Amazon.com, Inc. (NASDAQ:AMZN) has found its latest market and list of competitors to target. The online giant is now setting its sights on the massive growing athletic apparel market. That’s a shot across the bow that adds a new set of retail rivals to Amazon’s roster — Nike Inc (NYSE:NKE) and Under Armour Inc (NYSE:UA, NYSE:UAA) — among others.
However, while Amazon moving into the athletic apparel space is no laughing matter, NKE and UA stock investors shouldn’t be looking to flee.
The athletic apparel market, while saturated with competitors, at least continues to grow. Even celebrities including Danica Patrick and Kate Hudson are entering the athletic apparel sector hoping to capture some of the $44 billion that consumers spend on activewear. In 2016, athletic apparel grew by 12% — which admittedly wasn’t the 15% growth the industry saw in 2015, but it was far better than the 2% growth seen across all apparel.
Now, Amazon wants a piece of the market, and it announced plans earlier this month to launch its own athletic apparel brand.
Why NKE Stock Is Safe
Nike, while slowing, still is the king of athletic apparel and still is managing to grow despite a widening field. While companies (including Under Armour) have dipped into Nike’s market share, the $88 billion company still commands a sizable lead in the industry, with dominant positions in numerous subsectors.
Nike’s current goal is to reach $7 billion in e-commerce sales by the year 2020. It’s currently at about $1.5 billion annually, so clearly, NKE has a ways to go. But growth of 46% seen in its most recent quarter is reason to believe Nike will accomplish the feat. In fact, NKE ranked in the top 50 for internet retail sales last year.
China is another major catalyst for NKE. Sales in the country have increased by double digits for 10 consecutive quarters. Amazon doesn’t have the same luxurious route to growth in China, actually lagging behind other e-commerce players in the populous nation.
But perhaps more important as far as Nike is concerned is the price proposition. Nike products aren’t cheap, and various low-cost options from the likes of Target Corporation (NYSE:TGT) and Old Navy simply aren’t a substitute. Amazon is likely to try to compete on price, too — which means it really won’t be directly competing with Nike.
Overall, Nike’s 6% growth in revenues last quarter marked the 28th consecutive period of improving sales.
NKE stock isn’t going anywhere.
Why UA Stock Is Safe
If Nike should fear anything, it’s Under Armour, which has used cutting-edge technology and a growing roster of athlete endorsements to gain share in the U.S. and internationally.
Like Nike, Under Armour has a pretty impressive revenue growth streak — 26 straight quarters of 20% growth or more.
Under Armour boasts a recent game-changing win — a deal with Major League Baseball to outfit all the teams and sell replica jerseys and apparel to fans. This deal strengthened an already impressive lineup of endorsed athletes for Under Armour that have helped it see growth in apparel and footwear. The company is even using NFL MVP and UA endorsee Tom Brady to launch a new lineup of sleepwear.
Important to note is just how tech-focused UA is. Under Armour CEO Kevin Plank gave the keynote address at this year’s Consumer Electronics Show. Yes, Under Armour is an apparel company, but UA has embraced technology not just via connected apparel and apps, but simply the way it develops clothing. In fact, the entry into sleepwear is the company’s latest to help consumers understand their habits through their clothing and apps.
And like Nike, Under Armour doesn’t market to the cheap seats. Its products are cutting-edge, and its prices reflect that.
Third-quarter revenues improved by 22% to $1.47 billion, led by nice nice increases in apparel (+18%), footwear (+42%) and accessories (+18%). International sales grew 74% in the quarter and represented 15% of overall revs, making UA a continued play on growth of the brand in new markets.
Amazon & Athletic Apparel
Amazon, of course, has also embraced technology — and squeezed $385 billion in market capitalization out of it. Along the way, it has disrupted a number of markets, from publishing to brick-and-mortar retail, by offering items at low prices, absorbing minimal profit margins to take out its rivals.
If that’s the same strategy Amazon brings to the table as it gears up to fight Nike and Under Armour, AMZN might succeed — but it will succeed in undercutting other low-cost athletic apparel outfits. Not NKE and UA.
Moreover, I don’t see Amazon doing much in the way of major athlete endorsement deals (which is a substantial gamble that trims margins even further). Instead, the company likely will target its current customer base in hopes of strong add-on sales at checkout.
A search on Amazon for athletic apparel returns around 2 million results. Type Nike or Under Armour into an Amazon search, and you will get results of 77,000 and 30,000, respectively.
I wouldn’t discount Amazon’s ability to make a dent in the athletic apparel market. AMZN is expected to be America’s largest apparel seller by the year 2020, and reach $62 billion in apparel sales by 2021, besting names like TJX Companies Inc (NYSE:TJX, est. $26 billion) and Macy’s Inc (NYSE:M, est. $23 billion).
But NKE and UA stock holders can rest easy knowing that Amazon will be eating other lunches.
As of this writing, Chris Katje did not hold a position in any of the aforementioned securities.
