Nike’s Fashology & the Future of Fitness

March 24, 2018 08:00 AM

Nike, one of Howard Lindzon’s 8-80 companies, remade an entire industry and continues to affect global culture. What does the digital age mean for the iconic Nike brand? Opportunity.  I love Nike Inc. (NKE). I made my first “buy” call on the stock on Sept. 26, 2006. I have not wavered over the years. 

When it sells off, I buy the dip. In January, we added Nike to our open positions. It’s another 8 to 80 brand we want to own when times are good and that we want to buy when times are bad. Although the stock ended 2017 on a strong uptrend and recently set a new all-time high, 2015 and 2016 have been tough for the company (see “Back on top,” right). 

Retailers were getting crushed by Inc. (AMZN). Under Armour Inc. (UA) was attacking along all product lines, including shoes, while Adidas was entering the early stages of a North American resurgence fueled by its Adidas Yeezy collaboration with Kanye West. 

In addition to watching partners like Foot Locker wither, upstarts like Under Armour pecked away, and rivals like Adidas profitted from shifting tastes. Meanwhile, Nike was still digesting the loss of Tiger Woods and the sales he brought to the brand.

But the next generation of basketball fans don’t think about Michael Jordan in the same way we do. Although the shoes continue to be a hit, the fading Jordan brand is having an effect on Nike’s overall sales. Nike survived the death of retail, managing it better than competitors such as Under Armour and Adidas. 

Nike has dropped the golf equipment business but remains a fashion leader in the industry, so recent signs that Tiger may be back are encouraging. I just purchased a pair of Nike Zooms for golf, and they’re the most comfortable and sturdy pair of golf shoes I’ve ever worn. They look great, too, which is part of any Nike story.

Nike has always been good at the “better mousetrap” thing. Now it’s evolving for the digital age by getting closer to its customers, who can design and buy new shoes just about anywhere, anytime.

And the company continues to attract the type of high-profile talent that’s helped make and keep it a cutting-edge brand almost from its very beginning. Expect Nike to have a great decade ahead as it continues to capitalize on the “fashology” trend.

Everything about Nike is great. In 1999, Marketing magazine declared the Nike “swoosh” to be Logo of the Century, beating out such famous symbols as the McDonald’s golden arches. And who can forget taglines: There is no finish line, Be like Mike, and Just do it.

Messaging has always been spot-on. Nike is the only company to be named Advertiser of the Year by the Cannes Advertising Festival (1994, 2003), and has won two Emmy Awards for best commercial (2000, 2002).

It’s been innovative, too. Nike was an early adopter of Internet marketing, e-mail marketing and the broadcast and narrowcast of multimedia marketing campaigns. And, like Apple (AAPL), Nike has always focused on form as a critical part of function. Its design approach is led by Tinker Hatfield, an architect who brought that discipline’s aesthetic ethos to athletic gear. It’s worked so well the world’s best athletes have lined up to endorse it.

Nike is now in the Dow Jones Industrial Average, replacing Alcoa Inc. (AA) in 2013.

There Is No Finish Line

Nike was founded in 1964 in Beaverton, Ore., as Blue Ribbon Sports, a two-man partnership between Phil Knight, a recent Stanford MBA graduate, and his former Oregon track coach, Bill Bowerman.

Bowerman is widely credited with bringing the “jogging” phenomenon from New Zealand to the United States after a 1962 trip. That same year, Knight, traveling the world after he finished his graduate studies, discovered a shoe in Japan that far surpassed anything he’d ever seen in terms of quality and cost.

In 1962, in Kobe, Japan, Knight found the Tiger brand running shoe manufactured by Onitsuka Co. He hammered out a deal to distribute Tigers in the United States, partnering with his old coach to form Blue Ribbon Sports on Jan. 25, 1964. They created the “Nike Cortez” in 1968, generating a lot of buzz during that summer’s Olympics. Use of the Cortez by athletes drove massive sales gains.

It was a lesson Nike never forgot. By 1973, the company was doing $29 million in sales. In 1983, it was $867 million. Now it’s up to $34 billion all over the world.

Management projects fiscal 2018 second-quarter earnings per share (EPS) of 46¢, down 8% year-over-year but ahead of a consensus estimate of 39¢. Nike has beat Wall Street EPS forecasts 22 quarters in a row.

Revenue was up 5% overall to $8.55 billion, ahead of a consensus estimate of $8.39 billion. Management noted that strong results for its recently rolled out retail-focused NIKE Direct business offset weakness in its traditional North American wholesale operations.

Nike, which now derives 50% to 60% of total sales from overseas markets, reported solid growth in China, Europe, the Middle East and Africa and from the Asia-Pacific.  


“Fashology” is the connection of fashion and technology. Its history traces to the years leading up to the Great Financial Crisis, right when Apple Inc.’s (AAPL) stores were starting to make an impact by turning the retail experience relationship-based. 

Apple remains the global leader in fashology. Some companies saw what was happening and started copying the model. That includes Oakley, whose founder Jim Jannard understood that athletes had to wear his glasses and that they had to have style. He brought a technical approach to doing for eyewear what Nike did for footwear. But Jannard exited before he could fully realize the potential of fashology.

Apple has blended design, technology and function across multiple product lines throughout global markets. That’s why it has the biggest market cap in the world right now. So has Nike, though to a lesser extent. 

Nike shares a lot with Apple. It’s not just that Tim Cook, who succeeded Steve Jobs as Apple CEO in 2011, is the lead independent director on Nike’s board. Apple has mastered the fact that tech is a new way to express who you are. 

That’s Apple’s domain. Nike owns your feet. Of course, you don’t use your Nikes to make a call or surf the web. But they are worn as a fashion statement by millions of millennials.

In an era where American high-schoolers all have the same phones and apps, the shoes are another way to make an individual statement. Apple is setting the standard right now. Not coincidentally, Nike is getting closer. And recent moves by management and developments in the ecosystem growing up around it have put Nike in position for a great decade.

Back to the future

Nike’s now in the business of making exclusive and one-off versions of shoes it releases on a rolling basis, its own private IPO market that fuels the “sneakerheads” and the rapidly expanding secondary market for high-demand swag. One of the items it released is the real-world version of the Marty McFly auto-zip Nikes from the hit 1985 time-travel comedy “Back to the Future.”

In many ways, Consumer Direct Offense, Nike’s official strategy for this next step in the evolution of the shoe game, is a throwback to the company’s origins. It’s getting back to the type of entrepreneurial ethos common to people who sell running shoes out of the trunks of their cars to athletes at track meets, so that it can dominate the future.

Nike Direct reported fiscal second-quarter revenue growth of 15%, due mainly to a 29% increase in online and mobile sales. Nike Direct is the reporting unit for the Consumer Direct Offense, including its SNKRS app, and other merchandising streams.

These are innovations that will help Nike thrive after it survives the impact the collapse of retail has had on its wholesale business. That’s a data-driven problem, and Nike is great at that too. This reveals another aspect of Nike’s genius: knowing what to ship and where to ship it. 

As the term “blockchain” gains hold in 2018, expect Nike to benefit from cost savings from the technology applications of it. Also expect Nike to have its own form of digital currency at some point, where each step and fitness activity leads to savings for customers that results in additional brand loyalty.

These new models are impossible to quantify today, but – as the world shrinks because of the Internet and the blockchain – no shoe-clothing-and-equipment company is better suited than Nike to create, launch, partner and profit from fashion and technology.  

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