Nike Inc (NKE) isn’t exactly a growth company anymore. With an $83 billion valuation, single-digit sales growth, and a modest dividend that just got a 17% hike last week, NKE stock won’t be doubling anytime soon.
Just don’t tell that to Nike’s management.
With the opening of Nike’s first women’s only store in Newport Beach, California last week, NKE is going head-to-head with Lululemon Athletica inc. (LULU), Gap Inc (GPS), and even Under Armour Inc (UA).
Even With a Women’s Only Store, Nike Is Late to the Game
Clearly, a single women’s only retail location in Newport beach isn’t going to catapult NKE stock to new highs. But the move is symbolic of a more concerted effort by Nike to focus on a new avenue for growth: women. Lululemon, with its early domination of the women’s yoga apparel market just as yoga became a cultural phenomenon, is already a trusted and stylish name in women’s clothing.
Alas, that hasn’t helped LULU stock this year, as slowing top-line growth has the stock off more than 20% in 2014. Although LULU hasn’t been running hot lately, annual sales have nearly quadrupled in the last four years, and in the latest fiscal year they came in at $1.6 billion.
Gap must’ve noticed the lucrative potential of women’s apparel back in 2008, when it spent $148 million to buy Athleta, Inc., the “premier fitness and lifestyle brand in the rapidly growing women’s active apparel market,” according to Gap’s most recent annual report.
That might be a bit of a stretch, as LULU has been able to command significant price premiums over GPS’s Athleta yoga products.
NKE also is behind its rapidly rising rival Under Armor in its focus on women.
In August, UA launched the “I Will What I Want” ad campaign, which features a number of famous female athletes. The first spot showed professional ballerina Misty Copeland doing ballet as a voiceover narrates numerous rejection letters that claimed she wasn’t right for ballet. The spot was named AdWeek‘s “Ad of the Day.”
Of course, NKE had to one-up Under Armour, and called together a group of 27 world-class female athletes for a fashion show in October.
Nike also had to fend off UA this summer, when Under Armour was vying for a shoe contract with the reigning NBA MVP Kevin Durant. Nike ended up outbidding Under Armour by $65 million to $85 million over 10 years, shelling out a reported $350 million to land Durant.
The competition — especially from Under Armour — threatens to raise Nike’s costs and diminish margins as NKE gets in a spending war with UA. But focusing on women’s apparel is a worthwhile area of focus, as it’s one of Nike’s weak spots. Sales at Nike’s women’s training category only grew by 6% last year, accounting for a mere 5.1% of its business.
Nike’s not in imminent danger by any means, but the fact that its late to the party on women’s apparel won’t help NKE stock outperform the market in coming years.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid.
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