Here Are The Three Key Growth Drivers For Nike

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In October 2015, Nike (NYSE:NKE)  announced a revenue target of $50 billion by the end of fiscal year 2020, of which $20 billion is expected to come from North America. [1] The company expects a low double digit annual average growth rate from emerging economies in the next five years with Greater China growth in mid-teens. The company’s “Integrated Marketplace” will be another growth driver in the future where revenues are primarily expected to be driven by e-commerce sales which are projected to grow to $7 billion in the next five years. The women’s business is expected to be another key growth driver for the company, with revenues from this category expected to reach $11 billion by 2020.

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Integrated Marketplace To Connect E-commerce and Store Sales

Nike anticipates to achieve $16 billion in revenue from its direct to consumer (DTC) operations in 2020. [1]. This is almost a 2.5 times increase in the next 5 years, up from $6.6 billion in fiscal 2015. Sales through this channel include sales from the company’s on-line stores, factory stores and through nike.com. The company expects to have a total of 4 billion customers  in its markets by 2020 and provide mobile access to the Nike brand to all these customers by that year. The company has already taken steps to improve its mobile commerce experience by adding style guides, broadened assortments and improved performance. It now aims to serve its customers wherever, whenever and however they want by providing easy access to Nike products, services and environments. To achieve this goal, Nike is adopting a strategic approach called “Integrated Marketplace” which allows it to segment and differentiate the market place while enabling consumers to shop across a broad spectrum of channels. The marketplace will be connected through nike.com and catalysed by the Nike stores. We believe innovations in this space will drive Nike’s revenues in the future.

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Growth In  Emerging Markets

Nike expects emerging markets to outpace the growth rate of its developed regions and grow at a low double digit rate. At the end of fiscal 2015, sales from its emerging markets (spread across 9 territories globally) doubled to $4 billion from approximately $2 billion in fiscal 2010. [1] The company expects the running, football and sportswear categories to drive growth in these markets in the next five years, with women’s and young athletes’ businesses to be additional drivers. It expects to capture a higher market share in China and reach $6.5 billion in revenues from this region by the end of 2020. [1] China could be the key growth driver for Nike in the emerging markets with its rapidly emerging middle class and the passion of Chinese consumers for sport.

Women’s Products Segment

In the next five years, Nike plans to increase focus on its women’s business with a target to generate $11 billion in revenues from this segment by 2020. [1] The company recently opened a number of women’s only stores in California, Shanghai, and London and is looking to have as many as 1,000 premium spaces dedicated to women’s products, both within its owned stores and those owned by sporting goods retailers by fiscal 2020. According to the company, online penetration in this segment is relatively low and with fitness becoming a global lifestyle, there is a huge growth opportunity in this area. We believe this segment has been untapped and could be a key revenue driver for the company in the future.

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Notes:
  1. 2015 Nike Investor Meeting [] [] [] [] []