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Why Nike and Peers Are Cranking Up Their Presence in China

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Analyzing the key drivers of Nike’s Greater China opportunity

Greater China (FXI) has been one of Nike’s (NKE) fastest-growing and most profitable markets. The company derived 10.7% of its sales and 18.6% of its pre-tax profit from the Greater China segment in fiscal 2015.

In fiscal 1Q16, Greater China accounted for about 3 percentage points out of the 14% growth in revenue in constant currency terms. Nike expects to grow its Greater China business at a CAGR (compounded annual growth rate) of 16.2% over the five-year period from fiscal 2015–2020. Sales are projected to increase from $3.1 billion in fiscal 2015 to $6.5 billion in fiscal 2020.

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Futures orders

In fiscal 1Q16, Nike reported futures orders growth of 22% in Greater China in reported terms and 27% in constant-currency terms. That’s the highest among all geographic segments. It appears that the company’s strategy to focus on select categories, clear out excess inventory, and reset its retail agenda is working well. Same-store sales grew 28% in Greater China in fiscal 2015, compared to worldwide growth of 16%. This was the highest among all geographic segments.

Singles day 2015

According to the Internet retailer Alibaba (BABA), Nike was the top sporting brand on Alibaba’s websites on November 11, 2015, the day of China’s singles day event. Total singles day sales for Alibaba rose a whopping 54% year-over-year to $14.3 billion in gross merchandise value terms. Nike and competitors Adidas (ADDYY) and New Balance clocked $30–$150 million worth of sales that day.

Peers crank up presence

Nike competitor Under Armour (UA) has also been bullish on prospects in China. It’s looking to open several stores in China this year. However, most of them would be through partnerships with distributors. Lululemon Athletica (LULU) will have two new stores in Hong Kong by year-end. At the 2015 Stifel Consumer Conference held in September, Lululemon reported that its first Hong Kong store is on track to generate $8 million in annual sales and sales per square foot of $6,000. That would put the Hong Kong store ahead of company averages for store productivity.

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