Why Nike will outpace sportswear market growth

Quick setting
  • We estimate that the global sportswear market will grow at a CAGR of 4% between 2012 and 2019.
  • Nike, Adidas, Puma and Reebok are some of the key players in the industry. Under Armor and Lululemon Athletica are growing rapidly, new competitors entering the market.
  • Nike’s apparel sales grew at a CAGR of 12.3% in fiscal year 2010-2012, which was higher than the growth rate seen for Adidas, Puma and Asics.
  • Nike is growing at a rapid pace in North America and emerging markets. While its Chinese sales have weakened in the recent past, the future growth of orders from China indicates a recovery in the future.
  • We expect Nike’s market share in the global sportswear market to increase from 4.9% in 2012 to 6.5% in 2019 in the long term; however, increased competition from local and niche players as well as counterfeit products could hamper Nike’s growth.

Sports giant Nike is one of the major players in the sportswear market. Its market share in the global sportswear market has historically increased from 3.9% in 2007 to 4.9% in 2012, as its apparel sales grew at a faster rate than the industry average over the past the period.

We believe the company is well positioned to grow its market share to 6.5% over the long term due to factors such as a strong competitive position, rapid sales growth, attendance at major sporting events as well as the continuous launch of innovative products.

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

See our full analysis for Nike

What is the growth potential of the global sportswear market?

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

Growing demand from Asia-Pacific and Latin America owing to growing economic prosperity in these regions, coupled with a trend towards healthy lifestyles, will be the major drivers for the market growth.

What is the competitive landscape in the global sportswear market?

The global sportswear 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.

Clothing sales of some of the major players in the market (in millions)

Company

Financial year 2010

Financial year 2011 Financial year 2012

CAGR (2010-2012)

Adidas (including 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 protection

$853

$1,122 $1,385

27.4%

athletic lululemon

$712

$1,001 $1,370

38.7%

Asics

$427 (¥42,576)

$439 (¥43,685) $470 (¥46,838)

4.9%

To note: Nike operates on a June-May fiscal year and Asics operates on an April-March cycle. Lululemon Athletica has a “February through January” fiscal year. Others have a fiscal year from January to December.

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

In fiscal year 2010-2012, Nike’s apparel sales recorded a CAGR of 12.3%, which was higher than the growth rate seen for Adidas, Puma and Asics. We believe that Nike’s apparel sales will continue to grow rapidly in the future thanks to an innovative product portfolio, superior market position and improved marketing activities.

Under Armor and Lululemon Athletica, which are new players in the market, have seen impressive growth in the past. These companies focus on niche market segments such as performance apparel (which is designed to keep athletes dry and cool) and yoga-focused sportswear, respectively. While these companies pose a threat to Nike, the latter also plays a role in these upcoming market segments. Given its strong brand awareness, we expect Nike to gain market share in these product categories in the future.

What is the geographic distribution of Nike’s apparel sales?

Market

% of Nike Apparel revenue by region (financial year 2012)

Annual growth in clothing revenues (excluding currency effects)

Growth in future orders (excluding currency effect)

Financial year 2012

First nine months of the 2013 financial year

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 and Eastern Europe

7%

24% 18%

11%

Japan

5%

(1)% (1)%

5%

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

Although Nike’s apparel sales continue to experience impressive growth in the North American region, demand has weakened recently in Western Europe and China. While future orders from Western Europe fell 5%, we believe this mainly reflects difficult year-over-year comparisons, with prior year sales driven by European Championships and the Olympic Games. Additionally, we believe Nike could regain its growth momentum in China as it takes steps to reduce regional inventory levels, increase marketing activities to improve its brand image, and realign its product portfolio to Chinese preferences. The recent growth in future orders from Greater China indicates a degree of recovery in the Chinese market.

Considering that the global sportswear market is expected to grow at a CAGR of 4% over the period 2012-2019 and that Nike has historically achieved double-digit growth in apparel sales and is expected to continue its strong pace at Looking forward, we expect Nike’s global sportswear market share to reach around 6.5% in the long term.

Factors likely to threaten 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 term, if it remains at current levels for the remainder of our forecast period, it represents just over 5% down from our price estimate. On the other hand, if it climbs to almost 10%, we see around 15% upside from our estimates.

Our $58 price estimate for Nike is about 10% below the current market price.

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