Nike (NKE) was already the footwear market leader in China. And if there was uncertainty about the passion with which the communist country follows NBA basketball, the 190 million Chinese citizens who streamed the 2017 NBA Finals over their mobile phones erased all doubts.
“The NBA is China’s most popular sports league and is six times more popular than the three largest European soccer leagues combined,” said Cowen managing director John Kernan. “Basketball’s popularity should disproportionately benefit Nike over other brands, as Nike is now the league’s official sponsor and endorses most of its top players. Nike has an enormous growth profile in China because of basketball.”
Meanwhile, in the U.S., Nike is still the name to beat. But the athleticwear giant is facing an onslaught of competition — and not only from old foe Adidas (ADDYY) and younger power player Under Armour (UA). It’s also meeting opposition in the broader footwear markets, from names led by Skechers (SKX), Deckers Outdoor (DECK) and Crocs (CROX). Crocs shares alone are up 31% year to date, vs. a 7% gain for Nike.
In China, Nike is also the front-runner. It holds an 8.1% share of the one-party state’s mammoth $56.6 billion footwear industry, according to figures from market researcher Euromonitor. Second-place Adidas holds a 4.7% share. In a country with almost 1.4 billion pairs of feet, the revenue potential is enormous.
Kernan believes the unique appeal of hoops in China owes to the country’s transformation from an agricultural society into a leading industrial power.
“Culturally, they are into it. And I think as that society becomes much more urbanized, basketball ties into an urban theme,” Kernan said.
Nike Dodges The Tariffs Bullet
Nike shares took a dive with the overall market Monday as China announced its first round of retaliatory tariffs. Shares quickly recovered Tuesday and Wednesday, leaving Nike up more than 2% by midweek. The stock is holding support at its 10-week moving average in the sixth week of a flat base.
Wedbush Securities footwear analyst Christopher Svezia says Nike products sold in China are made in China, Vietnam and Indonesia. That bypasses the risk from tariffs on U.S. goods imported into China, Svezia said.
Meanwhile, 2017 was a tough year for the footwear industry in North America, despite sales of more than $74 billion, according to Euromonitor. Top brands including Nike and Under Armour struggled. In addition, retailers had their own woes due to heavy price promotion. Sports Authority and Gander Mountain were among those to declare bankruptcy in 2017.
IBD’s TAKE: The Apparel-Shoes & Related industry group ranked No. 5 on Thursday among the 197 industry groups tracked by IBD. Research has shown that nearly 50% of a leading stock’s performance owes to the strength of its industry group and sector at the time of its breakout.