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The athletic footwear industry comprises companies that manufacture and sell athletic footwear, apparel, equipment, and accessories. The industry is dominated by Nike (NKE) and Adidas (ADDYY), which together control 82.8% of the market by revenues. The industry operates with higher gross margins compared to the overall consumer discretionary sector due to its low input costs and premium pricing of finished products. Differences in gross margins among industry players are mainly due to direct-to-consumer sales Seasonality and Sponsorships are the core growth drivers for the industry.Seasonality and Sponsorships are the core growth drivers for the industry.

Nike’s Industry Analysis (NKE)

Sector: Consumer Discretionary

Industry: Textiles, Apparel and Luxury Goods

Sub-Industry: Athletic Footwear

US Industry Size by Total Revenues of Publicly-listed Companies: $53.7bn

The US athletic footwear industry comprises companies that manufacture and sell athletic footwear, apparel, equipment and accessories. The industry is dominated by Nike (NKE) and Adidas (ADDYY), which together hold 82.8% of the industry’s market share by revenues. Although Nike (founded in 1964) is a much younger company than Adidas (founded in 1949), it has a larger market share by revenues of approximately 47.1%, compared to Adidas’ 35.6%. Other prominent players in the industry include Under Armour (UA), Wolverine World Wide, Inc. (WWW) and Deckers Outdoor Corporation (DECK).

Key Industry Players




Market share by revenues*      



3yr Revenue CAGR



*Total for publicly-listed companies only

Industry Gross Margins

The athletic footwear industry operates with an average gross margin ofapproximately 45%, which is higher as compared to the 38% average gross margin of the top 10 companies (excluding Nike) in XLY, an exchange traded fund that tracks the consumer discretionary sector. The industry’s higher margins are primarily attributable to lower costs of inputs– which include raw materials like synthetic rubber, canvas and nylon – and premium pricing of finished products.

The industry’s gross margins have expanded over the last couple of years due to a decline in raw material costs, and companies’ focus on direct to consumer sales (DTC)* instead of wholesale distribution or sales through other channels.

*DTC sales include both online sales and sales made through company-owned outlets

Differences in gross margins between key players in the industry are attributable mainly to the varying degree of focus each company places on direct to consumer sales. Adidas’ DTC sales contribute a higher 23% to total sales, compared to Nike’s 19%, which enables the company to operate with higher gross margins of 49.5%, compared to Nike’s 43.6%.

Industry Supply Chain

Nearly every major player in the industry outsources manufacturing activities. Most of the companies that are contracted to produce goods are located in Asia, because lower labor costs in that region help athletic footwear companies maintain high gross margins. China, Indonesia, Vietnam and India are the four most prominent manufacturing bases for the athletic footwear industry.

Almost all of Nike’s footwear is manufactured outside the US by independent manufacturers. Contracted factories in Vietnam, China, and Indonesia are sourced for approximately 42%, 30% and 26% of all NIKE brand supplies and Nike has entered agreements with factories in Argentina, Brazil, India and Mexico, under which footwear products manufactured in these countries is sold within the local markets.

Similarly, even though Adidas owns manufacturing facilities in Germany, Sweden, Finland, the US and Canada, it outsources nearly all of its production. 76% of Adidasproducts originate from Asia, 16% from America, while only 8% are manufactured in Europe.

Revenue Drivers

Growth in Major Footwear Categories

Running, basketball and casual are the three main categories in athletic footwear. The running category currently has the highest market share of approximately 35%, but the basketball category is growing at the highest rate as compared to other categories. In September 2013, the basketball category gained approximately 2.9 percentage points of market share over the same month of the previous year.

Market Share for the 4 Weeks Ending 7-Sept-2013









 Source: NPD Research, Sell side estimates


The demand for athletic footwear is the highest in the third quarter of the year, as sports activities pick up as the weather turns cooler. The National Football League and the National Basketball Association seasons also start in the third quarter, and generate significant demand for sportswear and footwear.

*{Quarter’s revenues / (Annual Revenues / 4)} * 100

Athlete Sponsorships

Athlete sponsorships play an important role in driving demand for athletic products. Athletic footwear companies sponsor star players to market productsto millions of sports fans around the world. Some famous Nike-sponsored athletes include soccer star Cristiano Ronaldo, tennis great Roger Federer, and basketball star Michael Jordan.

Cost Drivers

Major raw materials used in the production of athletic footwear include synthetic rubber, plastic compounds, nylon, leather, polyurethane and canvas.

Among these, synthetic rubber is the primary raw material, and increases in the price of synthetic rubber tend to negatively impact the industry’s gross margins. For example, the industry’s average gross margin declined by over 1.5 percentage points in 2011 following a 15% increase in the price of synthetic rubber. Since the second quarter of 2012, however, synthetic rubber prices have been on a downtrend.

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