Here’s Why Nike Will Keep Gaining Market Share In Sports Apparel

by Trefis Team
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    Quick Take
  • We estimate the global sports apparel market to grow at a CAGR of 4% from 2012-2019.
  • Nike, Adidas, Puma and Reebok are some of the key players in the industry. Under Armour and Lululemon Athletica are rapidly growth, newer competitors in the market.
  • Nike’s apparel sales grew at a CAGR of 12.3% during fiscal 2010-2012, which was higher than the growth rate seen for Adidas, Puma and Asics.
  • Nike is growing at a strong pace in North America and emerging markets. While its Chinese sales have weakened in the recent past, the future orders growth from China indicates recovery in the future.
  • We expect Nike’s market share in the global sports apparel market to grow from 4.9% in 2012 to 6.5% in 2019 in the long run; however, increased competition from local and niche players as well as counterfeit products could hinder Nike’s growth.

Sports giant Nike (NYSE:NKE) is among the leading players in the sports apparel market. Its market share in the global sports apparel market has historically increased from 3.9% in 2007 to 4.9% in 2012 as its apparel sales grew at a pace above industry average during the period. We believe the company is well-positioned to grow its market share to 6.5% in the long run on account of factors such as strong competitive position, rapid sales growth, participation in major sporting events as well as continued launch of innovative products.

The major risks to Nike’s market share growth stem from increased competition from niche and local players as well as due to counterfeit products. Nike’s apparel sales have recently weakened in Western Europe and China, and if these problems continue, it could affect Nike’s future growth. Nike brand apparel accounts for 35% of our valuation for the company’s stock.

See our complete analysis for Nike

What Is The Growth Potential In The Global Sports Apparel Market?

The global sports apparel market was worth $135 billion in 2012, according to our estimates. We expect the market to grow at a CAGR of 4% during 2012-2019 to reach $178 billion. Various factors are expected to drive market growth such as growing fitness consciousness, rising income levels in developing countries, the growing popularity of sports apparel for women as well as the trend towards stylish and comfortable sportswear.

Rising demand from Asia Pacific and Latin America due to growing economic prosperity in these regions coupled with a trend towards leading a healthy lifestyle will be the key catalysts for market growth.

What Is The Competitive Landscape In The Global Sports Apparel Market?

The global sports apparel market is highly fragmented with the presence of various global and local brands. Nike, Adidas, Reebok, Puma, Asics, Under Armour, Lululemon Athletica, VF Corporation, HanesBrands, Bauer Performance Sports and Quicksilver are some of the key players.

Apparel Sales Of Some Of The Leading Players In The Market (in millions)

Company

Fiscal 2010

Fiscal 2011 Fiscal 2012

CAGR (2010-2012)

Adidas (includes Reebok)

$7,023 (€5,380)

$7,484 (€5,733) $8,211 (€6,290)

8.1%

Nike

$5,026

$5,513 $6,333

12.3%

Puma

$1,229 (€941.3)

$1,352 (€1,035.6) $1,504 (€1,151.9)

10.6%

Under Armour

$853

$1,122 $1,385

27.4%

Lululemon athletica

$712

$1,001 $1,370

38.7%

Asics

$427 (¥42,576)

$439 (¥43,685) $470 (¥46,838)

4.9%

Note: Nike operates on a ‘June-May’ financial year and  Asics operates on a ‘April- March’ cycle. Lululemon Athletica has a ‘February – January’ fiscal year. Others have a ‘January- December’ financial year.

Adidas and Nike are the leading players in the global sports apparel market with a combined market share of around 11% (estimated) in 2012. Adidas is slightly ahead of Nike with $8.2 billion in apparel sales in fiscal 2012 against Nike’s $6.3 billion. We expect fierce competition between the two companies in the future as they both vie for market share in key markets and compete aggressively for sponsorship of major sporting events such as the Olympics.

During fiscal 2010-2012, Nike’s apparel sales saw a 12.3% CAGR, which was higher than the growth rate seen for Adidas, Puma and Asics. We believe Nike’s apparel sales will continue to grow rapidly in the future driven by an innovative product portfolio, superior market position and enhanced marketing activities.

Under Armour and Lululemon Athletica, which are newer players in the market, have registered impressive growth in the past. These companies focus on niche market segments such as performance apparel (which are engineered to keep athletes dry and cool) and yoga-focused sportswear, respectively. While these companies pose some threat to Nike, the latter is also making a play within these upcoming market segments. Given its strong brand recognition, we expect Nike to gain market share in these product categories in the future.

What Is The Geographical Breakdown of Nike’s Apparel Sales?

Market

% of Nike Apparel Revenues by Region (Fiscal 2012)

Annual Growth In Apparel Revenues (excluding currency impact)

Future Orders Growth (excluding currency impact)

Fiscal 2012

First nine months of fiscal 2013

North America

39%

18% 22%

11%

Western Europe

22%

2% 0%

(5)%

Greater China

14%

9% (11)%

3%

Emerging Markets

13%

25% 20%

16%

Central & Eastern Europe

7%

24% 18%

11%

Japan

5%

(1)% (1)%

5%

While developed markets such as North America and Europe comprise 39% and 29% of Nike’s apparel sales respectively, Greater China and emerging markets account for 14% and 13%. We think the strong growth in China and emerging markets will be important for Nike to gain market share in the long run as these regions are seeing higher growth compared to the developed markets. In addition, Nike must maintain above-industry average growth in developed markets to grow its market share in the global sports apparel market.

Though Nike’s apparel sales continue to see impressive growth in the North American region, the demand recently weakened in Western Europe and China. While future orders from Western Europe fell by 5%, we think this mainly reflects difficult y-o-y comparisons as the sales in the prior year were driven by Euro Champs and the Olympics. Moreover, we believe Nike could recover its growth pace in China as it is taking steps to bring down its regional inventory levels, increasing its marketing activities to enhance its brand image, and realigning its product portfolio to suit Chinese preferences. The recent future orders growth from Greater China indicates a degree of recovery in the Chinese marketplace.

Taking into account that the global sports apparel market is forecast to grow at a CAGR of 4% during 2012-2019 and that Nike has historically achieved double-digit apparel sales growth and is expected to continue its strong pace in the future, we expect Nike’s global sports apparel market share to rise to around 6.5% in the long run.

The factors that could pose threats to Nike’s market share include increased competition from local and niche players as well as the problem of counterfeit products. While we expect Nike’s apparel market share to reach 6.5% in the long run, if it remains at the present level for the rest of our forecast period, it represents just over 5% downside to our price estimate. On the other hand, if it climbs to near 10%, we see around 15% upside to our estimates.

Our $58 price estimate for Nike is around 10% lower than the current market price.

Understand How a Company’s Products Impact its Stock Price at Trefis

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