The recent performance of the Swoosh, progress in digital manufacturing and retail technologies and the athleisure trend have led the Nike group's management to predict that it will be able to reach $50 billion in annual revenues in the financial year ending in May 2020, up 63 percent from $30.6 billion in the past year. The new business plan, which was presented to investors last week, would imply compound annual growth of 10 percent during the next five years. Earnings per share are expected to grow at a mid-teen rate.
The new growth target represents an acceleration from the better-than-expected 52 percent sales increase recorded by the Nike group in the last five years, which exceeded a target of high single-digit growth that it had set two years ago. It is also a more ambitious plan than the projected 7-8 percent annual sales increase that Adidas had outlined in March, predicting an increase from €14.5 billion to €22 billion during the same five-year period (see SGI Europe n° 26-9+10 of March 31, 2015).
The Swoosh sees the group's revenues rising at high single-digit annual rates in the mature markets of North America and Western Europe and at a low double-digit rate in emerging markets, where the brand plans to deploy its category offense initiative. The implementation of this strategy has allowed Nike to accelerate the growth of its business in Western Europe by more than 15 percent annually, or by $1.5 billion, in the past two years, reaching $5.7 billion in the financial year ended in May, but the growth rate will evidently be slower gowing forward.
With sales of $20 billion by 2020, up from $13.7 billion in the past year, North America's share would decline from nearly 45 percent to 40 percent of the total turnover. On the other hand, the group's sales in Greater China would more than triple to $6.5 billion from $2 billion now. In other emerging markets, they would double to $4 billion.
In Western Europe, the Swoosh sees an acceleration in basketball and men's training. Other future growth drivers in the region will be running, football, sportswear, and the women's and youth markets. Boosted by the recent launch of its new e-commerce site in China, the key drivers in the country will be running, basketball and women's.
The women's segment is seen nearly doubling from $5.7 billion to over $11 billion in five years' time, or 22 percent of the total turnover. Nike wants to have 1,000 corporate or partnered women's store in place by 2020. With the strongest pipeline of new products in 18 years, running would grow more slowly, rising to $7.9 billion from $4.9 billion at the present time. The Flyknit series of knitted-upper shoes should hit $1 billion in sales in four years' time.
Running and the Jordan brand have already doubled in size since 2013. As in Western Europe, the Jordan brand will have a bigger presence in China and other markets outside the U.S., and it will be reported as a separate business unit in the future. The brand's sales are expected to double to $4.5 billion as it moves beyond men's basketball to enter other sports such as football and training. Converse should also double from its present annual level of $2 billion by expanding its footwear ranges, raising the share of apparel and entering new geographies.
The management expects that group sales through the direct-to-consumer (DTC) channel will nearly triple in the next five years, building up to a level of $17 billion by 2020 from $6.6 billion in 2015, with the digital business expanding from $1.2 billion to $7 billion. Nike is launching nike.com in Canada, Switzerland and Norway this month. It has just given customers in the U.K. the capability to shop online and in-store at the same time in a single transaction, as it has already done in the U.S. over the last 18 months, and it plans to roll this out to other stores and consumers around the world.
As indicated in the next article in this issue, this big leap forward will be made possible in part by the development of 3-D printing for customized shoes. DTC would thus represent more than one-third of the total business, including a 14 percent share for e-commerce.
The wholesale channel would grow also, but at a slower mid-to-high single digit pace. Nike's management feels that it can add $1 billion in annual wholesale revenues by segmenting its offer in the shopping malls, with each retailer getting products that are aimed at different customers. It wants to continue working closely with key accounts in women's and other categories. It aims for a very high position in controlled space.
The gross margin is predicted to expand considerably over the next five years, rising on average by between 0.3 and 0.5 percentage points each year, thanks to the higher ratio of DTC sales, higher prices and improved efficiency in the purchasing of raw materials and the production process. Capital expenditures are budgeted at about 4 percent of revenues.
There will be no major change in the SG&A ratio, but spending on demand creation will shift slightly toward individual digital connections with consumers. Also, in addition to customized products, Nike plans to provide new services such as individualized training regimes.
