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In the News

Inside Nike's $23B Plans

Nike is gearing up for a big growth spurt, and Wall Street reacted quickly to the news.

After the athletic giant last week announced an ambitious plan to grow the business to $23 billion by fiscal year 2011 with a refocused category strategy and a new retail plan, analysts said they are optimistic about the company's fresh initiatives.

"We think Nike is firing on all cylinders," said Kate McShane, an analyst with Citi- group Investment Research. "Overall, we thought Nike's meeting was upbeat and management appeared confident."

Thomas Weisel Partners equity analyst Jim Duffy also said he is encouraged by Nike's plans. "There are two things from the analyst day that we found encouraging: the company has a plan, and the plan involves embracingand effecting change."

Nike's Osaka, Japan, location features a NikelD studio.

Shareholders were also pleased with the strategy shift, and sent shares of Nike to an all-time high of $103.39 on Thursday.

During the more than three-hour meet ing last Tuesday, which drew a huge crowd, Mark Parker, president and CEO of Nike, emphasized an increasingly informed and digital-savvy consumer as the catalyst for change at the company. "The consumer has

never held as much power as they hold today," Parker said. "When a consumer encounters Nike, we want to overwhelm their senses. The ability we have to con nect to the consumer is our advantage." To make that connection, Nike outlined a strategy that will focus the business on six key categories: running, basket ball, soccer, women's fitness, men's training and sport culture. According to Charlie Denson, president of the Nike brand, those categories are expected to account for 75 percent of the brand's growth over the next five years. Outside the core business, Nike's subsidiaries are expected to generate 25 percent of the growth for the company over the next five years. (For more, see chart on page 50.)

In addition, the company confirmed re cent speculation that it will dive more heav ily into retail. Over the next three years, Nike will bow 100 new retail stores, with 50 locationsintheU.S.

"This is about two things: expanding and ener gizing the industry and making sure we show up in premium shopping districts in the world," said Denson. (For more, see page 1 sidebar.]

Market watchers said the move would help Nike better showcase its array of products. Said Thomas Weisel Partners' Duffy, "While the retail strategy is controversial, we believe that it will allow Nike to offer more customization, better engage consumers and be more locally relevant."

At the same time, however, the stores shouldn't pose a threat to athletic specialty stores like Foot Locker and Finish Line, other observers said. [Finish Line declined to com ment at press time, while Foot Locker did not return calls.)

McShane said the plan "does not change the competitive landscape" and echoed the views of several in saying that the stores will likely showcase more apparel than footwear. "What we thought was even more positive news is that Nike is working with its retailers to make competition healthier at the mall. We expect to hear more about how [Nike] will work with retailers over the short term in order to bet ter differentiate between offerings," McShane wrote.

But at least one key athletic retailer expressed concern over the need for product segmentation. "As retailers, we've been deal ing with it with Adidas and Puma," said Isack Fadlon, owner of Los Angeles-based Sportie LA. "I'm hopingthat [Nike] will conttnueto have

various product mixes available to premier independents. We're looking for product that is more difficult to find when it's more read-

By The Numbers

For the first time, Nike revealed approximate sales numbers for each of its subsidiary brands. Here, a look at the tallies for 2006.

Nike Brand $13.18

Nike Golf $600M

Converse $450M

Cole Haan $450M Nike Bauer Hockey $150M

Hurley $130M

Exeter Brand $36M

ily available, it loses that cachet."

Still, other retailers said the new stores would be healthy for the rest of the marketplace. "Nike's not looking to put any retailers out of business. I welcome them," said Barry Pener, owner of Kansas City-based R. Sole. "I think it will be a big boost to the retail environment. It will make everyone step up their game."

Faith Hope Consolo, chairman of the retail leasing and sales division for New York-based Prudential Douglas Elliman Real Estate, agreed. "I think there's always yelling and screaming [from retailers], but what this does is reinforce them," she said. "At first, people will become alarmed, but after that, they will realize what is good for the brand is good for the retailers." With contributions from Meredith Deity and Natalie Zmuda.

 

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