China’s burgeoning economy is no secret–the country has over 1,338,299,500 people and is a powerhouse on the world stage; while everyone else is in a recession, China’s economy continues to grow strong and at a faster rate than ever before. Nike sees promise in China’s growing economy and plans on expanding their presence in the country in order to capitalize on that growth.
In Q1 of 2011, Nike’s gross margin dropped by 2.7 percent, all the way down to 44.3; the drop of course, was due largely to the fact that the cost of materials went up during the global economic crisis that has characterized the last several years. Despite the drop in profit margins, Nike still pulled an impressive net income of $645 million due to an increase in demand of Nike products. Aggressive marketing tactics and competitive pricing options not only kept Nike alive during throughout the tough economic times, but actually helped grow their net income by 15%.
Nike expects to increase their presence in China, where demand for their products is growing steadily; the company says that 27% growth in the Chinese market is a likely figure. Nike will invest over $4 billion in new store locations and manufacturing by 2015–over 7,500 Nike stores currently operate in China.
Nike CFO and VP Don Blair says that one of the challenges the company has faced in their effort to secure more of the valuable Chinese marketplace is that Chinese people are “tuned in” to sports, but they “aren’t yet participants.” Nike will have to get the Chinese people more actively engaged in sports and sport culture in order to truly take hold of the market; they may be able to do this through endorsement deals with popular Chinese Olympic athletes such as tennis player Li Na and track performer Liu Xiang.
Nike Inc. (NYSE: NKE) went up $1 (1.05%) today, closing at $96.25.