Extract 2 Why Nike will outpace the sportswear market’s growth

The global sports apparel market was worth $135 billion in 2012. The market is
expected to deliver a compound annual growth rate (CAGR) of 4% during 2012-
2019 to reach $178 billion. Various factors are expected to drive market growth
such as growing fitness consciousness, rising income levels in developing
countries, the growing popularity of sports apparel for women as well as the trend
towards stylish and comfortable sportswear. Rising demand from Asia Pacific and
Latin America due to growing economic prosperity coupled with a trend towards
leading a healthy lifestyle will be the key catalysts for market growth.

The global sportswear market is highly fragmented with the presence of various
global and local brands. Adidas and Nike are the leading players with a combined
market share of around 11% in 2012. Fierce competition is expected between the
two companies in the future as they both vie for market share in key markets and
compete aggressively for sponsorship of major sporting events such as the
Olympics.

Table 1: Sportswear sales of some leading players (in millions US$)

CAGR 2010-
company 2010 2011 2012
2012
Adidas $7,023 $7,484 $8,211 8.1%
Nike $5,026 $5,513 $6,333 12.3%
Puma $1,229 $1,352 $1,504 10.6%
Under Armour $853 $1,122 $1,385 27.4%
Lululemon
$712 $1,001 $1,370 38.7%
Athletica
Asics $427 $439 $470 4.9%

After registering a strong CAGR at 12.3% in 2010-2012, Nike’s apparel sales are
forecasted to continue to grow rapidly driven by an innovative product portfolio,
superior market position and enhanced marketing activities. The factors, however,
that could pose threats to Nike’s market share include increased competition from
local and niche players as well as the problem of counterfeit products. Sports and
fitness apparel by renowned brands have a high price range, which are not
affordable by the lower income groups. Hence, the local suppliers design the
same style products at comparatively lower costs. Such products are of low quality
and reduces the brand image of forerunners in the market, thereby hampering the
sale of original product of the company.

Source: Adapted from Forbes, 13 May 2013.

What can be deduced from Extract 2 about the

(i) price elasticity of demand for sportswear,

[2 marks]

(iii) income elasticity of demand for counterfeit products

[2 marks]

(iii) cross elasticity of demand for sportswear with respect to fitness centre
membership fees?
[6 marks]