It's no secret that athletic-apparel retailer Nike Inc. NKE is enjoying incredible success. With the company's stock having gained nearly 34% year-to-date, 2015 was quite the year for the company.
While the company has continued to produce attractive growth numbers in revenues, earnings, and in many of its other segments, Nike has no plans to slow down anytime soon. In an investor meeting just a few months ago, Nike CEO Mark Parker stated that the company had a goal of obtaining an annual revenue figure of $50 billion by the year 2020, which represents a compound annual growth rate of approximately 10%.
While even Parker described the goal as "ambitious", it is not an unobtainable goal for the apparel giant. The company has a plan, and Nike is not new to setting and obtaining high goals. In 2013, the company set a revenue goal of $36 billion by the year 2017, and with its most recent annual revenue being $30.6, Nike is well on its way to exceeding that goal.
While $50 billion in annual revenue and the year 2020 are still relatively far off for Nike, here's how the company is planning to get to their target.
Ecommerce
One of the areas that still holds great growth potential for Nike is in its ecommerce segment. While the company currently has approximately $1 billion in ecommerce sales, Nike expects that number to increase to around $7 billion by the year 2020.
This increase just won't come on its own though. Nike plans to boost its customers' shopping capabilities both on the company's website, Nike.com, and on its mobile apps. The company wants to be extremely accessible for its customers, as Nike Brand President Trevor Edwards stated, "We will be at the consumer's fingertips every day".
The company is also making digital innovations to drive its ecommerce business. One example of this is in Nike stores, where employees have tablets that allow them to quickly sell items to customers that are out of stock at stores. All of Nike's stores in the U.S. are currently digitally connected like this, and the company is in the process of giving its European stores the same capabilities.
Another major factor in the growth of Nike's ecommerce sales will be in the expansion of where Nike.com is available. If the company wants to realize its goals of $7 billion for ecommerce sales and $50 billion in annual company revenue, Nike will have to continue to roll out its website in countries where other brand stores or reliable third-party stores are currently unavailable.
Women's Apparel
The second area where Nike sees a major opportunity for growth is in its women's fitness and apparel departments. Companies like Lululemon Ahletica LULU have shown clearly that the women's market has been overlooked for years and thus holds great potential in the future.
Nike has several different ways that it plans to expand in this relatively untapped market. The company has actually began to open women's concept stores that solely target female consumers, with locations now in London, Shanghai, San Francisco, and Newport Beach, California.
One area within women's apparel that Nike is expanding in is women's sportswear sneakers. The company currently has six $100 million franchises in women's footwear styles, and in making its iconic Jordan brand more appealing for women, Nike plans to take a big step forward in the category in the coming years.
Nike has started to offer specialized services within its women's only stores such as bra fitting and pant hemming that the company hopes will attract female customers. Nike also, in conjunction with its retail partners, opened more than 170 new premium women's spaces in just the last year alone, and has plans to create more than 1,000 more over the next 5 years.
With the moves listed above and an increase in ecommerce sales of women's apparel, Nike expects its women's business to nearly double over the next 5 years from the current level of $5.7 billion to approximately $11 billion, which will greatly help the company reach its overall goal of $50 billion by 2020.
Other Prospects
While growth in its ecommerce and women's segments are expected to be the main contributors to the company's annual revenue figures, Nike has a few other tricks up its sleeve to reach its goal.
Nike expects substantial growth in several of its geographic regions across the globe that will boost the company's revenue numbers. North American sales are expected to jump from the current level of $13.7 billion to $20 billion by 2020. Nike expects its fastest growth to come from China, where revenues are expected to grow annually by a rate in the mid-teens to approximately $6.5 billion; the combination of a rapidly growing Chinese middle class and increasing love of sports by consumers in the country will help to achieve this.
Despite competition from other companies like Lululemon and the growing Under Armour UA , Nike has really never been more popular. Nike has an immense size advantage over its competitors, as Under Armour only had revenue of $3.1 billion in its latest fiscal year. In comparison, Nike's latest annual revenue figure was $30.6 billion.
As mentioned earlier Nike plans to expand its Jordan brand to make it more appealing to women, but it also plans to expand the long-time basketball-focused brand into other areas such as running and football. This expansion of the brand could potentially dilute a logo that has been one of the company's best sellers for a long period of time. On the other hand, the expansion could unlock a major increase in revenue, one which Nike expects to bring in figures of $4.9 billion by 2020, which is around double that of current levels.
Bottom Line
Overall, Nike has an extensive plan that includes revenue growth in many of its major categories, as well as substantial expansion on several of its smaller categories. With major growth expected in both its ecommerce and its women's fitness categories, as well as growth in several of its geographic regions across the globe, a revenue target of $50 billion by the year 2020 is a goal that Nike is extremely capable of reaching.
On a more short-term basis 2016 could be another special year for Nike in terms of performance, which will be interesting to see after such an impressive year in 2015. The company's success continues to impress as time moves on, and by 2020, who knows just how impressive Nike's performance really could be.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
