08 April, 2015
Roger Garrett tells us why we chose to add well-known consumer company Nike to our international portfolios.
A couple of months ago we wrote about our new investment in Adidas. When we were completing our competitor analysis we took a liking to Nike. As a result, we have recently introduced Nike to our international portfolios complementing our Adidas holding.
Nike is a name that requires little introduction as the world's largest sportswear company, designing, manufacturing and selling high quality footwear, apparel and sporting equipment. Nike sells its products under the Nike, Jordan, Converse, Nike Golf and Hurley brands and is dominant in running, basketball, soccer and men's and women's training. Additionally, Nike sells its products in golf, cricket, tennis, lacrosse, volleyball, American football and action sports.
Number one for a reason
Nike is the global leader in sports footwear and apparel. This leadership is founded on superior technology and product innovation with a key competitive advantage coming from working closely with the best athletes in the world. The insights they develop from these top athletes together with leading edge technology and research and development are at the heart of their product development. Nike is recognised globally as an iconic sportswear brand through best in class technology, product innovation and style and is supported by sponsorship of premier athletes and sporting organisations such as Roger Federer, Kobe Bryant, Christiano Ronaldo and Barcelona and Manchester City football teams. Furthermore Nike has huge scale, shifting over 900mln units of product through their supply chain of over 18,000 accounts and 140,000 retail outlets. This network is a huge strength to their brand. Nike's best in class status and total focus on innovation allows the brand to command a price premium over its competitors.
Nike's growth potential remains strong
The business has an impressive pipeline of new products that help sustain a competitive advantage as a company of innovation - running shoes that change colour depending how far you run or basketball shoes that tell you how high you jump. At a regional level, the fine tuning of their strategy in Western Europe and China, with a premium product focus, is starting to deliver results with Nike gaining market share in both regions. On the digital front, Nike is heavily involved in the fitness monitoring area with running, fitness, soccer and golf apps and a close tie-up with Apple (Apple CEO Tim Cook is on the Nike board). This is potentially a huge growth area with the European Commission estimating up to 1.5bln people could be using health and fitness apps by 2017 - the basis for a significant community of interconnected members.
Clearly, Nike is a great company and a desirable investment. Nike certainly "walks the walk". When it comes to innovation and when combined with its iconic brand image and total customer focus, we believe Nike is well positioned to maintain its market leading status. Furthermore, they are shareholder friendly, returning virtually all cash flow back to shareholders via dividends and buybacks. While the stock is not cheap (because investors, justifiably, like the company)we are confident the investment in Nike will deliver strong returns over the medium to long-term.