Nike – still doing it

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Nike – still doing it.

Nike has been somewhat overshadowed by the renaissance of Adidas in recent quarters. Adidas has impressive business momentum, their strong brand and innovative products are now coupled with a more cohesive and committed strategy. They’re starting to ‘walk the walk’, and while their turnaround is still in its infancy, we believe it still has some distance to run.

Nike on the other hand, has never stopped ‘walking the walk’. They are the clear market leader, with technology, innovation and an iconic brand at the core of their success. The focus for Nike is on improving production, increasing their Nike branded retail market and growing in the high margin apparel business.

Labour costs at Nike equal around a third of their overall expenses. They are reducing these costs by improving their production process, making shoes faster, with less labour and less material. Creating an engineered knit that only uses fabric where it’s needed, has reduced material use by up to 75% and reduced the number of workers touching a trainer from 32 to just two to four. The company has also improved its supply chain process so their products get into the hands of waiting consumers faster.

The majority of Nike sales are through third party distributors like Footlocker, with just over 20% of Nike sales being through their own retail channels — which deliver a higher margin. Nike is investing in direct to consumer campaigns to increase their own retail sales to over a third of total sales in five years.

The global athletic apparel market is double that of footwear and is growing faster as the trend for ‘leisure wear’ evolves. Nike and Adidas are both benefiting from this trend by virtue of their strong brand and dominance in this fragmented market. We believe apparel could in time generate over half of their sales, up from 28% currently.

Nike remains a best in class company with an iconic brand, great management and a long growth runway. Both Nike and Adidas remain strong conviction positions in the international equity portfolio.


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