Nike releases revenue road map for Greater China
At its 2015 Investor Day, Nike (NKE) unveiled its growth plan for its Greater China segment. The company expects to grow its Greater China business at a CAGR[1. Compounded Annual Growth Rate] of 16.2% over the five-year period from fiscal 2015–2020. Sales would go from $3.1 billion in fiscal 2015 to $6.5 billion in fiscal 2020. Major sales drivers for the Greater China segment include the basketball, running, and apparel product categories, and increased points of distribution.
Greater China (FXI) is Nike’s most profitable segment though profitability had dropped a few years ago on unsold inventory following the Beijing Olympics. Nike has managed to turn around the segment’s performance by focusing on categories like running and basketball. It’s also rationalizing points of product distribution, an important consideration given the vastness and complexity of China’s geography.
Last November, Nike opened one of the first women’s only stores in the IAPM Mall in Shanghai. Nike also opened category-led sporting destinations like the Nike Running Store in Sanlitun Village, the Nike Basketball store in Beijing’s EC Mall and an exclusive action sports store in Beijing.
Basketball is a major driver for Nike in China. Athletes on Nike’s sponsorship roster, including LeBron James and Kobe Bryant, participated in a tour of China and the Philippines last August, as part of the RISE 2.0 initiative. The program aims to help kids train and instills sporting skills.
Under Armour (UA) is bullish on the prospects in China. Under Armour’s CEO, Kevin Plank, and the NBA 2014-15 Most Valuable Player Stephen Curry toured China in September. The tour coincided with the launch of the company’s signature footwear line the Curry Two, named after Stephen Curry. Under Armour is opening several stores in China this year. However, most of them would be via partnerships with distributors.
German rivals Adidas (ADDYY) and Puma (PMMAF) are also looking to step up distribution in China. Adidas has opened women’s-only stores in China and South Korea. Nike, Under Armour, Adidas, and Puma also have a web presence in China through their own websites, aiming to take advantage of the booming e-commerce market in the country.