Stock Story: Nike www.mfgcoreseries.com.au Nike is the world’s largest athletic footwear and apparel company, generating almost US$40 billion in revenue from its iconic flagship Nike brand and smaller brands Jordan and Converse. Sportswear, which includes performance sportswear and sports-inspired fashion (often referred to as ‘athleisure’), has grown strongly over the past decade as consumers became more conscious of their health and gravitated to casual attire. As the world emerges from the covid-19 health crisis, a renewed focus on staying active combined with more people working from home are likely to see the growth tailwinds become more relevant than ever. While sportswear is gaining share of people’s wardrobes globally, Nike’s two most important markets are the US, where its brand dominance is greatest, and China, where leading internaonal sportswear brands have enjoyed over 20% annual growth over the past five years. Although the popularity of sportswear in China lags that of Western countries, the huge fan following of US basketball in China bodes well for Nike there. In the 2018-2019 season, the US Naonal Basketball Associaon and Chinese technology giant Tencent esmated that more than 33% of the Chinese populaon (490 million people) watched live-streamed NBA games on Tencent’s plaorms. Nike’s sporng heritage, star-studded porolio of athlec brand ambassadors and investment in product innovaon make its market-leading posion in sportswear difficult to dislodge. Nike’s markeng and story-telling capability have seen its iconic ‘swoosh’ logo become one of the world’s most recognisable and valuable logos. The company’s extensive markeng budget supports an unparalleled porolio of elite athlete brand ambassadors including Michael Jordan, LeBron James, Tiger Woods, Serena Williams and Naomi Osaka. Decades of high- profile aspiraonal markeng campaigns have built the brand significant social capital and an entrenched posion in popular culture. When it comes to product, Nike’s performance innovaon, R&D capability and creave designs are also industry-leading. In 2019, Kenyan runner Eliud Kipchoge ran the first sub-two-hour marathon in a bespoke pair of Nike Vaporfly running shoes. The technology was considered so advanced that it was banned by World Athlecs on a view it provided athletes with ‘unfair assistance or advantage’. Nike’s buzzy innovaon and markeng create a ‘halo’ effect across its product porolio that is difficult to replicate. Even prior to the pandemic, the retail landscape in which Nike operates was exposed to disrupve threats. To achieve its scale, Nike has historically sold the majority of its footwear and apparel through third-party retailers such as sports specialty stores, mall retailers and department stores. These important wholesale customers have been disrupted by the rise of e-commerce and direct-to-consumer retail. Over the longer term, Nike is well-placed to navigate this shiſt and is ulmately a beneficiary. Nike has the brand strength An icon brand gaining as more people turn to athletic gear
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Stock Story: Nike
www.mfgcoreseries.com.au
Nike is the world’s largest athletic footwear and apparel company, generating almost US$40 billion in revenue from its iconic flagship Nike brand and smaller brands Jordan and Converse. Sportswear, which includes performance sportswear and sports-inspired fashion (often referred to as ‘athleisure’), has grown strongly over the past decade as consumers became more conscious of their health and gravitated to casual attire. As the world emerges from the covid-19 health crisis, a renewed focus on staying active combined with more people working from home are likely to see the growth tailwinds become more relevant than ever. While sportswear is gaining share of people’s wardrobes globally, Nike’s two most important markets are the US, where its brand dominance is greatest, and China, where leading international sportswear brands have enjoyed over 20% annual growth over the past five years. Although the popularity of sportswear in China lags that of Western countries, the huge fan following of US basketball in China bodes well for Nike there. In the 2018-2019 season, the US National Basketball Association and Chinese technology giant Tencent estimated that more than 33% of the Chinese population (490 million people) watched live-streamed NBA games on Tencent’s platforms.
Nike’s sporting heritage, star-studded portfolio of athletic brand ambassadors and investment in product innovation make its market-leading position in sportswear difficult to dislodge. Nike’s marketing and story-telling capability have seen its iconic ‘swoosh’ logo become one of the world’s most recognisable and valuable logos. The company’s extensive marketing budget supports an unparalleled portfolio of elite athlete brand ambassadors including Michael Jordan, LeBron James, Tiger Woods, Serena Williams and Naomi Osaka. Decades of high-profile aspirational marketing campaigns have built the brand significant social capital and an entrenched position in popular culture. When it comes to product, Nike’s performance innovation, R&D capability and creative designs are also industry-leading. In 2019, Kenyan runner Eliud Kipchoge ran the first sub-two-hour marathon in a bespoke pair of Nike Vaporfly running shoes. The technology was considered so advanced that it was banned by World Athletics on a view it provided athletes with ‘unfair assistance or advantage’. Nike’s buzzy innovation and marketing create a ‘halo’ effect across its product portfolio that is difficult to replicate.
Even prior to the pandemic, the retail landscape in which Nike operates was exposed to disruptive threats. To achieve its scale, Nike has historically sold the majority of its footwear and apparel through third-party retailers such as sports specialty stores, mall retailers and department stores. These important wholesale customers have been disrupted by the rise of e-commerce and direct-to-consumer retail. Over the longer term, Nike is well-placed to navigate this shift and is ultimately a beneficiary. Nike has the brand strength
An icon brand gaining as more people turn to athletic gear
Stock story: Nike
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1 FootnotesImportant Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 (‘Magellan’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. A copy of the relevant PDS relating to a Magellan financial product or service may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan.
1 FootnotesImportant Information: This material has been delivered to you by Magellan Asset Management Limited ABN 31 120 593 946 AFS Licence No. 304 301 (‘Magellan’) and has been prepared for general information purposes only and must not be construed as investment advice or as an investment recommendation. This material does not take into account your investment objectives, financial situation or particular needs. This material does not constitute an offer or inducement to engage in an investment activity nor does it form part of any offer documentation, offer or invitation to purchase, sell or subscribe for interests in any type of investment product or service. You should read and consider any relevant offer documentation applicable to any investment product or service and consider obtaining professional investment advice tailored to your specific circumstances before making any investment decision. A copy of the relevant PDS relating to a Magellan financial product or service may be obtained by calling +61 2 9235 4888 or by visiting www.magellangroup.com.au. This material may include data, research and other information from third party sources. Magellan makes no guarantee that such information is accurate, complete or timely and does not provide any warranties regarding results obtained from its use. Statements contained in this material that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of Magellan. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Any trademarks, logos, and service marks contained herein may be the registered and unregistered trademarks of their respective owners. This material and the information contained within it may not be reproduced, or disclosed, in whole or in part, without the prior written consent of Magellan.
to attract consumers to its e-commerce platforms and, by cutting out the middle-man, will benefit from a higher profit margin, improved access to data, better control of brand equity and the ability to build a relationship with customers.
When it comes to risks, Nike is reliant on consumer perceptions of its flagship Nike brand, which generates 85% of sales. Changing fashion trends, a softer product innovation cycle or improved competitor execution could
slow sales growth. The company’s earnings could also be vulnerable to a slowdown in consumer spending, particularly in the US or China, as well as to escalating tensions between its two key markets. However, we see these as largely temporary or cyclical risks rather than structural issues that will disrupt the company’s long-term competitive advantages or its ability to capitalise on the long-term growth opportunities that lie before global sportswear.
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