Nike Weathers the Trade Wars

We are watching carefully to see what the impact of Trump's trade war with China is, on our portfolio of companies. We are especially worried that companies like Nike may be hard hit. They sell lots of goods in China, and manufacture them there too. Will sales slump? Will supply systems get disrupted by tariffs?

So it was pleasing to receive word (via a very helpful Vestact client) from the research team at Morgan Stanley, that Nike is already alert to potential problems, and taking the appropriate steps.

The question and answer session below was based on an interaction between Nike's Investor Relations and analysts at the Morgan Stanley Global Consumer Conference in New York City.

Question: Has Nike seen any slowdown in its China business? What continues to drive Nike's business there?

Answer: Nike has not observed any slowdown in its China business or Chinese consumer spending more broadly, though they are aware of and monitoring China's slowing GDP growth. At a high level, a growing middle class with greater access to and participation in sports, underpinned by government investment, is still a macro trend in early stages. Additionally, the Chinese consumer is arguably more digitally savvy than most, and Nike is still in very early innings of leveraging its direct to consumer offense in China through its SNKRS app and NikePlus memberships, in addition to its partnerships with TMall and WeChat.

Question: What is Nike's manufacturing exposure to China and what is the potential impact of tariffs?

Answer: 26% of Nike's global footwear and apparel is produced in China, but not all of that 26% enters the US. Notably, Nike has actively worked to diversify its sourcing base over the past 10 years and continuously looks at opportunities to optimize its production, regardless of trade rhetoric. Additionally, Nike has faced heavy duties on its products, almost since the inception of the company, so this is not unfamiliar territory. Regardless, Nike is working to unlock greater manufacturing flexibility in the future, if need be. It would also consider passing some of the impact on to consumers, though it is an area it would need to think about and approach very carefully.