The Nike swoosh looms large over the footwear industry. This uncontested giant of the field has built itself up through high-profile endorsements, sleek designs, and PR campaigns successful enough to etch its way into pop-culture history. But the brand of Lebron James, Tiger Woods, and Michael Jordan didn't come from nowhere. To understand Nike (NKE) - Get Report requires understanding a story that began with a self-described average track runner coming out of college and a coach obsessed with the connection between speed and design.
How Was Nike Founded?
The story of Nike begins with the story of Blue Ribbon Sports back in 1964. Around that time, Phil Knight had just gone through University of Oregon followed by a stint at Stanford for his MBA, leaving him with two crucial experiences that set the trajectory of his future.
At University of Oregon, he ran for the school's track and field team, putting him into contact with their coach, Bill Bowerman. Aside from an intensely competitive ethos, Bowerman displayed a fascination with optimizing his runners' shoes, constantly tinkering with different models after learning from a local cobbler.
According to Nike, Knight was the first student to try one of Bowerman's shoes. Seeing him as a safely-unimportant runner to test his shoes on, Bowerman offered to take one of his shoes and fix them up with his custom design. Knight accepted the offer, and, supposedly, the shoes worked so well that his teammate Otis Davis took them and ended up using them to win gold in the 400-meter dash in the 1960 Olympics. Otis Davis insists to this day that Bowerman made the shoes for him.
After the University of Oregon, Knight went through Stanford's MBA program, during which he wrote a paper theorizing that the production of running shoes should move from its current center in Germany to Japan, where labor was cheaper.
Knight got the chance to put this theory to the test with a trip to Japan shortly after his 1962 graduation. He struck a deal with a group of Japanese businessmen to export the country's popular Tiger shoes into the U.S.
Coach Bowerman, who long believed that German shoes, though the best on the market, weren't anything too special to be replicated or even improved on, supported Knight's venture, entering into a 50-50 business deal for ownership of their new company, Blue Ribbon Sports, established in Eugene, Oregon, on Jan. 25, 1964.
History of Nike
After founding Blue Ribbon Sports, Knight tested the waters for his imported shoes, initially selling them out of his car when he came back to the States. It quickly became clear that a demand existed for these cheaper but still high-quality alternatives to the Adidas (ADDYY) and Pumas (PUMSY) that dominated the market.
In 1965, the ever-inventive Bowerman proposed a new shoe design to the Tiger shoe company, one that sought to provide the right support for runners with a cushioned innersole, soft sponge rubber in the forefoot and top of the heel, hard sponge rubber in the middle of the heel, and a firm rubber outsole.
This design would turn out to be both a major success and source of conflict between Blue Ribbon and its Japanese supplier. Dubbed the Tiger Cortez, the shoe dropped in 1967 and became an instant hit for its comfortable, sturdy, and stylish design.
Around the time of its success, though, relations soured between Blue Ribbon and Tiger. Knight claims that the Japanese company was seeking a way out of its exclusivity deal with Blue Ribbon and sought to sink the company. Tiger claims to have discovered Blue Ribbon Sports selling their own version of the Tiger Cortez under a new line of shoes they called "Nike."
Either way, the two formally split in 1971 with a lawsuit from Tiger following. A judge eventually settled that both companies could sell their own versions of the model, leading to the only sneaker to become a best-selling model for two different shoe companies as the Nike Cortez and the Tiger Corsair (now sold by Tiger's modern incarnation, Asics).
Following the split with Tiger, Blue Ribbon Sports fully rebranded itself as Nike. Phil Knight initially wanted to call the company "Dimension 6," but Jeff Johnson, thankfully, got the inspiration for Nike after seeing the Greek goddess of victory's name in a dream. Before this though, the new brand needed its own logo.
They reached out to a design student at the nearby Portland State University, Carolyn Davis, to provide sketches. Phil Knight reluctantly settled on a swoosh design, reportedly saying, "Well, I don't love it, but maybe it will grow on me." Davis charged $2/hour and received a total of $35 for the logo. In 1983 Phil Knight, apparently having come around to the logo, held a party for Davidson and awarded her 500 shares of stock, speculated to be worth roughly $1 million today.
After coming into existence proper on May 30, 1971, Nike, Inc. continued the success of Blue Ribbon Sports, helped first by the success of the Tiger Cortez and then by Bowerman's innovative "Waffle" sole design. While thinking over breakfast on a way to give running shoes more traction, the coach saw the grooves in the waffle his wife made him and wondered what it would look inverted. Not one to pass on an idea, Bowerman poured melted urethane into his waffle iron. Unfortunately, he forgot to add any anti-stick agent onto the iron and it glued shut. But nevertheless, the idea had taken root, and with the help of another waffle iron and presumably a good spray, he designed his ideal sole and the iconic "Waffle Trainer" was born.
This shoe was a major success for Nike, the first of many to come as the company maintained a strong and steady growth through its early days, culminating in its 1980 IPO, which immediately made Phil Knight a millionaire with shares worth $178 million.
Since then, the company has only continued to grow, helped on in part by a series of clever ad campaigns, most famously the 1988 "Just Do It" ad campaign (apparently inspired by the last words of American murderer Gary Gilmore before the firing squad, "Let's do it.")
The company's other greatest asset has been its celebrity endorsements. They struck big signing athletes like Tiger Woods, Kobe Bryant, and Lebron James in the early stages of their career.
By far the most lucrative endorsement Nike has ever had, both for the company and its sponsor, has been with Michael Jordan. Spotting potential, Nike tried to swoop in for an endorsement from Jordan before the start of his first season with the pros in 1984. Despite having never worn a pair of Nikes before and harboring hope for a deal with Adidas, Jordan ended up signing on with Nike after a meeting in which they promised the soon-to-be star $500,000 a year for five years, two die cast Mercedes cars, and shoes customized to his specific requests.
The deal proved a smash hit for Nike, with Jordan quickly rising to super stardom and his shoe line, Air Jordans, hitting the market to make over $100 million in revenue by the end of 1985. Air Jordans continue to be a cash cow for Nike. Despite some recent declines in sales, the brand still nets the company a staggering $2.8 billion in sales for 2018. Jordan continues to make roughly $100 million a year in Nike royalties alone.
1964 - Phil Knight and Bill Bowerman found Blue Ribbon Sports.
1971 - Cutting ties with Onitsuka Tiger (now Asics), Blue Ribbon Sports becomes Nike Inc., using swoosh logo created by Portland State University student Carolyn Davis for $35
1971 - Bowerman comes up with iconic sole pattern for Waffle Trainers after putting rubber into a waffle iron
1972 - Romanian tennis player Ilie Nastase becomes the first athlete to sign an endorsement with Nike.
1979 - Nike introduces patented "Air" technology with new Tailwind shoe.
1980- Nike completes IPO with a price of 18 cents a share.
1984 - Nike signs Michael Jordan, launching Air Jordan series.
1987 - Nike drops ad for new Air Max shoes set to The Beatles' "Revolution," making it the first ad to use the band's music.
1988 - First "Just Do It" campaign launches with ad featuring 80-year-old running icon Walter Stack running across the Golden Gate Bridge.
1989 - "Bo Knows" ad campaign drops featuring baseball and football star Bo Jackson.
1990 - First Niketown store opens in Portland, Oregon.
1991 - Activist Jeff Ballinger publishes report exposing low wages and poor working conditions among Indonesian Nike factories. Nike responds by instating its first factory codes of conduct.
1996 - Nike signs Tiger Woods.
1998 - In the face of widespread protest, Nike raises the minimum age of its workers, increases monitoring, and adopts U.S. OSHA clean-air standards in overseas factories.
1999 - Nike co-founder Bill Bowerman dies at 88.
2002 - Nike acquires surf-apparel company Hurley.
2003 - Nike signs Lebron James and Kobe Bryant.
2004 - Nike acquires Converse for $309 million.
2004 - Phil Knight steps down as CEO and president of Nike, but retains chairman role as William D. Perez becomes the company's new CEO.
2008 - Nike signs Derek Jeter.
2012 - Nike becomes official supplier for NFL apparel.
2015 - Nike becomes official supplier for NBA apparel.
2018 - Nike unveils ad campaign featuring athlete and political activist Colin Kaepernick, garnering a mix of public approval and backlash.
Nike has faced a long history of controversy over its labor practices. The company was founded on a principle of finding cheaper labor to produce same-quality goods and followed this unfailingly, till it finally came back to bite them.
Nike's factories were initially in Japan, but then moved to cheaper labor in South Korea, China, and Taiwan. As the economies of these countries developed, Nike again shifted, moving away from labor in South Korea and Taiwan to focus on China, Indonesia, and Vietnam.
Not much was noted of this until activist Jeff Ballinger published a report in 1991, documenting the poor working conditions of Nike's operations across Indonesia. This was followed with a popular article in Harper's Magazine, detailing the life of an Indonesian Nike employee who worked for 14 cents an hour.
Outrage fermented among the public, with protests against the shoe ware giant at the 1992 Olympics and an increased media scrutiny on the plight of sweatshop workers. This came at the same time the company sought to expand its Niketown retail stores, resulting in mass protests around the planned expansions.
With protests around college campuses, calls for boycotting the company, and pressure put on its stars like Michael Jordan to denounce the brand, Nike made a concerted effort in 1998 to improve the labor conditions of its factories.
It included raising the minimum age among workers, increasing the monitoring of factory conditions, and enforcing U.S. standards for clean air. This was followed by Nike's creation of the Fair Labor Association in 1999, and audit of roughly 600 factories between 2002-2004, and the public disclosure of all of its factory locations in 2005.
While reports of abuse at the Nike factories still persist, many human rights activists have acknowledged Nike's efforts to have minimized the worst problems at these factories, and the public outcry today over the company's labor conditions is a shadow of what it once was.
On Labor Day of 2018, Nike made a huge splash, tweeting a photo of NFL player Colin Kaepernick as the new face of its brand.
The 49ers quarterback had become a lightning rod for controversy after being the first football player to take a knee during the national anthem in protest of police brutality toward black Americans. He received a mix of support and backlash from the public, with some calling him a hero and others criticizing his actions as "un-American."
This controversy only intensified with Donald Trump making criticism of the protest Kaepernick started a central talking point in his campaign and, later, presidency. 49ers management consequently did not renew Kaepernick's contract and no other NFL team signed him. Fittingly, the ad overlay of the black-and-white photo of Kaepernick's face with the text, "Believe in something. Even if it means sacrificing everything," and the classic Nike slogan, "Just Do It." below.
The ad garnered a predictable mix of support and controversy. Some, seeing Nike's endorsement of Kaepernick as a betrayal of patriotic values, chose to quite publicly announce their boycott of Nike by posting videos of themselves burning their Nike shoes.
This proved largely ineffectual, with most people mocking Nike boycotters on social media, and the company's stock soaring, increasing by over $6 billion less than a month after the campaign began.
Some on the left also took issue with the ad, citing it as an example of "commodity activism," whereby corporations co-opt a social movement for profits.
How Green is Nike?
While Nike's taken strides to increase its eco-friendliness, joining the Sustainable Apparel Commission and implementing a number of reusable materials in its clothing, it still has a way to go.
The primary environmental criticism following Nike has been its refusal to eliminate hazardous materials from its supply chain. As pointed out by Greenpeace, this affects everything from factory workers to waterways to consumers. The hazardous chemicals pollute the environment, threaten to poison those who work with them, and allow a potential health risk to persist among users of Nike's apparel.
Nike has claimed to be working toward elimination of these toxic chemicals. While these claims have been met with dubiousness over the past couple years, in 2018, Nike showed some serious signs of growth, expanding its PFC-free portfolio to 93% of products.
What's Happening in 2019?
Over 2019, most news on Nike has revolved around its political stances. Days before the Fourth of July, the company canceled the release of a sneaker bearing the 13-star American flag of Betsy Ross on the shoe's heel. Reportedly, this decision came after Colin Kaepernick privately voiced his criticisms of the design to Nike, seeing as the 13-star flag represented America during a time of slavery and has been used in tandem with the Confederate flag by hate groups including the Ku Klux Klan.
The choice to drop the shoe nevertheless sparked a media firestorm with conservative pundits and social media commentators criticizing Nike for its lack of patriotism.
Outside of the political sphere, Nike has also unveiled plans for a subscription service for kids. This comes at a time when apparel companies are increasingly looking toward subscription-based models to attract customers. It'll be Nike's first test of this and opens the door for kids 2 through 10 to have varying access across a selection of roughly 100 shoes for a monthly fee.
As with many companies in 2019, Nike's fate has been closely tied to the ongoing speculation over tariffs in the current China-U.S. trade war. Given that Nike manufactures roughly 27% of its apparel in China, the prospect of increasing tariffs poses a real problem to its supply chain. The company has been proactive in dealing with this issue, slowly shifting more of its operations from China into Vietnam.
Regardless of these looming threats, Nike has weathered 2019 relatively unscathed, even landing among the top 15 analyst picks among the Dow.
It's never too late - or too early - to plan and invest for the retirement you deserve. Get more information and a free trial subscription toTheStreet's Retirement Dailyto learn more about saving for and living in retirement. Got questions about money, retirement and/or investments? EmailRobert.Powell@TheStreet.com.