Nike (NYSE:NKE) closed 2011 strong. The company saw profits grow to $469 million in its quarter ended in November, up from $457 million year on year. Revenue grew to $5.7 billion, up 18% over 2010. The brand also is strong in China, where revenue for the full year came to nearly $1.2 billion, up 25% over 2010. All three of the company’s operating segments—footwear, apparel, and equipment—grew in 2011.
Nestled inside Nike’s equipment category is what is perhaps the company’s most intriguing business, Nike+. Started in 2006 under the brand Nike+iPod, Nike+ was originally a set of tools developed in partnership with Apple (NASDAQ:AAPL) for tracking running information.
The core of the product line was a small pedometer that could be placed inside a Nike running shoe and synced with an iPod so a runner could be updated on his progress while listening to music. In the five years since, Nike+ has grown into a line of products, including an iPhone app, a GPS wristband, and a growing social network that boasts a membership of 5 million registered users. Now in 2012 Nike is looking to expand Nike+ further, making it integral to its entire accessories and equipment business.
Strap it on your wrist
Nike’s flagship product for the new Nike+ is the Fuelband, an exercise in both minimalist technological design and aggressive branding. The device is a thin digital bracelet that houses an accelerometer, which is designed to measure the number of steps a wearer takes, the level of movement (based on arm motion), and how much “NikeFuel” they’ve built up. NikeFuel is, in the company’s words, “a normalized score that awards equal points for the same activity regardless of physical make up.” Translation: You rack up fitness points a la Weight Watchers (NYSE:WTW). Those are tallied after connecting the band to a PC or an iPhone/iPad and then uploading the data to the Nike+ social network, where progress can be compared to that of other contacts.
It’s an ingenious product. It’s built to take full advantage of consumers’ infatuation with Apple’s portable electronics while also indulging the compulsive behavior that’s made social networks like Facebook such a massive success. What’s more, Nike has announced the FuelBand precisely when another gadget maker partnered with Apple is flailing. Independent gadget-maker Jawbone in November released the Jawbone UP, a wristband for tracking health information, including physical activity and food intake. The device interacted with Apple’s devices much like Nike’s FuelBand is designed to do. Jawbone UP was sold through Apple’s online store, and as a luxury accessory through other Apple retail partners like AT&T (NYSE:T) and Best Buy (NYSE:BBY). But Jawbone UP was so widely criticized by consumers following its release, that the company’s CEO posted an apology on the company’s website on Dec. 8, and offered a refund to anyone who bought the device in 2011.
Good timing for Nike
Equipment other than shoes and apparel brings in significantly less revenue for Nike — just $608 million last year compared to $6.4 and $3.3 billion, respectively, for shoes and apparel. The Nike+ and Fuel brands should help continue to grow that segment in 2012.
Nike needs to be careful, though. Like Jawbone, Nike has had problems with its technology in the past year. The entire Nike+ social network was functioning so poorly in September 2011 that the company had to issue an apology to users and promise to revamp the service from the ground up. It’s possible that these woes are behind the timing of the FuelBand’s announcement. While Nike is also promising that all of its Nike+ products, including pedometers and heart-rate monitors, will tie in with the FuelBrand social networking tools, it’s still not clear when that functionality will be publicly available.
It is clear that the FuelBand itself has kinks that need to be worked out. As noted in a recent Fast Company report, the FuelBand can only track activity that has your arms moving, meaning popular exercises like bicycle riding won’t be tracked. Pretty peculiar considering Tour de France champion Lance Armstrong was trotted out to endorse the gadget at its debut.
But if the kinks can be worked out, Nike has an opportunity to make its equipment business a billion-dollar operating segment, and one that competitors won’t be able to ignore.