Nike paid shockingly small amount for its world-famous logo

From struggling shoe salesman to founding Nike
From struggling shoe salesman to founding Nike

Nike co-founder Phil Knight said he's astounded by the athleisure trend.

"It absolutely blew me away," Knight, who is also chairman of Nike, told CNBC's "Squawk on the Street" on Tuesday. He explained that today's athletic leggings have a purely functional origin in long underwear.

"Forty to 50 years ago, we wore long underwear to run in races because we didn't want to run in sweats and we didn't want to wear shorts because it was too cold," Knight explained.

"Then we dyed the long underwear, and then we made it out of different material and it became muscle tights, and it's now the uniform of the woman walking around New York City," the Nike co-founder said.

Despite Nike's reputation as an athletic brand powerhouse, its origins are more humble. Knight co-founded the athletic apparel giant in 1964 with his track-and-field coach Bill Bowerman at the University of Oregon.

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The company came up with its name after less successful attempts at picking a name out of a hat. That iconic swoosh? Knight says that the company paid a graphic arts student at Portland State University $35 for the design.

Now, competitors keep cropping up, looking to cash in on the athleisure market and oust Nike from its position in the industry. But instead of being distracted by its competitors, Knight says that Nike is focused on maintaining its standing by staying at the front of athletic apparel technology.

"We're working on things first and foremost to make the athlete run better, jump higher, go farther," said Knight.

"We need to win the innovation war."

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Nike is winning in a lot of measures. Last quarter, sales in China grew 23 percent year over year while future orders soared 36 percent. Nike's market cap stands at $99.74 billion. Long-term shareholders have seen a cumulative return of more than 216 percent over the last five years.

Knight has spent decades at the helm of Nike, leading the company through its 1980 initial public offering and its slew of high-profile athlete endorsement deals. The Nike co-founder is expected to step down as chairman in June, a plan that he says he's at peace with.

"I just have a philosophy that it's a lot better to step down two years early than two years late," the 78-year-old chairman said of his impending retirement.

But just because Knight is retiring, doesn't mean that he sees anything less than a bright future for Nike.

"I think Nike's great growth period lies ahead of it," Knight said.