Nike’s Latest Innovation: Stepping into The Future

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Recently, Nike (NYSE:NKE)  announced the launch of Nike Hyper Adapt 1.0, the first product of the company’s innovative adaptive lacing platform. The shoe, which will be available in the holiday season of 2016, comes with buttons on the side to tighten and loosen the lace. In the next version, the shoe will adjust automatically based on the movement of the athlete. According to the company, this product challenges the traditional understanding of fit and is designed to reduce athlete distraction. Nike believes that the potential for adaptive lacing for the athlete is huge and this latest innovation is the first step towards adaptive customized footwear. After several years of effort, Nike is finally launching its “future ready” products, which we believe will enable the company to maintain its leading position in the footwear segment. It also positions the company to potentially increase tis  market share in this segment in future.

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Success Of Adaptive Lacing Products Can Lead To Increase In Market Share

Nike is trying to reduce athlete distraction from ill-fitting footwear and believes that adaptive lacing can provide “tailored to the moment” custom fit. The company believes that a shoe that senses what the body needs in real time can eliminate a multitude of distractions and hence can improve the athlete’s performance. While its current launch is athlete controlled, the company is moving towards an automated solution where the shoe will automatically adjust to the foot’s movement by sensing whether you need it tighter or looser.  Matt Powell, sports industry analyst at a market research firm NPD Group Inc., believes that this is an excellent first step towards truly adaptive personalized footwear.

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Footwear is the largest revenue generating division for Nike and according to our estimates it accounts for nearly 50% of the company’s valuation. We expect the company’s global market share in this segment to increase steadily and reach 30% by the end of our forecast period. Based on its latest innovations if the company is able to grab a higher market share in the footwear market and increase its market share to 35% by the end of our forecast period, there can be a more than 5% upside to our price estimate.

Nike’s Hyper Adapt 1.0 will be the first mass produced sneaker of its kind and if successful it will give the company a competitive advantage. Nike has set for itself a revenue target of $50 billion by the end of the fiscal year 2020.  We believe the success of customized adaptive footwear could bring the company closer to achieving this ambitious target.

 

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