Nike has adjusted its five-year sales target as its expansion in the North American market has been slowing down, but the group provided plenty of details at its investor day last week about ways to expand own retail sales faster and in emerging markets.

The adjusted target calls for an average annual sales growth at a high single-digit rate in the next five years. Nike predicts an improvement of 0.5 percentage points per year in gross margin, as the mix of wholesale and retail sales will become more favorable, and investments in efficient manufacturing and operations will reduce costs and markdowns. Earnings per share are projected move up at an annual rate in the mid-teens range.  

Nike said at its previous investor day two years ago that it was targeting sales of $50 billion by the end of the fiscal year 2020, with a long-term financial model of high single-digit to low double-digit sales growth. Nike's latest efforts to convince investors that it could make up for issues in the U.S. wholesale market apparently came across, as its shares moved up on the news.

The strongest sales growth is projected to come from China, with an average annual sales increase in the low to mid-teen range for the next five years. This will be fueled by the rise of Chinese sports participation and spending, as well as the regional operation's alignment with the Consumer Direct strategy that Nike started deploying across global markets earlier this year.

Mark Parker, Nike's chairman and chief executive, estimated that more than 2 billion digital natives in markets from China to India and Latin America will join the middle class by 2030. If population trends in China continue at the expected rate, Nike's projected consumer base in the country will be over ten times larger than its primary consumer base of 50 million people in North America.

Europe, the Middle East and Africa (EMEA) is expected to generate mid- to high-single-digit growth on average for the next five years. Nike describes itself as the favorite brand in all five of its key cities in the newly-formed regional unit, which brings together the former Western Europe and Central and Eastern Europe units. The group is “aggressively” rolling out Nike.com and its mobile apps across the region, while investing in its digital capabilities.

Asia-Pacific and Latin America (APLA) should deliver high single-digit to low double-digit sales growth. The group pointed to increased sports participation, and particular enthusiasm for football in this geographic entity. Beyond football and sportswear, the group predicts regional sales growth for women's products, running, basketball and the Jordan brand.

The weakest projected growth will come from North America, where Nike's plans anticipate average annual sales increases in the mid-single-digit range. That will come with an overhaul of Nike's regional distribution strategy, with about 80 percent of sales to be generated by its own retail business and sales to key partners, compared with a current rate of 40 percent. Parker clearly indicated that the group would be pulling out of partnerships with retailers that fail to offer a distinctive and productive concept.

Nike projects that its fastest-growing sales channel will be its own retail business, driven by digital sales. The turnover generated from digital platforms, both owned and partners, is anticipated to increase from nearly 15 percent in the fiscal year 2018 to more than 30 percent at the end of the five-year period.

Nike's wholesale business will be focused on about 40 key partners, who allow the Nike brand to occupy dedicated space in their stores. In return, the retailers get access to special make-ups and to products coming from the Express Lane program. Nike is also considering shared inventory services with these partners.

The growth will also be driven by digital development, expanding Nike's online and mobile communities to push sales. Adam Sussman, chief digital officer, detailed plans to more than triple the number of Nike Plus members in the next five years. It has already grown at an average annual rate of nearly 30 percent in the last two years, to reach about 100 million – and Nike Plus members who shop through mobile apps spend about three times what an average customer spends on Nike.com.

Nike emphasized that it's started to scale its apps in international markets. It already has Nike.com in more than 40 countries, and the Nike app and SNKRS app in more than 20 countries across North America and Europe. It will be expanding to Greater China and Japan later in the fiscal year, broadening the reach of the apps to almost 700 million new consumers. With this rollout, Nike will have its complete portfolio of apps in eight of the ten key countries that drive 80 percent of its growth by the middle of 2018. Nike Plus membership will be integrated into WeChat in China in the spring.

Nike intends to cultivate its relationship with its online community through the Nike Plus membership program announced at the investor day, to be launched in November. It will set aside allotments of coveted products for these members, give them first access to the latest product, exclusive access to personalized services and special events. The Express Lane and other moves to accelerate the supply chain will help Nike to deliver special products to Nike Plus members. The company is also engaging in gamification efforts, such as augmented reality and geo-fenced sneaker hunts.

Nike executives further expanded on strategic moves unveiled in the last quarters, such as an increased focus on twelve key cities and on the women's business.

The investor day provided more details on the Triple Double strategy. Apart from doubling direct connections with consumers, it should double the cadence of production and innovation, and double the speed to market by more than halving the product creation timeline.

Parker predicted that new products will drive more than half of the group's growth in the next five years. He pointed to the React cushioning platform, which is scaling from basketball this season to running, training and sportswear – starting with the Epic React for running. But at the same time, Nike expects innovation to come from the Air franchise.

The latest advances in production involve plenty of robotics as well as new materials such as FlyLeather, which is 40 percent lighter and five times more resistant than full grain leather, and allows Nike's production partners to reduce waste. Nike says it has developed a manufacturing process using robotics to make a pair of uppers in 30 seconds at scale.

Nike's partnership with Flex will produce 3 million pairs for the North American market in the current fiscal year, from a nearshore purpose-built footwear factory. It will expand to tens of millions of pairs per year by 2023, more than 25 percent of them delivered through Nike's direct to consumer business, on short lead time response programs. The relationship reduces the lead time from manufacturing to market from about 60 days to ten days or fewer.