Here’s How Nike Is Innovating To Scale Up Its Manufacturing

In addition to being one of the eight companies who are testing the world’s first 3D printer designed for large-scale manufacturing, Nike‘s (NYSE:NKE)  patents have nearly doubled since 2009 and the company has the third largest U.S. portfolio of design patents.  This clearly indicates Nike’s focus on product innovation and technology to create a manufacturing edge for itself. The acceleration of patent filins in the past few months reveals the company’s focus on new ways to manufacture products. Globally, Nike has 19,500 patents and patent applications, which is significantly high when compared to competitors. The comparative number for Adidas is around 2,400. As the company works towards meeting its revenue target of $50 billion by the end of 2020, investment in innovative products and manufacturing techniques will be key to achieve this target.

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Sustainable Innovation As An Engine For Growth

While Nike has an ambitious revenue target for 2020, the company plans to achieve this as sustainably as possible. Recycled materials are being used in 71% of Nike’s footwear and apparel products and the company plans to send zero waste from contracted footwear manufacturing to landfills by fiscal year 2020. The company management stated that it is looking at sustainability as a way to unlock greater performance from its gear by thinking about manufacturing and design differently. An example of this innovation is Nike’s Flyknit which features a one-piece upper in the shoe and doesn’t require multiple cuts that are typically used to build a sports shoe. Since this innovation eliminates waste, the use of this technology has reduced Nike’s environmental footprint by 3.5 million pounds of waste.

Nike is looking at innovative manufacturing techniques to increase scale in a sustainable way. The company plans to work with “fewer, better contract factories’ in an effort to overhaul its manufacturing operations.  Innovations such as 3D printing of its products will support these efforts.  While Nike has been investing in 3D printing for a few years now, its participation in testing the new HP mass scale 3D printer indicates that the company plans to use this technology for mass scale production soon. Nike also plans to use the 3D printing technology for customized shoes which consumers can get made at its outlets.

As per our estimates footwear is the most valuable segment for Nike accounting for nearly 50% of its valuation. We expect Nike’s global market share in the footwear market to increase steadily from 23% in 2016 and reach around 30% by the end of our forecast period.

In its latest quarterly results (Q3 2015) Nike registered an 11% increase in footwear revenues compared to the same period last year. The company also reported an EPS (earning per share) of $0.55 in this quarter, higher than the consensus analyst estimate of $0.48.

Nike plans to grow significantly in the next few years and is looking at innovative ways to ramp up its manufacturing efforts. We believe investment in better technology will aid the company’s efforts in this direction. Whether Nike will be able to meet its ambitious revenue target remains to be seen, although it is taking the right steps in this direction.

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