nike air max 90 classic NIKE PINS HOPES FOR GROWTH ON FOREIGN SALES AND APPAREL
Nike Inc., whose waffle soled running shoes have become familiar sights on America’s athletes and would be athletes, is pinning its long term growth hopes on penetrating foreign markets and becoming a major sportswear marketer.
In Japan, Nike has made major inroads into the market, but the company faces entrenched competition in Europe from two West German companies Adidas and Puma.
The waffle soled running shoes Nike designed helped make the company one of American industry’s biggest success stories of the early 1980’s. Nike’s executives, many of them avid joggers, skillfully catered to the explosion in interest in running and physical fitness in the 1970’s. In the past five years Nike, which was founded by Philip Knight in 1968, has seen its sales increase to $694 million, from $71 million. Earnings during the same period rose at an average annual rate of nearly 100 percent and totaled $49 million last year.
But analysts expect that Nike’s domestic shoe sales, which rose 45 percent last year, will grow more slowly in the future. For the company to maintain annual growth rates of 20 percent to 30 percent, they contend, Nike must find other markets.
”There are still opportunities in the United States for further growth in our shoe sales,” Mr. Knight, Nike’s chairman and chief executive officer, said. ”But the key to our growth beyond the next few years is the performance of our apparel and foreign operations.”
In recent months, the cooling of Nike’s domestic shoe sales have pinched profits. On Feb. 24, Nike announced that earnings for the third quarter ended Feb. 28 would show the first quarterly decline in the company’s history largely because of ”lower than anticipated shoe sales,” Gary Kurtz, Nike’s treasurer, said. The surprise statement, which prompted Nike’s over the counter per share bid to drop to $16 a share from $23 a share in one week, followed a second quarter in which earnings were flat despite a 30 percent increase in revenue. (Nike shares were bid at 16 1/4 Wednesday.) Overseas Performance Uneven
Nike’s performance overseas, a market that analysts believe is worth $8 billion, has been uneven. The company has established subsidiaries in five European countries and Japan, and foreign sales, which equaled $43 million last year, have tripled during the first half of the fiscal year 1983.
But half of those sales were made in Japan, where Nike has joined with the Nissho Iwai Corporation, one of Japan’s largest trading companies, to form the Nike Japan Corporation, 51 percent owned by Nike.
”By giving up partial ownership, Nike may have sacrificed some long term profits,” Steven Sullivan, an analyst with Piper, Jaffray Hopwood in Seattle, noted, ”but this was a wise move. By associating with a respected Japanese company they were able to get up and running and be profitable right away.” Mr. Knight said Nike now ranks second in the Japanese shoe market, behind the Asics Corporation but ahead of Adidas, its main competitor worldwide.
In Europe, despite the presence of 200 sales and distribution employees, Nike’s revenues have totaled only $15 million so far this year. ”Our operations there are not profitable,” Mr. Kurtz said, ”and they may not be profitable until May 1984.”
Analysts say that Nike’s main problem is that Adidas and Puma, two West German companies, have a stranglehold on the European athletics apparel market. ”I don’t think Adidas and Puma will play dead for Nike in Europe,” Dennis Ross, an analyst with Montgomery Securities in San Francisco, said. The two companies lost a substantial portion of their American sales to Nike in the 1970’s, Mr. Ross said, ”but they’ll be much more careful this time around. It’s a whole different story when you’re playing in your home park.” Learning New Ways
In addition to facing entrenched competition, Nike has had to learn the ways of European retailers, which are usually small, independently owned stores that carry little inventory.
And Nike executives are having to learn a new sport soccer. ”It’s not something we’ve grown up with,” said Neil Goldschmidt, Nike’s vice president of international operations. However, soccer is the major sport in Europe, and ”Nike can’t become the dominant company there without participating in it,” he conceded.
The company has designed soccer shoes, but is test marketing them now only ”in a very limited fashion” in England and Norway. According to Mr. Goldschmidt, who served as Secretary of Transportation in the Carter Administration, until Nike ”creates a revolution” in the design of soccer shoes, its overseas market strategy will concentrate on the running shoe.
Nike’s apparel division has made impressive gains in the past three years. Sales climbed to $70 million last year from $8 million in 1980. This year apparel sales are expected to top $100 million and make up more than 12 percent of Nike’s total revenues. But some analysts believe the division’s full revenues potential is around $1 billion annually.
So far, it is not clear whether Nike’s foreign and apparel operations can provide the company with the incremental growth it will need. ”To make a dent in a company this size,” Peter Musser, an analyst with Boettcher Company in Seattle, said, ”foreign and apparel sales have to grow very, very rapidly. They have yet to prove they can do the job.”