Morningstar | Wide-Moat Nike’s Edge Unwavering, Despite Intense Competitive Pressures Around the World
We view wide-moat Nike as the leader of the athletic apparel market. Our wide moat rating is based on Nike’s intangible brand asset, as we believe it will maintain premium pricing and generate economic profits for at least 20 years. Nike, the largest athletic footwear brand in all major categories and in all major markets, dominates categories like running ($5 billion in annual sales) and basketball ($4 billion in annual sales) with well-known brands like Jordan, Air, and Pegasus. Nike faces significant competition, but we believe it has proved over a long period that it can maintain share and pricing.We think Nike’s strategies allow it to maintain its leadership position. In mid-2017, Nike announced a consumer-focused realignment. Nike is investing in its direct-to-consumer network while reducing the number of retail partners that carry its product. The firm is reducing its exposure to mediocre, undifferentiated retailers while increasing distribution through a small number of retailers, like narrow-moat Nordstrom, no-moat Dick’s Sporting Goods, and Foot Locker, that bring the Nike brand closer to consumers. At Nordstrom, for example, Nike operates its own shops with its own salespeople, allowing it to control the brand message. Nike’s consumer plan is led by its Triple Double strategy to double innovation, speed, and direct connections to consumers. Triple Double includes cutting product creation times in half, increasing membership in Nike’s mobile apps, and improving the selection of key franchises while reducing its styles by 25%. We think these strategies will allow Nike to hold share and pricing.We believe Nike has a great opportunity for growth in China and other emerging markets. Nike has experienced double-digit growth in each of the last four fiscal years in China, and we expect it will continue to do so for at least the next 10 years. Nike should benefit from heavy investment in sports by the Chinese government. Moreover, Nike, with worldwide distribution and more than $3 billion in fiscal 2019 digital sales, will benefit as more people in China, India, Latin America, and other emerging countries move into the middle class and gain broadband access.NIKE is engaged in the design, development and marketing and selling of athletic footwear, apparel, equipment, accessories and services. The company focuses its NIKE Brand product offerings in Running, NIKE Basketball, the Jordan Brand, Football (Soccer), Training and Sportswear categories. The company markets products designed for kids, as well as for other athletic and recreational uses such as American football, baseball, cricket, golf, lacrosse, tennis, walking, and other outdoor activities. The company has license agreements that permit unaffiliated parties to manufacture and sell, using the company-owned trademarks, certain apparel, digital devices and applications and other equipment designed for sports activities.
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