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Sports giant Nike (NYSE:NKE) is positioned as the leading player in the global athletic footwear market with an estimated market share of almost 20% in 2012. We believe Nike is well-positioned to grow its market share to nearly 25% in the long run on account of factors such as an above industry-average growth rate in footwear sales, a strong competitive position and rapid growth in key footwear markets.

The risks to Nike's market share growth mainly stem from increased competition from local players in developing markets as well as due to counterfeit products. Nike's sales have recently suffered in China, and if these headwinds continue, they could impact Nike’s future growth.

What Is the Size and Growth Rate of the Global Athletic Footwear Market?

The global athletic footwear market was valued at $74.7 billion in 2011 and is forecast to grow at a CAGR of 1.8% to reach $84.4 billion in 2018, according to a report by Transparency Market Research. Growth is expected to be driven by factors such as rising population, increasing disposable incomes, rising health awareness and launch of innovative footwear designs and technology.

By 2018, Asia Pacific is expected to account for the largest share (41.6%) of the global footwear market followed by Europe and North America. Higher demand from Asia Pacific due to its huge population and growing GDP is the key catalyst for future growth in the global athletic footwear market.

What Is the Competitive Landscape in the Global Athletic Footwear Market?

Nike, Adidas, Puma, and Asics are the key players in the global athletic footwear market, together accounting for more than 30% market share. Nike is positioned as the leading player in the market with an estimated share of around 20% in 2012, followed by Adidas. Several other players such as New Balance, Sketchers, Vans, Saucony, and K-Swiss as well as various local brands also have a presence in the global footwear market.

Footwear Sales of the Leading Players in the Market (in Millions)

Company

Fiscal 2010

Fiscal 2011 Fiscal 2012 CAGR (2010-2012)

Nike

$10,301 $11,518 $13,426 14.2%

Adidas Group (includes Reebok)

$7,021 (€5,389) $8,132 (€6,242) $9,018 (€6,922) 13.3%

Puma

$1,856 (€1,425)

$2,006 (€1,540)

$2,078 (€1,595)

5.8%

Asics

$1,759 (¥165,808)

$1,857 (¥175,057)

$1,940 (¥182,807)

5.0%

Note: Nike operates on a June-May financial year and Asics operates on an April-March cycle. Others have a January-December financial year.

Nike and Adidas Group saw footwear sales of around $13 billion and $9 billion, respectively, in fiscal 2012. While Nike posted the highest CAGR of 14.2% in footwear sales over fiscal 2010-12, Adidas's CAGR was marginally lower at 13.3%. We believe Adidas is the closest competitor to Nike in the long run as both companies vie for market share in key markets and compete aggressively for sponsorship of major sporting events, such as the Olympics.

Nike also faces competition from companies such as Under Armour. Under Armour's footwear sales grew by a CAGR of 37.1% during 2010-12 to reach around $239 million in 2012. While Under Armour is growing rapidly, we do not see it as a major threat to Nike in the near future as its footwear sales are only around 2% of total Nike's footwear sales and also because it has a low presence in the international markets.

What Is the Geographical Breakdown of Nike's Footwear Sales?

Market

% of Nike Footwear Revenues by Region (Fiscal 2012)

Annual Growth in Footwear Revenue (excluding currency impact)

Fiscal 2012

First nine months of fiscal 2013

North America

44%

15% 16%

Western Europe

19% 5% 10%
Greater China

11%

25%

-4%

Emerging Markets

18%

27%

15%

Central and Eastern Europe

5%

13%

9%

Japan

3% 3%

3%

While the developed markets -- North America and Europe -- account for 44% and 24% of Nike's footwear sales, respectively, Greater China and other emerging markets represent 11% and 18% of its footwear sales, respectively. We think growth in Greater China and other emerging markets will be key for Nike to gain market share in the future as these regions are growing faster compared to the developed markets. Moreover, Nike must maintain an above industry-average growth rate in developed markets to enhance its market share in the global athletic footwear market.

During fiscal 2012, Nike's footwear sales recorded strong growth in North America, Greater China and emerging markets. While Nike's Chinese sales have weakened recently due to high inventory in the marketplace, we believe it could return to sales growth in the region in the long run as the company is actively taking efforts to enhance its brand image in China and realigning its product portfolio to suit Chinese tastes and preferences.

Taking into consideration that the global athletic footwear market is expected to grow at a CAGR of 1.8% during 2011-18, and Nike has historically achieved double-digit footwear sales growth in the past and is expected to continue its strong pace in the future, we think Nike's market share in the global market will increase to more than 24% by the end of our forecast horizon. We believe continued innovation and participation in major sporting events such as the Olympics will be among the key factors that will help Nike achieve rapid sales growth in the future.

The major factors that could threaten Nike's market share include increased competition from local players in the developing markets as well as the problem of counterfeit products. While we expect Nike's market share to cross 24% in the long run, if it remains at the present level to the end of our forecast period, it represents more than 10% downside to our price estimate. On the other hand, if market share gains outpace our expectations and hit 30% we could see 10% upside.

Our price estimate for Nike is $58, which is broadly in line with the market price.

Disclosure: None.

Source: Nike's Market Share Gains Rely On Its Success In Emerging Markets