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Outlook: Why Are Activewear Retailers in Expansion Mode?

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Nov. 22 2019, Updated 6:09 a.m. ET

Targeting demographics

Activewear companies are looking to increase sales (XRT) from specific demographic segments, particularly women and young athletes. Lululemon Athletica (LULU), which caters primarily to women, is looking for higher sales from its as-yet nascent men’s business.

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Activewear for women

Nike’s (NKE) women’s business had global sales of $5.7 billion in fiscal 2015.[1. on a wholesale equivalent basis] Nike is the world’s number-one athletic brand for women. The company estimates that global sales from its women’s business will nearly double in five years, to $11 billion by fiscal 2020.

Under Armour’s women’s business generated sales of almost $750 million in 2015. Most of this was generated in the United States from apparel. According to the company, sales from women’s apparel could equal or even exceed the men’s business in the future. Currently, women’s apparel constitutes about 30% of the company’s sales.

Adidas (ADDYY), which made almost 7 billion euros in global apparel sales in 2015, is also looking to increase the contribution from women’s wear. Last year, Adidas entered into a collaboration with former Lululemon CEO (chief executive officer) Christine Day to sharpen its focus on women’s activewear.

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Sportswear

Under Armour is looking to launch its own sportswear line, slated for mid-2016. The company believes there’s significant opportunity in this business. In fiscal 2015, Nike derived $6.6 billion in sales from its sportswear category, representing about 21.6% of sales. UA believes that its two largest competitors combined derive about 25% of their sales from sportswear, or ~$12.5 billion. UA has yet to make headway in the category, and a significant opportunity remains untapped.

Competitive environment and outlook

Due to strong growth in the activewear category over the last few years, competition in the space is mushrooming. Product differentiation is important. Brands such as Nike, Under Armour, Lululemon, and Adidas have the brand strength and innovation wherewithal to sustain a competitive onslaught. But they could lose out to smaller competitors that offer a unique product, although the threat may not be as widespread. Higher competition may also limit the ability of these companies to raise prices in the future.

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