Here’s How Nike Can Benefit From Opening Stores In JCPenney

Recently JCPenney announced that it is featuring designated Nike (NYSE:NKE) shops within more than 600 of its stores.  These 500 square feet areas will be located within the men’s section of JCPenney as it looks to bolster its active wear offerings.  These small stores will ensure that Nike stands out in the department store segment and customers looking for the brand can find all its offerings in one place. JCPenney is looking to have the “best expression” of Nike in its stores, given the latter’s brand appeal.  While this development is fairly positive for JCPenney, it gives Nike a prominent outlet in prime locations without significant real estate investment and operational costs. .While Nike has its own speciality stores, which the company is expanding, it still depends on major retail chains to sell its products. A store within JCPenney gives Nike prominence and should boost its sales without significant increase in costs.

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Better Visibility Can Boost Volumes At Lower Cost

While Nike is focusing on expanding its own stores where it can earn higher margins, a partnership with a major department store gives the company higher visibility without having to invest in expensive real estate for building its own store.  Operating costs are also lower for such “stores within a store”, giving the company the advantages of promoting its brand and boosting volumes at a lower cost. Nike already has a strong brand appeal, which can attract customers to both retailers.  Moreover, the convenience of buying footware with apparel close by in a large department store should boost volumes. Apart from selling Nike apparel, the in-store shops will also include a variety of workout accessories. Nike’s athletic shoes will be located next to the new in-store shops for the convenience of customers looking to buy all products from the sportswear brand.

Footwear is the most valuable segment for Nike according to our estimates accounting for nearly 60% of its valuation and we expect the company to capture a nearly 60% market share in the global footwear market by the end of our forecast period.

A more efficient distribution channel through partnerships with departmental stores can impact Nike’s margins in this segment positively. According to our estimates, the apparel segment accounts for nearly 30% of its valuation and the company is likely to grab a market share of nearly 7% by the end of our forecast period in the global sports apparel market.

We believe the partnership with JCPenney will improve distribution efficiencies for Nike. It gets a prominent space in a prime location to market its product without significant investment in real estate and lower operating costs. While Nike should attract traffic into the JCPenney stores, the former will gain from distribution efficiencies through this partnership.

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