Parker leads Nike on sustainable growth track

PUBLISHED : Monday, 10 November, 2008, 12:00am
UPDATED : Monday, 10 November, 2008, 12:00am

Chief executive all for going green and cheaper production

When Nike introduced its 'Considered' boot three years ago, it marked the start of the sportswear giant's journey to sustainable growth within its global empire.

With soles, uppers and lasts either snapped or top-stitched together to avoid the use of chemical adhesives and reduce waste, the boot became a symbol of Nike's broader Considered design programme that marries sustainability, innovation and performance.

The aim was to win over environmentalists, consumers and investors alike in a new environmentally conscious age.

The philosophy of sustainability, underlining a systemic shake-up of business operations, is now being crystallised under the leadership of president and chief executive Mark Parker. His vision of Nike's future is carbon neutral and cheaper manufacturing.

'What you see today is sustainability integrated into all our businesses,' said the 52-year-old chief executive. '[This involves] not only products but production of products, the design of the products, the delivery of the products, and the facilities.'

In an increasingly globalised and cut-throat marketplace constantly pressured by rising costs and shifting consumption patterns, Nike's environmental aims may sound novel and untested.

But for a company that has always seen itself as a marketing and manufacturing pioneer, they are perfectly sensible. Sustainability, after all, is a buzzword that fits well into Nike's corporate ethos. And Mr Parker, a veteran shoe designer whose generous sprinkles of Nike aphorisms reflect the true believer, couldn't be a better candidate to sell the green strategy.

He denies the Considered programme is purely marketing-driven. 'I do think it is important to communicate with consumers about what we are doing. But this is a commitment that is not motivated by marketing, as much as it's just representing the company.'

The Considered concept emphasises how decisions made at the start of the design process impacts environmental sustainability and performance.

The latest edition of the landmark Air Jordan shoe - Air Jordan XX3 - which uses water-based bonding process to attach the carbon plates without using solvent cements, was launched at the beginning of the year.

Nike's Swift performance apparel, for the first time also manufactured under the line using recycled polyester, debuted at the Beijing Olympics.

Nike has set goals for all shoes to meet 'Considered' standards by 2011, all clothing by 2015 and all equipment by 2020.

Mr Parker said the core of the Considered concept was being able to sift through 'unlimited opportunities' to apply the 'limited resources' to focus on areas that would make the biggest impact.

The standards will also be extended to subsidiaries Cole Haan and Converse in the 2009 fiscal year which began in June. There are plans to work on Converse's Chuck Taylor sneakers, 'the most popular shoe on the planet today'.

'If we can make that shoe more green, the impact is even bigger,' he said.

But will the move to environmentally friendly resources be more costly? Mr Parker said 'from a profitability standpoint' it has lifted the company's efficiency as material prices continue to rise.

'I think we are very focused on minimising risks ... to make sure that we are not adding a lot of costs.

'Environmentally preferred materials (EPMs), for example, are more expensive. They become less expensive the more you scale; the more materials you use ... also we find that we can reduce the costs of products by eliminating waste, reducing waste and that offsets some of the higher prices we see with the materials.'

In fact, he said they had been able to drive down EPM prices as demand rose. 'So in the end it's not a less profitable product and we are holding our profit margins and providing consumers with more sustainable products and being more responsible.'

In the long run, Nike stresses that its sustainable cause does not stop at its own door. Mr Parker said he wanted to leverage the green cause beyond Nike and had shared their knowledge such as the water-based adhesive system that reduces toxic wastes in the production of footwear with the broader industry.

'Some would say why would you give away a competitive advantage? I think it will be disingenuous to only keep this to ourselves and not share because we are trying to in the end make a bigger impact in a bigger way.'

Mr Parker has promised to grow the company - which makes more than 250 million pairs of shoes annually - and deliver investors US$23 billion in revenue in three years' time.

It reported a strong net income rise of 26 per cent to US$1.9 billion for the fiscal year ended May even though its biggest market, the United States, is experiencing a slumping footwear market. It reported worldwide orders scheduled for delivery from June this year through this month, totalling US$8.8 billion, or 11 per cent up from the year-earlier period.

The strongest growth - 31 per cent - came from Asia-Pacific, where the Beijing Olympics helped leverage sales in the world's fourth-largest economy going forward. Sales on the mainland hit US$1 billion prior to the Games' opening, a year ahead of the company's target and in part, the result of years of successful endorsement of Chinese sports heroes that included hurdler Liu Xiang and NBA player Yi Jianlian.

The company's selling and administrative expenses (which included 'demand creation expense' that consisted of advertising, promotion and endorsement contracts) increased from 30.8 per cent to 34.2 per cent of revenue in the first quarter of fiscal 2009, to a large extent due to the Olympics.

In return, orders for September to January 2009 in Asia-Pacific jumped 27 per cent, compared with the smaller 3 per cent for the US.

'We are very bullish about China. The Olympics for us was just one stop along a very long road with really no end, and we see business continuing to be strong,' Mr Parker said.

Nike has about 180 contract manufacturers employing more than 210,000 workers in China; one in about three pairs of shoes sold worldwide is made on the mainland.

The country is also its biggest sourcing market including a number of EPMs such as organic cotton, soy azion, bamboo, rayon, hemp and environmentally preferred leather. Chinese vendors now supply more than 25 per cent of the EPMs for global apparel and 15 per cent for global footwear.

With its scale and clout, the company claimed it has been able to influence its key contracted factories to come around to the sustainable manufacturing ethos and pump in the needed capital expenditure.

At the same time, it has begun to introduce 'lean manufacturing' - the Toyota model - where a small team of workers build each item from the start to finish, rather than letting it go through an assembly line.

A substantial number of shoes are now produced using the lean system, whose goal is to eliminate waste through the supply chain, and the company plans to raise that volume to 90 per cent by 2011.

The upside of lean manufacturing is it ultimately helps improve working conditions, a controversial issue for the company during the 1990s. The company subsequently increased monitoring and transparency of its supply chain to ensure better standards.

With the credit crisis eating into every sector of the economy, there is speculation that Nike's contracted factories will be forced to cut production. The company has denied this. Nonetheless, US retail sales fell 1.2 per cent in September for the third consecutive month, one of the longest slumps and analysts are expecting bleak holiday sales.

'Right now, we don't see any direct significant impact [from the global slowdown],' Mr Parker said in an interview late last month.

'We are fortunate that we are a go-to, very popular brand and when times get more challenging, Nike is one of the brands that become less susceptible to the economic downturn.'

But he added: 'Now, no brand is immune to the contraction of consumer spending, but we are more resilient and less affected than most.'

Nor has the downturn affected Nike's investment in corporate social responsibility (CSR), which Mr Parker stressed was a long-term commitment to 'doing better business, creating better products', regardless of positive or negative conditions.

One of the means it sees to a better business is through the company's reorganisation last February of their marketing into six consumer-focused categories - basketball, soccer, running, men's training, women's fitness and sports culture - to emotionally connect with consumers.

'It's a combination of really creating relevant connections locally but also using our global stroke and resources ... and that combination is always critical,' he said.

And Nike is strengthening that connection by depending on greater innovation and design, areas that the brand has built on and in which Mr Parker, widely recognised for the Air franchise, pledged to bring to new heights.

Joining in 1979, he started his Nike career as a designer and became the director of footwear design in 1983. By the 1990s, he rose to executive positions including the vice-president and general manager of global footwear before ascending to head the company's Nike brand.

Well-versed in the world of sports, his passion for arts and popular culture has also helped Nike developed products that spoke to a more style-conscious, young and savvy sector. 'We need to surprise people, to excite them with things they couldn't even imagine,' he said.

'You can only do that if you are really connected not just to the consumers but to the broader world of popular culture, the world of creativity, being able to blend things from different areas.'