Can the Olympics put the spring back into Nike's step?

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The Independent Online

These should be golden days for Nike. Sales are higher than ever. New training shoes and running shirts are flying off the production lines. The company's list of sponsorship beneficiaries is the envy of the entire sporting world, a list that includes the two towering sporting legends of recent times, Michael Jordan and Tiger Woods, as well as the cancer victim turned double Tour de France champion Lance Armstrong.

These should be golden days for Nike. Sales are higher than ever. New training shoes and running shirts are flying off the production lines. The company's list of sponsorship beneficiaries is the envy of the entire sporting world, a list that includes the two towering sporting legends of recent times, Michael Jordan and Tiger Woods, as well as the cancer victim turned double Tour de France champion Lance Armstrong.

On top of that, the Olympic Games are about to kick off in Sydney, prime promotional time for any sporting goods company but in Nike's case, little short of a bonzer bonanza. The company's trademark swoosh logos will be adorning the entire Australian Olympic line-up, the US women's soccer team, big-name stars including the American sprinter Michael Johnson, and a clutch of individual athletes so numerous even Nike's press office wasn't sure exactly how many there are.

And yet all is not nearly as well as it should be with the company and its free-wheeling image of athletic freedom. Far from basking in its position as the undisputed king of sportswear and sporting equipment, Nike is actually struggling to fight its way out of a two-year-long doldrum in which robust growth has been as elusive as a golf ball in the rough on a foggy day. Far from being able to exhort new young consumers to get the sporting bug and "just do it", as the slogan has it, Nike seems to be antagonising as many people as it is attracting, despite its best public relations efforts.

Once it was cool to wear Nike shoes and parade them around the shopping mall, or the ghetto. But the company has now become a bogeyman for the burgeoning movement against unfettered global trade because of its heavy reliance on cheap labour in Third World garment factories.

Far from being greeted with open arms in Australia, the most lasting impression the company has had of the 2000 Summer Olympics so far is of demonstrators marching through the streets of Melbourne on Monday night chanting: "Hey, Nike, you so bad. You so bad, you make me mad."

To the best of anybody's knowledge, the two sources of grief are not related, or at least not directly. There is no evidence that the continuing grassroots campaign against Nike's labour practices has put much of a dent in consumer demand, which has slowed down for other, easily identifiable reasons like the Asian economic crisis and the sluggishness of the US clothing market.

By the same token, it does not appear that Nike's efforts to neutralise its human rights detractors, by offering pay rises and improved working conditions to at least some of its sub-contractors in South-east Asia, have significantly raised the company's costs. Both problems strike at Nike's perception of the kind of company it is: one fixated on youth and the culture of youth. Young companies, or at least ones that feel young, grow fast and furious. Young companies are in tune with the times and sensitive to social concerns of the MTV generation. Nike is going through a phase of feeling distinctly middle-aged.

There is little much to be ashamed of in its economic performance. Nike grew rapidly from $4bn in sales to more than twice that, largely thanks to the input of Michael Jordan at the height of his basketball career and the successful marketing of sport as the quintessential middle-class aspiration. But the company has been treading water for a couple of years as it looks for the next opportunity to launch it on another upward sprint. In the last full financial year, which ended in May, the company posted a modest 2 per cent growth in revenue to around $9bn, with net profits up 28 per cent to $579.1m helped by internal cost-cutting.

The share price has wobbled, but not in a way to rattle investors excessively. The restlessness, such as it is, has come just as much from the company as from its shareholders. "For the last two years, growth has been a state of mind... only," Nike's co-founder and chief executive, Phil Knight, wrote in the introduction to the latest annual report. "Our revenues have not grown. We have given the familiar reasons - and they have been good ones - US industry cycle, the Asia meltdown, over-building in the US retail market, etc. But I, like you, am getting a little impatient for some revenue growth."

The language of the report was at times reminiscent of a gritty sporting contender knowing he has to pull out all the stops to turn the tables and convert a looming defeat into a romping victory. "We will have bad times," wrote Mr Knight. "But then we will have better times and, soon, great times. We can do this. We will do this."

Nike already has a plan, or rather a series of plans. One is to continue its remarkable international expansion: it already serves markets in 110 countries and is doing well in nearly all (even if the weakness of the euro has dented the dollar value of its performance in Europe).

Another is to keep capitalising on new sporting trends. Nike was remarkably quick in picking up on Tiger Woods, long before he became a phenomenon. Indeed, the company was generally thought to be crazy to be offering a largely unproven 20-year-old golfer a five-year $40m sponsorship contract back in 1996.

With the commercial attractiveness of golf exploding thanks to Tiger's ever more dizzying exploits, Nike is in prime position to clean up: it was even smart enough to talk Woods into using a version of its Precision Tour Accuracy golf balls just ahead of his remarkable sweep of the US Open, British Open and PGA Championships earlier this summer.

A third plan is to move aggressively into women's sportswear. Outside California's beach communities, this is a market little exploited. Nike is talking in terms of doubling its sales to women in two years.

The labour conditions issue is thornier. The furore began three years ago, when factories used by Nike across Asia were found to be paying near-slave wages to men, women and children alike, demanding punitive overtime hours and employing intimidation tactics to crack down on dissent or unionisation attempts. In one plant in Pakistan, eight-year-olds were found to be making Nike footballs.

Since the company's production involved around 500,000 people in the Third World, the findings triggered a major scandal, and even Phil Knight was forced to concede that "the Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse".

The company responded by signing protocols broadly in keeping with United Nations' guidelines on labour exploitation. It helped found the US government's Fair Labor Association, signed the Apparel Industry Partnership Code and implemented reform measures, notably in Indonesia where it set a minimum age of 18 for footwear workers, gave them a 70 per cent pay rise and organised after-hours remedial education.

But if Nike hoped this would be enough to make the problem go away, it was soon disabused during last December's massive street demonstrations against globalisation in Seattle. Protesters jumped on top of a downtown branch of the Nike Town clothing and lifestyle store and kicked the letters of the shop name over one by one.

Nike was denounced as an immoral multinational corporation and an enemy of basic human values, a line repeated over and over as young people have gathered to oppose the new world order in Washington in April, at the US political party conventions last month, and now in Australia, where activists have invited athletes to think about the global consequences of their sponsorship deals.

But Nike hasn't taken chances in Melbourne, which is also hosting a meeting of the Asia-Pacific Economic Forum. It boarded up its Nike Town outlet 24 hours before the demonstrators came to town touting, among other things, a giant Nike sneaker being pulled by theatrical representations of exploited Third World workers.

Activists have also kept up the intellectual pressure on Nike, accusing the company of hostility towards any attempt at unionisation, a right enshrined in UN guidelines on labour practices and one many labour experts believe is the only way garment workers can guarantee a wage they can live on and other survival essentials such as health care coverage and compensation for industrial accidents. One independent report on Nike factories in Indonesia, by the Australian group Community Aid Abroad, was published last week to coincide with the Olympics.

Other activists in the US have maintained a robust correspondence with Phil Knight and his labour relations director, Dusty Kidd. They say gross abuses still continue on a wide scale. At one Thai factory, workers refused sick time were reported to be coughing or vomiting blood on the production line.

In China, workers at the Hung Wah factory were found to be working 12 1/ 2 hours a day, seven days a week, and were sometimes forced to work through the night. One Salvadorean worker told anti-Nike activists she had just enough money to give milk to her daughter only once a month, despite working 12 hours a day and living in a cramped single room. Union groups in Australia and the US say they have found abuses even there.

More broadly, the activists accuse Nike of window-dressing, hailing model factories and exemplary practices and trying to hush up the ugly truth elsewhere.

In a letter written to Mr Knight in March, representatives of several groups stated: "We believe Nike's response to the issue has been dictated by public relations concerns rather than a genuine commitment to protecting workers' human rights and that Nike has deliberately avoided taking steps which would ensure that the labour rights of Nike workers are protected."

Mr Knight says he did not invent the global economy, and many of the problems the activist groups complain about are, to some degree, out of his hands. He is right, to the extent that this is a debate Nike can never win. The company's economic rationale relies on its ability to produce its shoes and other items as cheaply as possible to make a massive profit.

In the Seventies, Nike contracted the work to Japan, until that got expensive. Then, for a few years, it moved production back to the US, only to bale out again when it was hit by lawsuit after lawsuit claiming mistreatment of workers, repetitive strain injury and other grievances. Now, a $100 pair of sneakers may cost no more than $5 to produce at their factories. With Mr Knight's personal net worth estimated at more than $5bn, it is no wonder that people are angry.

The anger has had tangible effects at the level of student politics, more significant than it sounds when you consider the vast commercial reach of US college sports. Nike has severed its ties with two universities, Brown and the University of Michigan, which insisted it sign labour conditions stipulated by the pro-union Workers Rights Consortium.

When Mr Knight's own alma mater, the University of Oregon at Portland (where Nike is also based), expressed its solidarity with the WRC, the Nike chief executive said he would no longer make personal financial contributions in protest.

Such clashes illustrate a paradox within Nike. On the one hand, it is a company that has built itself up to a large degree through cultivation of its image. Its mastery of the art of sponsorship and the cultivation of sporting celebrities goes unquestioned. Just this week, one of its television adverts won an Emmy award, another sign of its mastery of the field. On the other hand, it can be remarkably clumsy at managing such apparently simple public relations exercises as maintaining good relations with the local university. Much of the paradox must be laid at Mr Knight's feet. He is a former athlete, a University of Oregon track runner who trained as an accountant but felt happier after he left college selling sports equipment out of the back of an old Plymouth. But he is also an idiosyncratic business leader, something of an eccentric, and said to be without an ounce of tenderness.

"He's not exactly a cuddly, friendly leader," said a business writer who did not wish to be named. "And he hates the media. Doesn't see the point of it, in fact."

Nike is easily the most potent economic force in the Portland area, but unlike similarly placed companies in the Pacific Northwest it hardly participates in local life.

The company only recently started giving money to local political campaigns, mostly on social issues such as Oregon's own version of Section 28 (the company is a staunch supporter of gay rights). But otherwise it has been notorious for keeping itself much to itself, almost like a secret society. For many years, almost all the salespeople at Nike had swooshes tattooed on their ankles, modelling themselves on Mr Knight who did the same thing shortly after adopting the logo in 1971. The practice has fallen into abeyance since the presspublicised it, but people still wonder if the company isn't some kind of sect. The more likely truth is that Nike is a workplace, and a sporting family, that inspires tremendous loyalty. For insiders, it has never been less than innovative and unpredictable; and, once it got going, it delivered extraordinary results.

Nike's first training shoe was the brainchild of Mr Knight's mentor and co-founder Bill Bowerman, who applied a waffle iron to the soles of his running shoes for fun only to discover unexpected traction benefits. Some of the wackier recent products include the Ovidian, a running shoe that can be turned inside out, and the environmentally friendly Stand-Off Distance Singlet, made almost entirely of recycled soda bottles. It is hard to tell if such items are gimmicks or true commercial propositions.

But that uncertainty, in a way, is Nike's blessing and its curse. Publicity and public posturing hang over much of what the company does. For much of the past decade, they have translated into a remarkable record of success.

Will Michael Jordan, Tiger Woods and - if the rumours are to be believed - our very own Sir Alex Ferguson be enough to propel the company to higher planes of achievement, or is Nike destined to start looking a little hollow? Tune in after the Olympics, and the answer may start to emerge.