Hardy Nike earns Dow entry

BRAND AMBASSADOR: Basketball player Kobe Bryant attending the opening of a new Nike store in Hong Kong's Mongkok district last month. He is among the many sports figures deployed by the firm to sell its wares around the world. Nike will join the Dow Jones Industrial Average when the market opens on Sept 23.


    Sep 12, 2013

    Hardy Nike earns Dow entry

    NIKE'S addition to the Dow Jones Industrial Average is a testament to the firm's ability to shrug off hard times and transcend its American origins, making its swoosh logo known from Beijing to Buenos Aires.

    The world's largest maker of sporting goods will join the 30-member gauge when the market opens on Sept 23, along with Goldman Sachs Group and Visa. They are replacing Bank of America, Hewlett-Packard and Alcoa.

    Nike has transformed itself from a shoe company founded for US$1,000 in 1965 by a former runner named Phil Knight and his coach into a global behemoth with 48,000 employees and sales of US$25 billion (S$32 billion).

    While Nike is struggling to re-ignite growth in China and offset rising labour costs, it has caught up with adidas in soccer, pushed into wearable technology and deployed sports figures - from basketball player Kobe Bryant to soccer star Cristiano Ronaldo - to sell its wares around the world.

    "I often describe it as a marketing company that makes shoes," said SportsOneSource analyst Matt Powell.

    Nike, based in Beaverton, Oregon, reached an all-time high on Tuesday in New York, gaining 2.2 per cent to US$66.82. The shares have advanced 30 per cent this year, compared with an 18 per cent gain for the Standard & Poor's 500 Index.

    By this time, many enterprises of Nike's size and age are mature businesses, their best days behind them. Yet chief executive officer Mark Parker, who started out as a shoe designer, sells Nike to investors as a growth company.

    While the financial crisis crushed sales in 2009, Nike has turned in 10 per cent compound annual sales growth in the past three years. It expects those gains to continue and for sales to reach as much as US$30 billion in 2015.

    Nike has had some missteps along the way. Revenue is declining in China, once one of the company's fastest-growing markets, after the firm expanded too quickly.

    The company is now discounting items to clean out excess inventory. Nike has blamed the reversal in China on changing consumer tastes after failing to notice that local shoppers, like their United States counterparts, have come to expect a more tailored fit.

    Such fashion misses are not unheard of in the US, where apparel sales have flagged lately as shoppers focus on cars and housing-related merchandise.

    "The majority of athletic footwear is bought for fashion purposes and that's the big risk here," said Mr Brian Yarbrough, an analyst with Edward Jones & Co. "With basketball and running, things come and go."

    Rising labour costs in Asia are also weighing on profit. Gross margin, the percentage of sales left after costs of goods sold, has declined for eight of the past 10 quarters.

    The company has responded by raising prices, which it can pull off because of its enduring brand strength.

    Nike's growth is largely two-pronged: pushing into a new sport or taking share from competitors in an established business. As it's a force in every major sport, there are few opportunities for branching out into new categories that will have a substantial impact on sales, so Nike mainly focuses on expanding an existing unit.

    The widespread adoption of casual attire has also lifted Nike, which sells everything from hoodies to tank tops.

    Running shoes, in particular, have been a post-recession panacea.

    While the firm sells performance shoes for serious runners, many of its bestsellers are worn day to day. For many men, sneakers are a form of retail therapy, as handbags are for women. Last year, running-shoe sales surged 16 per cent to US$4.3 billion.

    "They're in a class by themselves," Mr Powell said.