Is Nike On Track To Hit $50 Billion In Sales By 2020?

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Nike (NYSE:NKE) is a company that requires no introduction. The brand has established itself as a household name synonymous with great sports apparel and footwear, complete with a celebrated following the world over. That said, in the recent past, the company has been struggling with increased competition from a resurgent Adidas, while facing pressure from Under Armour in its basketball division in North America. This has adversely affected Nike’s revenue growth over the last few quarters. Additionally, future orders, a key metric that indicates demand, continues to remain low, in comparison to earlier quarters.

Previously in 2015, the global sport apparel leader boldly announced its plans to cross $50 billion in sales by 2020. That is to say that the company hopes to increase its sales by about $20 billion in a span of five years. To put things into perspective, Nike took a prolonged 13 years to add $20 billion in revenues last time around, to jump from a $10 billion business to a $3o billion one in 2015. So from the get-go, this target seems a little ambitious.

The company revealed that it hopes to grow the overall business by concentrating its resources in three main areas: e-commerce, women, and its Jordan brand.

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E-commerce

E-commerce accounts for a large part of Nike’s growth strategy. The company expects to achieve about $7 billion in sales from this channel by 2020. In 2015, the company recorded $1.2 billion in digital sales. Therefore, in order to achieve its target, Nike must achieve a compounded annual growth of at least 42%. As high as this may seem, the sportswear manufacturer was ahead of course on this one up until the previous year. All through fiscal 2016, the company managed to beat the required growth by a significant margin. However, this impressive growth was largely because Nike began offering its e-commerce capabilities in newer regions. Since the announcement in 2015, the company added e-commerce offerings in Canada, Switzerland, Norway, Chile, Turkey, and Mexico.

That said, growth in e-commerce has since witnessed a significant dip. In the most recent quarter, the company managed to increase digital commerce sales by an insufficient 18%. For the 9 months of FY 2017 thus far, the company has managed to grow its sales in the channel by a low 35%, which is significantly below the required growth rate. What’s more, the e-commerce sales growth has been declining with each quarter in the year so far, which makes achieving the target that much more difficult.

Women’s

Nike, like all other major sportswear manufacturers, has increased its focus on providing better apparel to women. Given that women make up about half of the world’s population, it’s about time. Up until now, athletic apparel companies would simply take men’s clothes and offer them in more colorful, smaller sizes. This strategy has proved notably ineffective. The failure of this strategy became even more obvious when Lululemon started up, catering to the specific needs of women’s athletic apparel. It, hence, comes as no surprise that Nike has placed growth at the women’s segment high on its priority list for the five year period leading up to 2020.

At present, Nike’s Women’s category consists of about 29% of the total Men and Women’s sales. The company hopes to build the business to $11 billion by 2020, from $5.7 billion in 2015. In this respect, Nike is working hard to change its image.

The company now creates apparel specifically for women, and even operates a few “women’s only” Nike stores. It has even created several ad campaigns to support its shift in ideologies. The 3 minute Nike video, released last year, focusing on Indian female athletes is testament to this fact.

Additionally, it has been noted that women are especially drawn to tracking their workouts in fitness apps. In this respect, Nike has worked hard to make the app more user-friendly to its female audience. By connecting women to the brand digitally, the company hopes to increase their loyalty to the brand, thereby increasing sales. Furthermore, women are also actively embracing the athleisure trend, which has witnessed great growth in the last few quarters.What’s more, Nike’s women’s business has been outpacing its men’s business, and has grown in the double-digit territory for many quarters.

That said, Nike is expected to face stiff competition from Under Armour and Lululemon in this category. The incredibly low overall penetration of this segment will allow all companies to grow, albeit at a slower pace than expected.

Jordan

Just like the Women’s segment, the company expects to double its sales at Jordan, bringing in about $4.5 billion in revenues by 2020. Even though, Michael Jordan stopped playing basketball close to 15 years ago, the apparel and shoes developed for him continue to sell out like hot cakes. This is mostly because Jordan actively promotes his brand still. As per the agreement, the basketball legend receives a portion of all Jordan revenues. Apart from this, fans have created a cult following around the star, which also contributes massively to the image, and hence, sales.

That said, Nike has dealt with intense competition in the footwear market, primarily from Adidas and Under Armour, in the last few quarters. In the basketball segment specifically, Under Armour has emerged as a major competitor driven by Stephen Curry’s popularity. The Curry series of basketball shoes has been selling much better in the last few quarters than Nike’s Jordan or LeBron series. This forced the company to release cheaper variants of its KD and LeBron shoes in an effort to regain some of the lost market share, even though this move dented margins.

Additionally, Nike has not been able to create the right amount of buzz surrounding the Jordan brand in international markets. To really achieve that target, the company must focus on increasing sales abroad, seeing as market share in the domestic market continues to lose out to competition.

So all in all, it seems highly implausible that Nike will be able to reach its revenue target, even though it might come close. Given the heavy competition and the sluggish digital sales, Nike could take a while to cross the $50 billion mark.

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