Digital Innovation
5.3 Discussion
5.3.1 Customer Survey
5.3.2 Expert Interviews
5.3.3 Synthesis
5.3.4 Limitations

6 CONCLUSION
6.1 Summary
6.2 Contribution to Knowledge
6.3 Implications and Recommendations for Relevant Stakeholders
6.4 Future Research

7 BIBLIOGRAPHY

8 APPENDICES
Appendix I: Questionnaire-based Customer Survey
Appendix II: Questionnaire-based Survey Question Overview
Appendix III: Detailed SPSS Output of Survey Question 4
Appendix IV: Detailed SPSS Output of Survey Questions 20 and 21
Appendix V: International Key Account Manager Interview Transcript
Appendix VI: Digital Membership Specialist Interview Transcript
Appendix VII: Visual Merchandising and Styling Specialist Interview Transcript
Appendix VIII: Visual Merchandising Specialist Interview Transcript
Appendix IX: International Key Account Manager Expert Estimation Interview Transcript

Abstract

The global revenue of the sports apparel industry is larger than it has ever been before. Digital transformation has been a driver for the industry, leading to digital innovations within the industry. This has led to the fall of market leaders while creating opportunities for new market entrants by capturing market share through leveraging new technolo­gies. The company Nike, Inc. has been the market leader in the sports apparel industry for several decades and is known to be a forerunner in innovation. The purpose of this research is to examine how digital transformation has affected Nike, Inc. and the sports apparel industry and how it will shape the future. A secondary aim is to investigate how Nike's customers perceive these changes and to scrutinize their digital needs and expec­tations. This research furthermore aims to conclude about the digital needs and expec­tations of Nike's customers and if they align with Nike's strategy.

The research used a triangulation of three methods and provides a holistic analysis to make recommendations to the management of Nike. Primary research was conducted through a questionnaire-based customer survey and expert interviews with the man­agement and specialists at Nike. Secondary research included reviewing frameworks for strategic analysis. The analysis distinguishes digital natives (i.e. aged 21 years or younger) and digital immigrants (i.e. aged above 21 years). The results showed that these two groups differ in their sales-channel preferences, digital needs and expecta­tions. The secondary research was confirmed by the findings from the expert interviews and customer survey. Overall, Nike's digital transformation strategy appears to align with the needs and expectations ofthe company's customers.

Acknowledgements

I sincerely express my gratitude to Dr. Lidija Lalicic and Prof. DDr. Arno Scharl for their roles as my thesis co-supervisors. Moreover, I want to thank the management and spe­cialists at Nike, Inc. for making this research possible and I am thankful for the support of my family and friends. I am incredibly grateful for the academic experience this M.Sc. program has provided me with and that I was able to contribute to the topic of digital transformation through my academic research.

LIST OF TABLES

Table 1. Breakdown of responses to Survey Question 5: "Have you ever purchased a product of Nike, Inc.?" (SPSS Output)

Table 2. Survey Question 1 "What is your gender?" (SPSS Output)

Table 3. Survey Question 2 "What is your age?" (SPSS Output)

Table 4. Survey Question 3 "What is your region of residence?" (SPSS Output)

Table 5. Survey Question 6 "What product have you purchased?" (SPSS Output)

Table 6. Kendall's tau-b Correlation of Demographic and Purchasing Preference Variables (SPSS Output)

Table 7. Responses to Survey Questions 7-10 "How important is the following factor to YOU RELATED TO SHOPPING AT NlKEI PERSONALIZATION, CUSTOMER SERVICE OF SALES EMPLOYEES, INTERACTIVE SMARTPHONE APP WITHIN STORES, CHECKOUT VIA SMARTPHONE" (SPSS Output)

Table 8. Survey Question 11 "I prefer visiting showrooms Over shopping in a physical store" (SPSS Output)

Table 9. Survey Question 12 "I prefer to shop my sports apparel online rather than offline IN A PHYSICAL STORE" (SPSS OUTPUT)

Table 10. Survey Question 13 "Following up to your previous answer, what is the reason FOR YOUR ANSWER" (SPSS OUTPUT)

Table 11. Survey Questions 14 and 15 "How satisfied are you with Nike, Inc.'s efforts to MAKE YOUR ONLINE SHOPPING EXPERIENCE MORE SEAMLESS?" AND "HOW SATISFIED ARE YOU with Nike, Inc.'s efforts to make your offline shopping experience more digital?" (SPSS Output)

Table 12. Survey Question 16 "I could imagine a future without the offline shopping EXPERIENCE CONCERNING NlKE, INC. PRODUCTS" (SPSS OUTPUT)

Table 13. Kendall's tau-b Correlation between Shopping-Specific Variables (SPSS Output)

Table 14. Survey Question 17 "How satisfied are you with Nike, Inc.'s offerings for PERSONALIZATION?" (SPSS OUTPUT)

Table 15. Survey Question 18 "How satisfied are you with the following digital practice at Nike: Interactive in-store screens?" (SPSS Output)

Table 16. Survey Question 19 "How satisfied are you with the following digital practice at Nike: Nike, Inc. App?" (SPSS Output)

Table 17. Survey Question 22 "How satisfied are you with the following digital practice at Nike: Nike stores, product range, customer care?" (SPSS Output)

Table 18. Survey Question 23 "How satisfied are you with the following digital practice at Nike: Nike website, third-party websites, resellers, online product range?" (SPSS Output)

Table 19. Kendall's tau-b Correlation of Nike Product and Service Satisfaction Variables (SPSS Output)

Table 20. Survey Question 24 "I like the Nike, Inc. brand because I feel it fits my lifestyle" (SPSS Output)

Table 21. Survey Question 25 "I like the Nike, Inc. brand because it makes me feel good" (SPSS Output)

Table 22. Survey Question 26 "I like the Nike, Inc. brand because it recognizes who I am" (SPSS Output)

Table 23. Survey Question 27 "I agree with the following statement "I feel strongly ATTACHED TO THE BRAND NlKE, INC." (SPSS OUTPUT)

Table 24. Correlations between Brand-Attachment Variables (SPSS Output)

Table 25. Survey Question 28 "How important is the level of digitalization of a company to YOU IN GENERAL?" (SPSS OUTPUT)

Table 26. Survey Question 29 "Overall I consider Nike, Inc. the most innovative brand COMPARED TO OTHER GLOBAL BRANDS" (SPSS OUTPUT)

Table 27. Survey Question 30 "How satisfied are you with the increasing trend towards DIGITALIZING YOUR SHOPPING EXPERIENCE OF BRANDS." (SPSS OUTPUT)

Table 28. Survey Question 31 "I would consider Nike, Inc.to be a forerunner regarding DIGITAL INNOVATION RELATED TO MY SHOPPING EXPERIENCE" (SPSS OUTPUT)

Table 29. Survey Question 32 "Overall I consider Nike, Inc. the most innovative sports Apparel brand compared to other sports apparel brands" (SPSS Output)

Table 30. Correlation of variables regarding Nike, Inc.'s Digitalization and innovation (SPSS Output)

Table 31. Survey Question 33 "If I had to make any recommendations for the management of Nike, Inc. to improve the shopping experience in terms of personalization and DIGITALIZATION, I WOULD RECOMMEND..." (SPSS OUTPUT)

Table 32. Survey Question 34 "I am considering buying the next Nike, Inc. product through THE FOLLOWING CHANNEL:" (SPSS OUTPUT)

Table 33. proportion of Digital natives vs digital immigrants (SPSS Output)

Table 34. Correlation between Digital native or immigrant and Prefer to shop online over offline (SPSS Output)

Table 35. Crosstabulation between Digital native or immigrant and Prefer to shop online OVER OFFLINE (SPSS OUTPUT)

Table 36. Correlation between Variables Digital native or immigrant and Being able to IMAGINE A FUTURE WITHOUT OFFLINE SHOPPING (SPSS OUTPUT)

Table 37. Crosstabulation between Variables Digital native or immigrant and Being able to IMAGINE A FUTURE WITHOUT OFFLINE SHOPPING (SPSS OUTPUT)

Table 38. Correlation between Variables Digital native or immigrant and Satisfied with the DIGITALIZATION OF THE SHOPPING EXPERIENCE OF BRANDS (SPSS OUTPUT)

Table 39. Crosstabulation between Variables Digital native or immigrant and Satisfied WITH THE DIGITALIZATION OFTHE SHOPPING EXPERIENCE OF BRANDS (SPSS OUTPUT)

Table 40. Correlation between Variables Digital native or immigrant and Considering Nike, Inc. the most innovative brand compared to other sports apparel brands (SPSS Output)

Table 41. Crosstabulation between Variables Digital native or immigrant and Considering Nike, Inc. the most innovative brand compared to other sports apparel brands (SPSS Output)

List of Figures

Figure 1. Apparel market share: sports and non-sports clothing and footwear in United States, 2016 (O'Connell, 2017)

Figure 2. Sport apparel point of purchase in U.S. 2016 (Running USA, 2016)

Figure 3. Annual total retail sales, store-only sales and online-store-only sales, non­SEASONALLY ADJUSTED; GREAT BRITAIN, 2008 TO 2017 (MONTHLY BUSINESS SURVEY, RETAIL Sales Inquiry: Office for National Statistics, cited in Murphy 2018)

Figure 4. What is What Is Consumer Behavior? (Kardes, Cronley & Cline, 2015, p. 8)

Figure 5. Forces Governing Competition in an Industry (Porter, 1979)

Figure 6. The Generic Value Chain (Porter, 1985, p. 37)

Figure 7. Roadmap for Digital Transformation (Schallmo, 2016, p.23)

Figure 8. Aggregated Data of Expert Estimation Interview

1 Introduction

Throughout the past decade, digital transformation has fundamentally changed the sports apparel industry. In the past, innovations were made solely in product design. Companies that offered innovative products were able to sustain their competitive po­sition on the market. As the technological opportunities advanced over the years, in­creased competition led companies to find new ways to innovate. Over the years, the industry developed into a $185 billion market. Nonetheless, the industry is not the same as it has been in the past (Allied Market Research, 2018).

However, today the industry is strongly driven by digital-product and business-model innovations and digitalization of the value chain. Digitalization is set to disrupt the tra­ditional fashion industry in coming years even more (Behr, 2018). Companies which fail to innovate at the digital level will face difficulties in the future. Therefore, industry in­cumbents must understand the trends in digitalization as well as the digital needs and expectations of their customers (Miller-Cole, 2019).

Digital transformation concerns the integration of digital technologies into various areas of business, causing crucial operational changes which affect the customer value (Lund, 2019). This is one of the most relevant topics of the 21st century. This digital disruption of the global sports apparel industry allows businesses to be more efficient while im­proving customer relationships. Because companies in the sports apparel industry are strongly affected by digital innovation, it is crucial for them to understand the digital needs of their customers and align those needs with their strategy.

Nike, Inc. is the global market leader in the sports apparel industry, with a global brand value of over $36 billion. This figure is twice as high as its main competitor, Adidas, with $16 billion (O'Connell, 2019). However, regarding digital transformation, Nike has had some setbacks. In 2010, the company launched its new in-house digital hub called the Nike Digital Sport division, whose purpose it is to foster digitalization by providing skilled resources and coordination across various business units of the company. Just four years later, in 2014, the workforce of Nike Digital Sport was cut by almost 80% as the division had shown only minimal margins for products it had worked on. This indicated a failure to successfully implement practices of digital transformation. The reason was that Nike did not have a well enough defined transformation plan or proper IT infrastructure pre­pared before the implementation to ensure efficient transformation (Toesland, 2018).

This failure of implementation shows that even the strongest industry incumbents must fully understand what is necessary to succeed in a digital world. Not only in the sports apparel industry but in all other industries, digitalization has pressured market players to adapt their strategies and take advantage of new digital business opportunities (Rachinger, Rauter, Müller, Vorraber & Schirgi, 2019).

1.1 Research Aims and Objectives

This study examines the digital transformation in the sports apparel industry, focusing on Nike. The thesis examines current innovation practices at Nike and how the company is transforming its business model to respond to the changing needs and expectations of its customers and to the changing market dynamics.

The overarching research question that this study addresses is: How does digital trans­formation affect the sports apparel industry, especially Nike, and how do customers per­ceive this change?

Based on this research question, a main hypothesis was formulated. The null hypothesis (Ho) states that the current digital transformation of Nike does not align with the needs and expectations of its customers. The alternative hypothesis (Hi) states that the current digital transformation of Nike aligns with the needs and expectations of its customers. The hypothesis was tested by analyzing the results of the customer survey and bench­marking them against findings from the strategic framework analysis and the expert in­terviews at Nike.

In addition to this main hypothesis, four survey-based hypotheses were formulated to support the research concerning differences between digital natives and digital immi­grants. The formulation of these hypotheses was based on the questionnaire-based cus­tomer survey. These survey-based hypotheses can be found in 4.3.

The study has several ambitions. First, it aims to understand how digital transformation benefits and shapes the future ofthe sports apparel industry, especially regarding sales channels. Second, the research examines the effects of digital transformation on the digital needs and expectations of Nike's customers. Lastly, it leverages a triangulation approach to establish a holistic picture of the research topic to serve as the basis for recommendations.

1.2 Thesis Structure

The main part ofthe thesis is divided into six chapters. The first is the introduction chap­ter, which provides a general introduction to the research topic. It also discusses the purpose ofthe research and the chosen research methods and approaches.

The second chapter reviews literature on the history and development of the sports ap­parel industry and the relevance of digital transformation. It also analyses the value chain in the sports apparel industry, focusing on the downstream parts supply chain, especially the distribution channels and store design. In addition, it provides an overview of offline and online store development. Lastly it reviews different customer segments and their needs and expectations, and analyses their different customer journeys.

The third chapter focuses on reviewing secondary research on Nike. First, existing liter­ature discussing the history of Nike is reviewed. Then three strategic frameworks are used to analyze various aspects of the company, its industry and its digital transfor­mation. The three analyses are performed using Porter's five forces framework, the value chain model and the digital transformation roadmap. The aim is to understand the industry dynamics and its profitability for market incumbents, as well as Nike's internal activities, digital practices and implementation of digital transformation.

The fourth chapter presents the triangulation approach, consisting of two research methods for primary data collection combined with findings from the strategic analyses in Chapter 3 and includes strategic framework analyses on Nike.

The first research method discussed is the interview. To obtain an exhaustive under­standing ofthe company perspective, expert interviews were conducted with managers and digital specialists working at Nike. The second method used for primary research was a survey. An online questionnaire-based survey enabled benchmarking the needs and expectations of Nike's customers against the findings from the expert interviews and literature.

The fifth chapter presents the findings of the primary research methods and provides structured insights about the analysis of each research method. Moreover, it links the findings to the secondary research and examines the validity of the main hypothesis and discusses the limitations of the study. Four survey-based hypotheses are also examined for validity.

The sixth and final chapter highlights and discusses the main findings and explains the study's contribution to knowledge and elaborates on its implications. Recommendations forstakeholders are presented.

2 Literature review

The sports apparel industry has become of crucial importance, especially for younger generations. Nike has established and retained its position as the market leader in re­cent decades. This chapter reviews secondary data in the form of literature to under­stand the history, dynamics and development of the sports apparel industry, as well as the generic value chain of its incumbents. Moreover, it reviews literature on the topic of digital transformation, especially in the sports apparel industry, and discusses the risks and opportunities involved in transforming businesses digitally.

This chapter furthermore reviews literature about customers' behavior and their chang­ing needs and expectations concerning the availability of digital opportunities. Lastly, this chapter discusses the frameworks used in Chapter 3 to analyze various aspects of Nike. The demand for sports apparel, especially among the younger generations, has increased substantially as both the awareness of health and the disposable income per capita have increased in recent decades. This shift has allowed businesses to find new ways ofgrowing in the industry (Allied Market Research, 2019).

2.1 Sports Apparel Industry

The sports apparel industry is often referred to as the sports fashion industry, athletic apparel industry or sportswear market. Invariably, it is defined as a global market and is estimated to reach $248.1 billion in revenue by 2026 (Allied Market Research, 2018). The competitive landscape of the sports apparel market can be divided into seven main players. Today, Nike captures the largest share of the market at 30%, with a revenue of $30 billion. The second biggest player is Adidas, with revenue of over $20 billion and a market share of 20%; Adidas is followed - with a $15-billion revenue gap - by Puma, which has a $5 billion revenue. These three market leaders are followed in turn by Under Armour, New Balance, Sketchers and Asics (Wedbush Securities as cited in Sonenshine, 2018).

2.1.1 Market Overview

Sportswear are "clothes that are worn for sports or other physical activities" (Cambridge Dictionary, 2019). However, sportswear as it is known today is not the traditional sports­wear of previous decades. Today, sports apparel has become a type of clothing style which is also worn regularly outside of doing sports.

The most substantial part of the generic sports-apparel product portfolio is made up of T-shirts and tops, with a 21% revenue share (Fact.MR, 2019). In the United States alone, the revenue for sportswear in fiscal year 2018 was $115.6 billion, of which $78.65 billion (68.03%) was derived from the sales of sports apparel; the remaining $36.96 billion (31.97%) was made up by sports footwear. It was forecasted that in fiscal year 2019, the total revenue of the sportswear segment is going to grow by 5.8%, attaining $122.75 billion, of which $83.21 billion (67.79%) comprises sports apparel and $39.54 billion (32.21%) comprises sports footwear. In fiscal year 2020, the total projected revenue of sportswear, including footwear, in the United States is estimated to reach $129.49 bil­lion. This is a 10.7% increase compared to fiscal year 2018. In 2020, $87.55 billion (67.6%) will account for the sales of sports apparel while $41.94 billion (32.4%) is com­prises sports footwear. These numbers indicate that an increase in demand is expected, which will benefit the market incumbents (Coresight Research, 2018).

Nike's product portfolio provides a general impression of the leading products sold in the sports apparel market. The company has nine product categories, which are dis­cussed in Chapter 3 in more detail. Those categories are running, basketball, Jordan, football (soccer), men's training, women's training, action sports, sportswear (lifestyle) and golf. Sportswear, running, and Jordan are the best-selling footwear categories in which the products are targeted for athletic use. However, the products are often also worn for casual or leisure purposes. Besides these nine categories, Nike additionally markets its products designed for children and for other athletic sports, like tennis, vol­leyball or lacrosse (Nike, Inc., 2017).

Adidas has a product portfolio of similar categories. They are football (soccer), basket­ball, running, training, originals, Y-3 and its premium sportswear line called SLVR. The two latter groups are focused on fashion and style rather than fulfilling the purpose of functional activity (Sportswear Brand Strategies, 2013).

As shown in Figure 1, in 2016, the cumulative market share of sports apparel in the ap­parel industry of the United States accounted for 30.1%, with 11.4% being for perfor­mance clothing. Moreover, sports-inspired clothing accounted for 7.4%, whereas per­formance footwear accounted for 5.7%. Sports-inspired footwear made up 2.9%, whereas outdoor clothing and footwear accounted for only 2.7% (O'Connell, 2019; Coresight Research, 2017).

Abbildung in dieser Leseprobe nicht enthalten

Figure 1. Apparel market share: sports and non-sports clothing and footwear in United States, 2016 (O'Con­nell, 2017)

According to Miller (2011), performance clothing and footwear are types of apparel mainly designed to be worn during a specific activity. Watkins and Dunne (2015) devel­oped a broader definition of performance apparel, referring to clothes that perform or function for a specific purpose. They claimed that the main criterion of performance apparel is that the clothing should ensure that the individual stays as dry, fresh and com­fortable as possible while performing a particular activity.

Sports-inspired apparel and footwear relates to the trend of "athleisure" and offers cus­tomers comfortable, fashionable and functional apparel at a lower cost than high-per­formance athletic apparel (Marketresearch.com, 2019). The term "athleisure" was in­troduced by the fashion brand Lululemon but did not become popular until years later, when the New York fashion industry used the word to advertise apparel. In contrast to performance apparel, this sports-inspired apparel has an athletic look but no inherent technical function (Wilson, 2018). Outdoor clothing, by contrast, refers to apparel, foot­wear, gear and accessories made explicitly for outdoor activities in various environ­ments. The most popular outdoor activities in the United States are walking, hiking, camping, biking, fishing and trail running. Over48% of the United States population par­ticipates regularly in outdoor activities (Green, 2017; Outdoor Foundation, 2002; Out­door Foundation, 2018).

2.1.2 History of Sports Apparel Industry

The sports apparel industry hosts some of the fastest-growing companies in the world (Keller, Magnus, Hedrich, Nava & Tochtermann, 2014). The reason is that customers are progressively spending more on sports apparel and accessories (Bhisey, 2019). Sports apparel was introduced by the 19th-century evolution of activewear. It became better known with the increasing popularity of sports like cycling, where specific clothing was needed. However, it was not until the early 20th century that American and European sportswear began to strongly influence the global sports-fashion industry (Arnold, 2008). Overthe subsequent decades, fashion designers strengthened the development of innovative, functional, yet affordable and fashionable sports apparel.

The mid-2000s were when most of today's market leaders emerged. One of the oldest sports apparel companies, which still holds a market share of4.1%, is New Balance Ath­letics, Inc. The company was founded in 1906 and began operations with a product as simple as an arch support and did not bring its first footwear product to market until I960 (Smith, 2019).

Another early player in the sports apparel market was Dassler Brother Shoe Factory, founded by Rudolf and Adolf Dassler. The two brothers produced and sold sports foot­wear until 1949, when they split their business to found their own shoe companies, known today as Adidas and Puma (Adidas, 2019).

In 1962, Blue Ribbon Sports, which later in 1971 changed its name to Nike, entered the sports apparel market. The company started its first operations in year in 1964 by im­porting running shoes from Japan and opening its first retail outlet in 1966 (Pederson, 2001).

Under Armour was founded in 1996 and was one of the last main entrants into the sports apparel industry. They had an exclusive T-shirt, featuring unique microfibers that kept athletes from becoming too wet or hot while performing sports. The first shirts were made for the American National Football League, which enabled the company to turn one product into a portfolio of innovative performance footwear, apparel and ac­cessories (UnderArmour, 2012).

2.1.3 Sales and Distribution Channels

The distribution channels of last century differed markedly from today's channels. What started as a trade business in the 17th century developed into a concept of stores with opening hours. In the mid-20th century, these turned into conglomerates of stores lo­cated together within shopping centers. Some of today's most recognized department stores, such as Harrod's and Selfridges in the United Kingdom or Macy's in the United States, also originated in the 19th century. During the 20th century, the size of depart­ment stores increased and led to the standards of today's shopping mall concepts (Cox & Dannehl, 2007; Gladwell, 2014; Howard, 2019; Paquet, 2003). In 1979, Aldrich intro­duced the first form of an online shopping system, enabling commercial transactions to occur entirely online; however, the first product was not sold online until in 1994 (Tkacz & Kapczynski, 2009; Gilbert, 2004).

The emerging methods of online retailing were about to change the industry forever. From 2000 onwards, along with the expansion ofthe Internet itself, new sales channels arose besides traditional brick-and-mortar stores. For the first time in history, busi­nesses were able to distribute their products online. Not only was this an innovation in terms of sales channels; it also allowed the entire communication to occur online. It was a vast opportunity to start distributing products by mail after receiving the orders online, which has evolved into personalized communication and mass customization opportu­nities (see page 36).

Despite offering benefits for customers and businesses, e-commerce also constitutes a threat, especially for retailers whose products are not unique and can be bought else­where online. Moreover, factors such as speed, efficiency, benchmarking, pricing and flexibility became the main reasons for online shopping (Megibow, 2017; Bloomenthal, 2019).

A concept which has become increasingly relevant in the distribution and sales channels of any retail business is omnichannel retailing. Historically, the most widely used method was the multichannel approach. Neslin et al. (2006, p.26) defined this as "the design, deployment, coordination, and evaluation of channels through which firms and custom­ers interact, to enhance customer value through effective customer acquisition, reten­tion, and development".

Today the omnichannel method is more than just a collection of retail channels. It holds greater value by leveraging synergies among channels with the brands themselves (Nes­lin et al., 2006; Neslin et al., 2014). As Murray (2019) explained, customers want a seam­less experience when transitioning from one channel to another. The omnichannel ap­proach offers a unified experience, fulfilling the needs and expectations of the customer. According to Megibow (2017), e-commerce or selling products over the Internet is still a relatively young innovation and comprises only 20% to 25% of all retail revenue.

Chapter 4 presents the hypothesis that there will always be a need for physical stores. This was tested during the expert interviews and the customer survey. According to Cen- traal Bureau voor de Statistiek and Eurostat (2019), in the European Union, 60% of cus­tomers aged 16-75 years made at least one purchase through e-commerce in 2018. Compared to 2017, this number had increased by 3%.

Interestingly, the younger the age segment, the higher their preference for online shop­ping. In 2017, BigCommerce found that in the United States, 67% of the millennial gen­eration (i.e. people born between 1981 and 1996) preferred to search and purchase online rather than in physical stores. Among Generation X (i.e. people born between 1965 and 1980), only 56% preferred online shopping to physical shopping. In line with this trend, 41% of baby boomers (i.e. people born between 1944 and 1964) and only 28% of people born before 1944 preferred online searching and purchasing over tradi­tional brick-and-mortar stores.

A possible reason for this trend regarding age segments could be that customers gener­ally want to hold onto what they are familiar with for as long as possible. Moreover, most customers are not fond of adapting to changing circumstances. The younger the generation, the earlier they were exposed to digital opportunities (Phillipson, 2008; BigCommerce, 2017; Dimock, 2019; Vogels, 2019). For Generation Z (i.e. people born between 1995 and 2010), the term "true" digital native has become commonplace. In the future, they will comprise the majority of the consuming population (Francis & Hoe- fel, 2018).

As for the shift in purchasing behavior, another possible reason could be the develop­ment of the smartphone. It brought the mobile shopping experience to the market, mak­ing it possible to purchase products with a few clicks. In 2019, 93% of the millennial generation and 90% of Generation X owned a smartphone, whereas 68% of baby boom­ers and only 40% of people born before 1944 did (Vogels, 2019). In 2018, 67% of the global population used smartphones to browse the Internet and only 33% used tradi­tional desktop access via laptops or computers (AKIT, 2019). Other customer differences in preferences, needs and expectations are discussed in subchapter 2.4.

Regarding the fashion industry, the share of online fashion spending (20%) already out­paces overall online spending in general retail (13%). Furthermore, the share ofapparel sales made online in the United States increased by almost 7% between 2015 and 2017. Businesses such as Amazon and Alibaba have changed the way customers buy and have significantly contributed to the evolution of e-commerce (Howland, 2018a, 2018b; Dig­ital Commerce 360, 2018).

As shown in Figure 2, in 2016, 53% of US citizens older than 18 years purchased sports apparel online. The share of citizens who physically purchased sports apparel in special­ity running stores was 53% and in sporting goods stores it was 46% (Running USA, 2016).

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Figure 2. Sport apparel point of purchase in U.S. 2016 (Running USA, 2016)

A specific form of customer behavior could further explain the split in purchasing online versus purchasing in physical speciality stores. In this behavior, customers search online but buy offline, or vice versa. This gives them the opportunity to decide to purchase online or offline without making any sacrifices (Edwards, 2019).

This shift in behavior becomes apparent when analyzing the annual total retail sales in physical stores versus online stores. In Great Britain alone, between 2008 and 2017 there was an upward trend in online retail sales (see Figure 3). The sales in brick-and- mortar store have increased only slightly over the past decade, resulting in online retail sales being markedly higher than physical retail sales (Murphy, 2018).

Abbildung in dieser Leseprobe nicht enthalten

Figure 3. Annual total retail sales, store-only sales and online-store-only sales, non-seasonally adjusted; Great Britain, 2008 to 2017 (Monthly Business Survey, Retail Sales Inquiry: Office for National Statistics, cited in Murphy 2018)

The question remains whether online stores have the potential to entirely replace brick- and-mortar stores. Either way, its potential should not be underestimated. While most sales still occur in physical stores, the business model of traditional brick-and-mortar stores is becoming obsolete. However, the meaning of customer experiences and the need to feel and try products remains essential for customers (Gupta, 2019). Therefore, many retail stores are trying to incorporate a digital element within the customer expe­rience. This is generally done through digital devices or services that can be used by mobile devices (Pymnts, 2019). The next section discusses digital transformation and the digital tools companies currently use to interact with their customers.

2.2 DigitalTransformation

Digital transformation refers to the process of transforming an organization to meet cus­tomer needs more efficiently through technological innovation and data (Clark, 2018). According to Lopez and Scheibenreif (2017), four goals drive digital transformation: i) competitiveness, ii) profitability, iii) efficient user experience and iv) agility across the company. Those goals not only affect businesses but also have socioeconomic implica­tions. Digital transformation already affected the retail industry during the 1900s and early 2000s, where purchases still occurred exclusively in physical stores and mainly with cash. Media campaigns and advertising became one of the first forces to start the adap­tation ofdigital transformation to cope with customer demand.

After 2000, along with the global rise in smartphone users, businesses faced new chal­lenges involving customer communication and satisfying their digital needs and expec­tations. Methods ofdigital transformation were expanded to further cover activities in­volving payments, the discovery of products and personalization. Various other areas of e-commerce were similarly affected (Schallmo, Williams & Boardman, 2017).

2.2.1 Opportunities

Digital transformation is a powerful source of business opportunities with vast societal impact. Technological innovations not only open up new opportunities for product and market development but also shape entire business models and value chains (Probst et al., 2018). In the current era, it is almost impossible for industry incumbents to sustain a competitive advantage without digitally transforming their business models.

Some global enterprises, such as Volkswagen, Tesla and IKEA, have already successfully implemented digital tools to ensure sustainable and above-average market returns. Volkswagen plans to further invest additional $4 billion in developing their business through digital transformation. These ambitions involve digital innovations which are dedicated to improve customer experience. For example, their vehicles are becoming integrated with the Internet of Things (loT). The loT is a concept of establishing inter­connections between various devices overthe Internet. Volkswagen plans to equip their vehicles with loT technology to-for example - receive parcels without a driver, by open­ing the back door autonomously for mail delivery. This innovation could cause a consid­erable disruption in the parcel business. Other use cases include automatic-parking bill­ing through a mobile device application and improved personalization involving recom­mendations based on the vehicle's location (Morgan, 2014; Oswald, 2018; Zigurat, 2019).

Tesla is another example for the successful disruption of an industry. By leveraging dig­ital transformation, the electric car company is the only car manufacturer which auto­matically updates their cars' firmware providing a superior customer experience and to enhance safety. By leveraging emerging technological opportunities, the company was able to become the world's most valuable car manufacturer by market value with a val­uation of $208 billion (Bruijl, 2017; Korosec, 2020).

IKEA leveraged emerging technologies by integrating them into mobile devices. In 2017, IKEA introduced a virtual reality mobile application named IKEA Place, where users could visualize how furniture would look once placed in their homes. The application uses the camera of a smartphone. With this innovation, IKEA was the first player to set a new standard in digital transformation within its industry (Zigurat, 2019; IKEA, 2017). While Volkswagen and IKEA are companies that excel at transforming their businesses digitally, the issue affects almost all companies in most industries (Andrade, 2019).

As mentioned earlier, digital tools are not only disrupting business practices and trans­forming value chains; they are also creating new business models. When transforming traditional business practices, digital transformation can be leveraged to expand into new markets, digitalizing products or services and capturing value from new digital plat­forms by enabling enhanced customer personalization. Innovations in digital transfor­mation can also improve the cost-value ratio of products in each stage of the value chain. Many companies prioritize full digitalization of their value chains, thus creating synergies driven by emerging digital and technological innovations. Moreover, digital transfor­mation causes business leaders to question their existing business models; it empowers them to reshape innovative and powerful new business models by maximizing digital value creation (Shimp, 2017; Accenture, 2013; IBM Institute for Business Value 2011).

2.2.2 Risks

Although successful digital transformation greatly benefits companies and industries worldwide, digitalization must be implemented cautiously. Businesses which do not in­novate at the digital level will face major consequences in the future; however, imple­menting a wrong approach to digital transformation can also be harmful even if it does not threaten the survival ofthe business (Collins, 2009).

Denisco-Rayome (2019) reported that the most severe risks concerning digital transfor­mation were as follows: cybersecurity issues, inflexible technological infrastructure, le­gal and budget constraints, and resistance and risk aversion regarding emerging tech­nologies. Llewellyn (2019) claimed that a major contributing factor in unsuccessful digi­tal transformation is that companies might not be entirely convinced that the status quo needs to be challenged or improved. Furthermore, misalignment in the company's vi­sion, or failing to operate stringently towards strategic alignment throughout an organ­ization, can lead to aversion regarding implementing new digital practices. In recent dec­ades, these risks have become apparent.

McKinsey & Company (2018) identified 21 practices that have the greatest potential to ensure the success of digital transformation. These practices include implementing dig­ital tools to enhance the internal availability of information within a company. This leads employees ofan organization to support the digital transformation and to alter the op­erating procedures to leverage digital technologies. Innovative tools can establish new guiding principles for digital transformation and demonstrate its relevance and purpose.

Moreover, companies need to involve digital technology experts in their top manage­ment to empower leaders to challenge traditional work processes and redefine roles and responsibilities, and to align with the purpose of digital transformation. These ex­perts need to facilitate innovative ideas involving digitalization. The practices include establishing new digital forms of working, integrating various levels of the organization to support the digital transformation and developing technologies for internal use. In addition, leveraging the power of leaders in a company encourages employees to ac­tively participate in digital transformation and fosters collaboration across business units within the organization.

Digital transformation is impacting the sports apparel industry on a global scale. Accord­ing to Behr (2018), the industry will continue to be disrupted by digital innovations. An example is smart clothes. The integration of technology into clothing can be beneficial regarding sports and performance apparel because technology can recognize patterns and trigger actions. It could be that in the future, casual shoes will lace up automatically (Eden, 2016). The hypothesis that smart clothes present a valid futuristic innovation was tested during the expert interviews at Nike, reported in Chapter 5.

While it cannot be accurately predicted, it seems possible that the loT will become rel­evant to digital transformation in the sports apparel industry. From the perspective of the retail sector, digital transformation can be leveraged especially well by athletic sports apparel companies. Indepth Tech News (2019) highlighted such applications re­lated to loT. For instance, businesses could build up a smart inventory with automated management. Here, all stored items are continuously checked, which allows for accurate levels of sales forecasting and the reordering of products that are out of stock. The loT would thus become attractive for the application ofanalytics.

Another emerging technological trend is artificial intelligence, which is defined as auto­mated activities associated with human thinking (Bellman, 1978). The use cases are di­verse and can be applied online as well as in brick-and-mortar stores. Such evolution could radically change retail store experiences of customers (Collelldevall, Kamshy- bekova, Lu, Wagner & Wielheesen, 2019). From the viewpoint of the sports apparel in­dustry, industry incumbents as well as their customers could benefit from such a digital transformation.

Virtual reality refers to the use of technology to visual simulate a real environment. This could also find its way into retail stores soon, aiming to enhance the customer experi­ence. Not only the visual sense can be imitated but also hearing, touch and smell. These impressions would make the virtual experience as real as possible, enabling customers to gain a detailed impression of products without seeing them physically.

Amazon Go is an example of a company which is already offering a digital shopping ex­perience to its customers. The company offers a seamless shopping experience without physical payment, using smartphones as wireless transaction devices. The stores and the smartphone communicate wirelessly to autonomously process the payment as soon as a customer exits the store with a product. This innovative technology allows wireless checkouts without requiring customers to pay in-store physically by making use of a ra­dio frequency identification (RFID) system linked to a customer's Amazon account (Am­azon.com, 2019). It is not unlikely that leading companies in the sports apparel industry would take advantage ofthis advanced technology.

Other use cases of digital transformation in retail include smart fitting rooms in stores, where customers scan their product to access information on available sizes as well as different colors or product recommendations. Companies such as Mango and Ralph Lau­ren are already using this digital innovation, and incumbents of the sports apparel in­dustry might also adapt to this trend (Osborne, 2018). Moreover, a rising technological innovation in retail stores is the digital mannequin. These mannequins artificially portray customers in 3D while wearing the selected clothes, shoes or accessories. Once the cus­tomer has been scanned to create their digital mannequin, the data is stored online and can be reused at any time when customers want to see how well the clothes offered in online stores fit them (Subastral Inc., 2017).

However, the question remains what kind of store experience the customers of sports apparel brands will want in the future. Moreover, the subject of how much personal data customers want to share is critical. Virtual 3D mannequins of customers would not only reveal exact body measurements to companies, but updates in their measurements would reveal physical changes of their physique over time. This data might allow com­panies to identify trends and adapt individual product offerings and customer commu­nications accordingly. It needs to be considered, however, that this customer data is sensible health data and therefore needs to be protected. The importance of data pri­vacy was further enforced by the 2018 EU General Data Protection Regulation (GDPR) to regulate the use of customer data. These new regulations forced players in the sports apparel industry to change the way they use customer data and interact with them (Allday, 2018).

2.3 Customer Research

Understanding of customer behavior has become an essential part of any successful business. The science of customer behavior originated in the 1960s and has become in­creasingly important over the decades (Abdul Brosekhan & Muthu Velayutham, 2019). As shown in Figure 4, customer behavior can be divided into customer activities and customer responses, which are interdependent categories. Customer activities can be further split into three activity categories of the buyer journey: purchase, use/consume and dispose. These activities all influence the customer's responses. Purchase activities occur when customers acquire certain products or services; this includes efforts leading to the final purchase, such as researching prices or sizes. Use/consume activities involve factors such as the time and location where customers use or consume products. Those activities differ significantly from product to product. Lastly, dispose activities include actions about how customers discard the products, and may include reselling, reusing and recycling.

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Figure 4. What is What Is Consumer Behavior? (Kardes, Cronley & Cline, 2015, p. 8)

Customer responses can also be divided into three categories. The first is emotional re­sponses, which involve feelings and temperament. Mental responses involve thought processes, attitudes, beliefs and intentions that customers have about products. These mental responses can be either evaluative or non-evaluative. Evaluative use involves judgements and assigning value to the judged object, whereas non-evaluative use in­volves thinking about an object without making any judgement of its value.

Lastly, behavioral responses involve customer decisions and actions at purchase, during product use or consumption, and during its disposal. Behavioral responses are likely to be influenced by marketing activities, advertisements or promotions (Kardes, Cronley & Cline, 2015).

2.3.1 Customer Evolution

In recent decades, not only has customer behavior evolved but the needs and expecta­tions of customers have changed considerably. Historically, customers were used to tra­ditional means of shopping by purchasing and experiencing products or services, all of­fline. There were no online services for comparing prices; customers had to physically enter a shop during its operating hours and it was hard to obtain detailed information about product specifics without asking a salesperson. Today, customers are influenced by the era of digitalization. Comparing prices, finding additional information about prod­ucts and purchasing products can easily be done online (Jose, 2017).

A crucial influence that has shaped the purchasing behavior of customers is the increas­ing use of social media. Today, over 3.8 billion people regularly use social media, which is more than a third of the entire global population (Kemp, 2020). Companies are aware of this trend and target their customers primarily in places where they spend the most time. Thus, social media marketing has become a substantial part of any promotion cam­paign. Customers are led to webpages where they are able to purchase products or ser­vices they saw in advertisements only minutes earlier, for instance on a social media platform. A report by Deloitte (2015) found that almost a third of customers spend more money when they shop online than when they purchase in physical stores, which con­tributes to the trend of companies increasingly selling online.

In line with the findings of Deloitte and Salesforce (2018) suggested that digitalization has significantly changed customer expectations in recent years. In that study, over 80% of customers stated that it is important to be treated like a person and not a number and that companies should prioritize personalization. Additionally, more than half of customers were actively seeking to purchase products and services from companies that innovate at the highest level and integrate the latest technology in their offerings. An­other finding was that increased digitalization enhanced the risks associated with data privacy. Over 50% of customers said that they felt insecure about their personal infor­mation being used by companies and that they were afraid that their data could be re­trieved through leaks in data security (Salesforce, 2018).

Despite the fact that many researchers predict a purely digital future, Morgan (2019) argued that in the future customers will continue to shop in physical stores. Several fac­tors support this argument. The main one is that consumers have always wanted to and will continue to want to see or feel products physically. Second, often products need to be adapted to the customer (e.g. tailoring), which requires a physical presence for the service to be executed. Another aspect is the social one. It has become a common prac­tice to spend time shopping with friends. This social element is mostly non-existent in the online space because it is hard to imitate it virtually. Lastly, in the future, customers will experience new digital technologies in stores through virtual or augmented reality and robots, which will attract them to experience brick-and-mortar stores in a new dig­ital way (Morgan, 2019).

However, it will remain a challenge for businesses to cope with the changing needs and expectations of their customers concerning online and offline shopping. In physical retail stores, an element considered by many customers to be important is personalized ser­vice from a human salesperson. This element is hard to fully replace in online stores. BRP (2019) found that 87% of customers expected a uniform shopping experience across all sales channels. Use cases for achieving this could be companies which enable cus­tomers to order online but allow them to pick up their delivery in their physical stores.

Another factor which contributes to successful adaptation to changing customer expec­tations is the use of mobile technology within physical stores. For instance, Apple has made it possible for customers to self-check-out in its stores by scanning products with their smartphones. The checkout process can either be performed entirely by the cus­tomers themselves or with the assistance of a salesperson processing the checkout using a mobile payment device (BRP, 2019; Lloyd, 2018).

2.3.2 Customer Journey Mapping

An indispensable tool in understanding customer interactions is customer journey map­ping. The concept of customer journeys has become imperative for companies that want to provide superior experiences for individual customer segments. Customer journeys involve recurring interactions between customers and the those who serve them (Mer- oni and Sangiorgi, 2011).

Customer journey mapping involves visual representations of the customer's journey regarding their experience with a product or service. Its main purpose is to emphasize the individual touchpoints (i.e. interactions) with customers and supports to understand the various stages involved in the journey (Marquez & Downey, 2015). Mapping should include at least three essential elements, which are customer needs, customer percep­tions and customer processes. Customer journey maps can include additional elements, such as the impact of the brand, improvement of interactions, key stakeholders and crit­ical touchpoints along the journey.

The creation of customer journey maps generally involves five steps. These are i) col­lecting internal insights; ii) developing an initial hypothesis; iii) researching customer needs, perceptions and processes; iv) analyzing customer research and v) mapping the customer journey. The collection of internal insights refers to drawing on existing knowledge about customers and trying to define a collection of customer touchpoints. Developing initial hypotheses is essential to successfully synthesize the data gathered through observation and to support assumptions about the customer journey. Regard­ing the customer needs, perceptions and processes, various research approaches are used to derive insights. The findings from the customer research are then analyzed and "personas" are created. Personas are fictional characters which are used to describe specific customer types. In the last step, the customer journey map is visually laid out, taking the prior customer analysis into account (Temkin, 2010).

2.4 Theoretical Frameworks

To leverage secondary research about Nike in the triangulation approach, it was neces­sary to first understand the relevance ofthe strategic frameworks used for the analysis. The sports apparel industry is a rather concentrated industry with a few large market players. Because the purpose of this study was to analyze the digital transformation of Nike, this subchapter reviews the literature regarding three strategic frameworks. These are used for in-depth analyses of Nike in Chapter 3. The three strategic frameworks se­lected for the analyses were as follows:

- Porter's Five Forces
- The Value Chain
- Digital TransformationRoadmap

2.4.1 Porter's FiveForces

The first framework is crucial for analyzing the attractiveness of an industry by providing an overview of the market dynamics and its competitiveness. Porter's five forces refers to a model ofthe five competitive forces that shape strategy (see Figure 5). These forces are i) the threat of entry, ii) the threat of substitution, iii) the bargaining power of sup­pliers, iv) the bargaining power of buyers and v) rivalry among existing competitors. The stronger each of these forces, the harder it is for an incumbent to earn high returns and the less attractive the industry becomes (Porter, 1979).

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Figure 5. Forces Governing Competition in an Industry (Porter, 1979)

The first competitive force is the threat of entry. This term refers to the threat that new entrants present to existing market incumbents by trying to capture market share and valuable resources. The degree of the threat depends strongly on the level of the barri­ers to entry. High barriers to entry pose significant challenges for new entrants to estab­lish themselves on the market. In contrast, low barriers allow new entrants to capture market share and become competing incumbents relatively rapidly.

There are six potential barriers to entry that protect a market and pose a challenge to new entrants (Porter, 1979). The first barrier is economies ofscale. Existing incumbents bear lower costs than do new entrants because their scale of operation decreases their unit costs. The second barrier is product differentiation. It refers to brand identification and leads to new investments to acquire customers from other incumbents. The third barrier is capital requirements, which relates to the required upfront monetary invest­ments to enter a new industry. These capital requirements usually relate to research and development and technological development.

The fourth barrier to entering an industry is cost advantages independent of size. This refers to the learning effect (i.e. learning increases productivity), privately-owned tech­nologies or exclusive access to raw materials. These cost advantages make substitution and imitation harder for competitors. The fifth barrier is access to distribution channels, whereby new entrants must either establish themselves using the same distribution channels as their competitors or must create their own. The sixth and last barrier to entering an industry is government policy. This barrier poses significant challenges even for powerful market entrants.

According to Grundy (2006), these four entry barriers are a function of physical access to customers or resources, the acquisition of knowledge, the cost to enter a market as well as the extent of comfortability to be in the respective industry.

The second competitive force is the threat of substitute products or services that lower the profitability of an industry. This threat refers to the availability of a substitute prod­uct that customers can acquire instead of a company's product. Generally, the higher the substitute product in terms of price and performance, the higher the threat for the industry to earn below-average profits. If products are not differentiated in quality or uniqueness, industry incumbents will unlikely earn above-average returns and the in­dustry growth may suffer. Two kinds of substitute products are critical from a strategic standpoint. The first is substitute products which offer better price-performance than the competing products of incumbents. The second is substitute products which are pro­duced by other industries and are more profitable than the respective industry; this sit­uation can force incumbents to decrease their prices or to differentiate their product regarding quality or performance (Porter, 1979). This competitive force is a function of outsourcing versus internal operations, leveraging technology to achieve equal value, emotions during purchases, bundling and breaking up value-adding activities into small components (Grundy, 2006).

The third competitive force is the bargaining power of suppliers. This is influenced by increases in prices and decreases in the quality of a product or a service that is supplied to the industry. Three factors determine whether suppliers have high bargaining power. The first is when the supplier industry is dominated by a few players or is more concen­trated than the industry which it supplies. The second factor is that supplier power is high when a supplied product is strongly differentiated and there are switching costs for changing the supplier. The third factor contributing to the bargaining power of suppliers is when industry incumbents whom they supply are not highly important to them. This competitive force is a function of unique knowledge of suppliers, resource scarcity and the suppliers' ability to integrate forward in the respective industry (Grundy, 2006).

The fourth competitive force is the bargaining power of buyers. Buyers can demand lower prices or higher quality, and their bargaining power is strong if there are only a few buyers or they order high volumes. Moreover, if they buy standardized products which are low in differentiation, they can easily buy from other companies without sac­rifice (i.e. no switching costs). Two other factors influencing the bargaining power of buyers are the irrelevance of the product to customers or when the product offers no cost savings to the customer (Porter, 1979). This competitive force also is a function of the added value, the urgency of lead times to consumption and emotions (Grundy, 2006).

The fifth competitive force is the rivalry within an industry. This is another crucial factor influencing the attractiveness of an industry. Intense rivalry decreases the average prof­itability of the competing incumbents, while less intense rivalry indicates above-average profitability. Factors affecting the intensity of rivalry within an industry are, for instance, whether many competitors exist that are similar in size and market share. Moreover, if industry growth is slow, rivalry among competitors increases. Rivalry also increases when there are low switching costs (i.e. customers can easily switch between compa­nies) or the product is standardized or low in differentiation. Rivalry within an industry is also on dependent on the incumbents' commitment to the market, mindset or simi­larity. Lastly, barriers to exit can affect rivalry, because such barriers may persuade com­panies to stay in the industry and invest to further compete instead of leaving the indus­try (Grundy, 2006; Porter, 1979).

2.4.2 The Value Chain

The second framework used for the analysis of Nike in this study was a strategic analysis approach. It provides a disaggregated and holistic company overview, structured ac­cording to activities of strategic influence. The value chain consists of two activity cate­gories: primary and support (see Figure 6). Five primary activities influence the compe­tition in an industry and are crucial for sustaining advantage. These activities depend strongly on the industry or field a company operates in (Porter, 1985).

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Figure 6. The Generic Value Chain (Porter, 1985, p. 37)

The first primary activity is inbound logistics, which are activities associated with "re­ceiving, storing and disseminating inputs to the product, such as material handling, warehousing, inventory control, vehicle scheduling and returns to suppliers" (Porter, 1985, p. 40). The second primary activity is operations, which involves actions associated with "transforming inputs into the final product form, such as machining, packaging, as­sembly, equipment maintenance, testing, printing, and facility operations" (Porter, 1985, p. 40). The third primary activity is outbound logistics, which is concerned with "activities associated with collecting, storing, and physically distributing the product to buyers, such as finished goods warehousing, material handling, delivery vehicle opera­tion, order processing and scheduling" (Porter, 1985, p. 40).

The fourth primary activity is marketing and sales, which involves actions associated with "providing a means by which buyers can purchase the product and inducing them to do so, such as advertising, promotion, salesforce, quitting, channel selection, channel relations, and pricing" (Porter, 1985, p. 40). The fifth and last primary activity is service, which involves actions associated with "providing service to enhance or maintain the value ofthe product, such as installation, repair, training, parts supply, and product ad­justment" (Porter, 1985, p. 40).

Complementary to the primary activities of the value chain are the support value activ­ities. The first support activity is procurement. It is concerned with the purchase of inputs (e.g. raw materials, supplies and physical assets) which are further used in other value chain activities. The second support activity is technological development, which in­volves actions that can be "broadly grouped into efforts to improve the product and the process" (Porter, 1985, p. 40). Technological development has various forms, ranging from basic research and product design to service procedures. This activity is a substan­tial part of sustaining a competitive advantage in any industry.

The third support activity is human resources management, which is concerned with actions involving the hiring process, training development and compensation at all levels of an organization. It supports areas of both primary and supporting activities and, like technology development, is a substantial element due to its influence on competitive advantage. The fourth and last support activity is firm infrastructure, which is a source of competitive advantage.

"It includes a range of actions, such as general management, planning, finance, ac­counting, legal, government affairs, and quality management. Infrastructure, unlike othersupport activities, usually supports the entire chain and not individual activities. Depending on whether a firm is diversified or not, firm infrastructure may be self- contained or divided between a business unit and the parent corporation. In diversi­fied firms, infrastructure activities are typically split between the business unit and corporate levels (e.g. financing is often done at the corporate level while quality man­agement is done at the business unit level)" (Porter, 1985, p. 40).

Since the traditional value chain model strongly emphasizes on the supply chain and internal operations, it is useful to consider influential factors of today's era. The Char­tered Institute of Management Accountants (2014) identified three major trends which affect the value chain. These are globalisation, demographic change and digitisation.

Globalisation is the growing international occurrence of value chains enabled by the flow of goods, services, technology and capital. On the one hand, companies' value chains benefit from it whereas they form new partnerships or joint ventures with companies or local suppliers in new countries. On the other hand, risks of globalising a value chain include potential intellectual property right breaches, compliance complexity and a more challenging regulatory environment (The Chartered Institute of Management Ac­countants, 2014).

Demographic change refers to the redistribution of the workforce which will create a different world as we know it today. While some countries show slow or no population growth (e.g. Europe), other populations (e.g. Africa) are exponentially increasing. This contrasting growth will lead to a fundamental rearrangement in the design of successful value chains which need to adapt to the changing demographic and geographic circum­stances (The Chartered Institute of Management Accountants, 2014).

Lastly business will inevitably come across the opportunities of technological advance­ment in digital practices. These can not only be used for improving the efficiency of in­ternal processes but also forthe manufacturing processes. In the future, this might allow companies to extend their value chains by manufacturing in smaller facilities in customer proximity (The Chartered Institute of Management Accountants, 2014).

2.4.3 Digital Transformation Roadmap

The digital transformation roadmap is a planning tool for coordinating and creating dig­ital innovations throughout an organization. Digital transformation consists of at least four core components: the goal, the strategy, key activities and milestones. The goals should be clearly defined and must consider the individual digital requirements of an organization. The vision and mission enhance the alignment of actions within the organ­ization. In addition, a clear strategy for achieving the goal is necessary for the success of any digital transformation (Navvia, 2018).

The theoretical framework used forthe analysis of Nike's digital transformation was the roadmap of digital transformation by SchalImo, Williams and Boardman (2017). In Figure 7, the five phases of digital transformation are outlined. These are i) the analysis ofdig- ital reality, ii) setting digital goals, iii) defining the digital potential, iv) evaluating the digital fit and v) the digital implementation.

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Figure 7. Roadmap for Digital Transformation (Schallmo, 2016, p.23)

The digital reality phase is the first phase of the digital transformation, where the exist­ing business model is outlined. To provide an understanding of the digital level of a com­pany, an added-value analysis is then conducted, incorporating customer requirements and further stakeholders. Next, the digital ambition phase defines the aims of the digital transformation regarding time, space, quality and financials. This step provides priorities for the business model. The second phase, digital potential, creates use cases for the digital transformation and provides the basis for further design of a new digital business model.

In the digital fit phase, the design of the digital adaptation of the business model is eval­uated. A digital fit is determined to help avoid misalignment of customer requirements with the objectives of an organization. The fifth and last phase is digital implementation, where the digital customer experiences are designed and the business-model transfor­mation is executed (Schallmo, Williams & Boardman, 2017).

3 Nike, Inc.

This chapter discusses the history of the company Nike and introduces the digital trans­formation of the company in recent decades. This chapter also focuses on the three frameworks discussed in subchapter 2.5. The discussion establishes a holistic overview of the industry environment, firm-specific activities and the directions and methods of the firm's digital roadmap. Moreover, this chapter offers insights into Nike's competitive environment, internal resources and digital capabilities.

3.1 Corporate History

Nike was founded in 1964, originally as Blue Ribbons Sports by Bill Bowerman and Phil Knight. The company has become the most valuable apparel brand in the world and is currently valued at $32 billion. It employs over 76,000 people worldwide and ranks as number 90 on the Fortune 500 list, on which it has been ranked over the past 25 years consecutively (Fortune, 2019). Acquisitions of sport apparel companies, such as Cole Haan, Hurley International, Converse and Umbro, have accompanied the company's or­ganic growth. However, between 2007 and 2013, the company decided to divest most ofthese acquisitions and today, Converse is the only owned subsidy of Nike (Kell, 2012; Business Wire, Inc., 2019).

In the past decade, Nike has moved away from its traditional core business and have expanded into the technology business. The company now defines itself as a tech com­pany and has created new departments to focus directly on the technological develop­ment of its business (Fortune, 2019; Tannou & Westerman, 2017).

Since early 2020, John Dona hoe, the former CEO of eBay, was appointed as the new CEO of Nike. It is therefore expected that the company will start to focus even more strongly on digital strategy and on transforming its business with new digital innovations (Han- bury, 2019).

3.2 Industry Analysis

To clearly evaluate the situation of Nike, it is necessary to analyze several aspects of the company. The first framework for external analysis is Porter's five forces model, which was used to examine the industry that Nike operates in (i.e. the sports apparel industry).

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