Who’s Taking a Bite Out of Nike’s Market Share?

Nike is the world’s largest athletic footwear and apparel company. It has trailing 12-month sales of $32.3 billion. The company dominates the sportswear market in most of the geographies where it operates—Europe, China, and North America. However, the sportswear giant seems to be losing panache as rivals continue to encroach its territory.

On the one hand, Under Armour (UA) is attacking Nike’s basketball business. Under Armour is riding high on the success of its Curry series. On the other hand, Adidas (ADDYY) is snatching away its running business market following the success of its Ultra Boost series. Also, lifestyle players like Lululemon Athletica (LULU) are attracting customers and gaining market share.

Increasing competition and lost business were clearly visible in Nike’s recent earnings. The company released its earnings in late September. Although the apparel giant cruised ahead on both the top and bottom line estimates, the real picture was not as rosy.

Nike’s bottom line success was more a result of a one-time tax benefit. The company reported sluggishness in future orders. The orders grew by 7% (constant currency)—compared to 11% growth in the last quarter. The orders impacted North America the most—it’s Nike’s biggest market. Futures orders only grew 1%—compared to analysts’ estimate of 5% growth. The inventory rose 11%, while demand creation expenses rose 25%.

ETF investors seeking to add exposure to Nike can consider the SPDR Consumer Discretionary Select Sector ETF (XLY). XLY invests 3.1% of its portfolio in Nike.

Despite the current situation, Nike continues to dominate on a global scale. The company’s culture of innovation and the urge to lead the sportswear industry have been key to its success. One example of innovation, which surely is ahead of its times, is the company’s new HyperAdapt 1.0 platform of self-lacing shoes. In the next part, we’ll discuss this technology and why it’s important to Nike.