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- Don D., California
Nike’s Long-Term Growth Strategy
The Nike (NKE) brand has long been synonymous with performance. The company exploded onto the scene when University of Oregon track athlete Phil Knight and coach Bill Bowerman sought to create a running shoe that would grip urethane track surfaces more effectively. These efforts paid off with the creation of the “Waffle Trainer” in 1974, and by 1980 Nike controlled 50% of the domestic running shoe market. Since that time, Nike has taken its performance driven mentality and applied it across the full spectrum of sport, growing into the world’s largest shoemaker.
Yet, Nike still views itself as a growth company. At its recent investors day, company management unveiled its 2015 global growth strategy. During this meeting, Nike announced a revenue target of $27 billion by the end of fiscal 2015 thanks to broader expansion in its more mature geographies and aggressive investment in developing markets. That target equates to a 40% increase in sales compared to fiscal 2009’s top line, a strong improvement for a company of any size, let alone for one of the largest in the world.
To do this, the company is counting on strong growth from both its Nike and non-Nike brands. One label to watch for is Umbro, which Nike acquired in March, 2008 for about $600 million. The century-old English football brand is prominently on display as the official kit of its home nation at this summer’s World Cup. With parent Nike’s backing, Umbro has the potential to become a bigger player worldwide and should be particularly useful in helping Nike gain inroads on the Continent, where German rival Adidas AG controls the lions-share of the football market.
To take advantage of this opportunity, Nike has established its largest World Cup presence yet sponsoring 10 of the 32 national teams participating (Rival Adidas is sponsoring 12), including perennial favorite Brazil. A win by one of its sponsored teams would certainly lead to a strong uptick in jersey sales.
Additionally, the company released its Nike Elite Series football boots in the run up to the tournament. The Series is comprised of Nike’s Mercurial Vapor SuperFly II, CTR360 Maestri, Total90 Laser III and Tiempo Legend III boots, which have been designed to improve performance, as well as on-field visibility. The launch was backed by a media blitz involving the company’s “Write the Future” commercial. The video features several prominent players and has been viewed 16.5 million times on YouTube (a subsidiary of Google (GOOG) in the past month, thanks in part to Nike’s use of social media to promote the ad.
Boots are probably the most important part of the company’s World Cup strategy as they typically carry higher margins than apparel. Nike spent the last four years analyzing the color spectrum to identify high-contrast colors that best trigger a player’s peripheral vision when a teammate is running. As a result, the company has added what it calls Mach Purple and Total Orange to its premier Mercurial Vapor Superfly II cleat. To the average player such a level of detail probably makes no difference, but with a price point of $400, the average player isn’t the target market of these boots and it is Nike’s attention to the finer points and commitment to performance that will keep its players happy. When it comes down to it, no world-class player is going to put on a boot that he isn’t comfortable with or believe will best help win soccer’s biggest prize.
These bright colors also make Nike’s signature product at the World Cup much more visible to the consumer watching on TV, a fact that probably is not lost on the company’s management. Since the company’s long-term growth strategy relies on increasing brand awareness with the growing middle class of emerging markets, what better way to get their attention then by putting brightly colored boots on the feet of their favorite footballers?
In sum, Nike’s growth prospects over the next several years appear bright. We look for the company’s focus on international expansion to lead to solid top- and bottom-line gains over the pull to 2013-2015. The issue should especially appeal to more conservative accounts, thanks to the company’s strong balance sheet, brand, and market position.