Inside Nike’s $27B Plans

NEW YORK — Analysts were generally upbeat on Nike Inc.’s aggressive growth agenda, unveiled at the athletic giant’s investor conference, held here last week.

“They’re ambitious,” said Matt Powell, an analyst for SportsOneSource. “They clearly aren’t going to achieve the last five-year plan they made, [due to the recession], but good for them. They’ve reset the bar.”

Nike CEO Mark Parker told investors that by 2015 the Beaverton, Ore.-based company aims to grow its overall business to $27 billion from $19.2 billion, including pushing its Nike brand to $23 billion and doubling its almost $1 billion Converse business. To do so it will target the emerging global middle class, buy back international distribution of its affiliate brands (starting with the U.K. and China Converse businesses) and create more retail experiences. But continuing to create cutting-edge product, Parker said, will remain job No. 1.

According to Nike VP of product and merchandising Eric Sprunk, the next “couple of months to a year” should reveal an expansion of the brand’s Nike Plus tracking program into soccer, training and basketball; new programs that will allow performance customization of shoes; and zero-waste engineered uppers.

But there’s one athletic area the company will not be playing in: toning.

“We will not ask the consumer to compromise on stability, flexibility or any other aspect as they train,” global footwear VP Jan Singer told investors. Instead, Singer said, Nike would expand its biomechanics-focused Nike Free running and training line to include a women’s product designed to be worn at or en route to the gym. It is set to hit stores for holiday ’10 or spring ’11.

Sprunk told Footwear News the shoes would fall into the brand’s training silo, and that “authentic, sport-based” product for men and women would be part of the offering.

Sam Poser, an analyst at Sterne Agee, said he was not sure whether core toning users would be quick to adopt the Nike Free product. “It’ll sell, but I like it when Nike leads,” Poser said. “They have a tougher time when they follow.”

Susquehanna Financial Group analyst Christopher Svezia agreed, saying that while Reebok could lose some of its toning market share to Nike Free due to their similar distributions, he did not expect the shoes to impact sales of the more widely distributed Skechers Shape-ups. “It’s going to be small,” he said. “I don’t think it’ll be a huge push. It’s reactive.”

But analysts were cautiously optimistic about the brand’s planned retail rollout, which calls for new concepts in partnership with Dick’s Sporting Goods and The Finish Line, as well as several of its own retail projects.

“The plan is compelling. They’ve had lots of success with Jordan at Dick’s, so the Finish Line running stores and House of Hoops make sense,” Svezia said, pointing out that competitors VF Corp. and Adidas Group have much larger retail operations globally. The analyst also noted that industry vet Jeanne Jackson, president of direct-to-consumer, who joined the company from Gap Inc. Direct in March 2009, should help Nike achieve some efficiencies as it executes its strategy.

“Retail growth is essential for them to make their growth target,” said Powell.

But, he added, the field is not a sure thing for Nike: “Outside of outlet stores, they haven’t been particularly successful, and while they have some veteran players there, the jury is still out on whether they can make a profitable retail business.” Powell observed that the brand’s cautious rollout and goal to learn as they go could be good signs. “They need to prove that to themselves first before they can prove it to us,” he said.

However, Nike remains bullish.

“Going directly to the consumer is part of our ethos, and it’s an integral part of our plan to grow,” Jackson said. The firm’s targets include boosting its Nike retail doors by 250 to 300 stores by 2015, and growing sales in Nike stores between $2.2 billion and $2.6 billion. It also will work to expand its e-commerce base to 180 million customers from 130 million currently.

As part of that expansion, Jackson said, the company will open brand-experience stores that have “the services of Niketown without the architecture,” referring to the brand’s famously high overhead at its previous retail concept. Planned to be 12,000 to 20,000 square feet each, the stores will carry all of Nike’s major categories. The company also hinted that those could be the site of a new, more-involved customization program that can create the outsoles and technologies on location.

Jackson said the first of these will open in Santa Monica, Calif., in August, with three or four more rolling out in 2010. She also outlined plans for smaller category-focused stores of 3,000 to 6,000 square feet, the first of which — a running store — had a soft launch April 30 in Stanford, Calif.

Partnership stores are also a key component, Jackson said. The first Nike Running Lab shop-in-shop, which Jackson called a “100-door near-term opportunity,” opened in Finish Line’s Greenwood, Ind., store at the end of April, and the company hopes to bow 50 more of the concept by the end of the calendar year. Nike also will open 20 large-scale Nike Fieldhouse shops at Dick’s Sporting Goods locations in the U.S., with the plan calling for 20 large-scale versions and 100 smaller iterations.

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