Nike (NYSE:NKE) is the world’s largest manufacturer (by sales) of athletic footwear, apparel and equipment. The company traditionally competes with manufacturers like Adidas (PINK:ADDYY), Puma (ETR:PUM) and Reebok. Our price estimate for Nike’s stock stands at $77.52, which is about 8% below market price.
The company has cited tremendous expansion opportunities in emerging markets, which could potentially offset weakness in the U.S. Previously, we identified China as one such opportunity (Nike’s Commodity Costs Rising, but Expansion Opportunities Could Lift Stock).
What about the next most populous market, India?
Reports indicate a growing interest in recreational products and services in India. The chart below features predictions by consulting firm McKinsey (from 2007), suggesting a rapid uptick in spending in the years ahead despite flat growth through the past few decades. 
Still, Nike must navigate a few notable challenges to achieve this potential upside. Below we highlight key trends.
Traditional School and College Focus - Academies and colleges tend to be bulk buyers of sports products. According to one survey, school children constitute a large portion of the sports market, and tend to stay loyal to a particular brand.  But the U.S. market is a bit different than India, where there is a lack of school-level sports associations. The MSSA (The Mumbai School Sports Association) is likely the only major such association, with over 360 schools in Mumbai.  Historically, school-level sports have often been considered a deviation from the more important focus of education. Although this is changing, school-level emphasis on athletics remains less than typically observed in the U.S., and could take some time to evolve.
Athletic Interests – India has traditionally seen lower levels of interest in activities that constitute Nike’s main product portfolio. Some of this is attributable to lower promotion and sponsorships for sports in the country. While activities like cricket, badminton and chess lead in popularity in India, Nike’s core segments like football, basketball, and running often take a back seat. 
Low Market Share – The premium-brand sportswear market in India is estimated to be near $1 billion, 75% of which is controlled by Reebok and Adidas.  Nike’s market share is closer to 15% to 20%, meaning that (by a rough estimate) India accounts for only 1% of Nike’s total sales.  Clearly, Nike still has a long way to go in India and might need to discount to grab market share.
Opportunity lies ahead, however, with a large population, growing urban demographic, and increasing status of sports in India. Can Nike strategically penetrate the Indian market, leveraging its market leadership in other regions to tap this market growth? The modifiable chart below highlights the potential impact to the company’s stock value from various global footwear market share scenarios.Notes:
- The Sports Retailing Industry in India, Italian Trade Commission – page 11, 2010 [↩]
- The Sports Retailing Industry in India, Italian Trade Commission – page 30, 2010 [↩]
- The Sports Retailing Industry in India, Italian Trade Commission – page 31, 2010 [↩] [↩]
- The Sports Retailing Industry in India, Italian Trade Commission – page 33, 2010 [↩]
- The Sports Retailing Industry in India, Italian Trade Commission – page 38, 2010 [↩]