How China Could Be The Key Driver Of Nike’s Future Revenues

+24.98%
Upside
98.74
Market
123
Trefis
NKE: Nike logo
NKE
Nike

The health and fitness industry in China is expanding at a rapid pace and is expected to generate more than $5 billion in 2015, after an average yearly growth of  14% over  the past five years. [1]  Nike (NYSE:NKE) is capturing this trend and the company registered a 27% growth in revenues from Greater China in the six month period ended November 2015, compared to the same period last year. Greater China was the fastest growing region for the company in this period, with the growth figure for North America being 9%. As the per capita income in China rises in the future, this industry will see tremendous growth.  Nike, with more than 10% share of the market, is well poised to consolidate its position in the region, which can be a key revenue driver for the company in the future.

See Our Full Analysis For Nike

Fitness Industry Could Be The Pillar Of Chinese Economy

An industry report shows that the total number of gym attendees in 70 major Chinese cities increased by  4-5 million each year since 2011.  According to an official of the Chinese Association of Sport Industry, the fitness industry will become a pillar of the national economy once per capita GDP crosses $8,000. [2] China’s per capital GDP was more than $7,500 in 2014 and it is on track to cross $8,000 in 2015. [3] As the urban middle class in China increases, fitness is being considered to be the sunrise industry in the region. Nike’s financial results confirm this trend.  As of November 30, 2015, 31% of the company’s  future orders for footwear and apparel scheduled for delivery in the next four months were from Greater China, while the corresponding figure for North America was 14%. [4].  The company expects to capture a higher market share in China and reach $6.5 billion in revenues from this region by 2020. [5].  Despite the macroeconomic volatility in China (Nike’s target market), Chinese middle class citizens are growing steadily. According to ANZ research, 93% of China’s urban population will be middle class by 2030 and 326 million new middle class citizens will emerge in China’s urban areas from 2014 to 2030, leading to a total population of 854 million Chinese urban middle class.  This is more than double the current total U.S. population. The consumption share in GDP is also expected to increase from 36% in 2014 to 50% by 2030. [6].  Nike is also banking on the growing popularity of basketball in China. According to the China basketball association roughly, 300 million people in China play basketball (which is nearly the size of the total U.S. population).  With its uniform deal with the NBA, [7] Nike should improve its brand visibility in the region and benefit from the growing popularity of the sport in the country.

Relevant Articles
  1. Nike Stock Could Rise 70% If It Recovers To Pre-Inflation Shock Highs
  2. What To Expect From Nike’s Stock Post Q4 Results?
  3. What To Expect From Nike’s Stock Post Q3 Results?
  4. Nike’s Stock Down 13% Over Last Year. What’s Next?
  5. Company Of The Day: Nike
  6. What To Expect From Nike’s Stock Post Q1?

As China prepares to host the winter Olympics in 2022, Nike should see a significant growth in its revenues from the region, with the fitness industry booming and the country showing its sports fever.

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

View Interactive Institutional Research (Powered by Trefis):
Global Large Cap | U.S. Mid & Small Cap | European Large & Mid Cap

More Trefis Research

Notes:
  1. Gym, Health and Fitness Clubs In China: Market Research Report, IBIS World, June 2015 []
  2. China’s growing interest in fitness shapes up industry, Xinhuanet News, July 2015 []
  3. World Bank Data []
  4. Nike SEC Filings []
  5. 2015 Nike Investor Meet []
  6. China’s rising middle class will create opportunities the world has never seen before, Business Insider, May 2015 []
  7. NBA signs deal with Nike, logo to appear on uniforms, ESPN, June 2015 []