In the middle of last year, athletic apparel giant Nike (NYSE:NKE) unveiled a big initiative. Dubbed a Triple-Double Strategy, it involves utilizing more technology-powered innovation to drive sales growth, benefiting owners of Nike stock. Slowly but surely, we’ve seen baby steps down that path.
As of last quarter, however, shareholders started to see the power of the company’s not-so-new-anymore Nike Customer Experience (NCX) platform. The company’s currency-neutral sales were up 10%, after growing 9% in the quarter before that. And a handful of initiatives that NKE has been working on for a while are just now starting to reach critical mass.
Perhaps Citigroup has a point about Nike stock being a top idea for the coming year, even if Citi ‘s analysts overstated the bullish case on NKE stock.
Meet the New NKE
If it seems like Nike has brought more and better shoe styles to the market this year than it has in the past, it’s not your imagination. NKE is also getting its merchandise onto — and off of — store shelves at a faster clip. Moreover, new technologies have made it easier to get merchandise into more customers’ hands.
While the strategy overhaul impacted (for the better) customers’ experience in Nike’s own stores, its third-party retailers are being asked to embrace the company’s new M.O. as well. Those retailers who can’t get on board with the new Nike mindset may soon find themselves without the Nike inventory they’d like to have.
Nike’s changes have been bold, but they have been somewhat necessary. The convergence of the athleisure frenzy and another manic wave of celebrity-endorsed sneakers both peaked not too long ago, and Nike found out that its rivals like Under Armour (NYSE:UAA, NYSE:UA) and Adidas (OTCMKTS:ADDYY) had become more of a threat while the company wasn’t paying enough attention.
Nike’s initiatives, however, have only recently become tangible for owners of Nike stock.
One of Nike’s innovations is the use of 3D printing to make the upper portions of running/performance shoes. The printers weave filaments into the proper shape, but more than that, the weaving pattern itself has been tweaked in a way that enhances the footwear’s performance.
The new and improved NKE is more than just about design and fabrication, however. Indeed, its most significant shifts may have been the launch of customer-centric technologies at its own stores. Store employees can now check their shops’ shoe inventories using handheld devices, enabling them to identify which styles and sizes are available in a matter of seconds without ever leaving the customer’s side.
Prioritizing the Top Resellers
As for non-Nike stores that can’t keep up with Nike’s raised expectations of how its products should be positioned and sold, they’re likely to become less prioritized.
That bomb was dropped on most of Nike’s 30,000 resellers last October. NKE explicitly stated that it was going to focus on its relationships with its best 40 partners. Those partners must be willing to dedicate a certain amount of floor space to Nike’s products, and they must agree to hire and train specialists on Nike’s products.
Of course, Nike’s most sweeping changes have come in other areas. Direct-to-consumer is still a relatively small piece of Nike’s revenue pie, but it’s growing quickly. As of 2014, 82% of its distribution involved selling products to retail venues owned by other companies. Now that portion stands at 70%, as NKE focuses more on its own stores and sales via Nike.com, where its margins are much higher.
The Bottom Line on Nike Stock
Most of the questions about the Triple-Double Strategy have been answered. We’ve learned that the smart implementation of technology along with faster product development can indeed spur sales growth. Better design work doesn’t hurt either.
Perhaps more importantly for investors who may be considering buying Nike stock, analysts are taking notice. On Dec. 4, Citi called Nike stock its best investment idea for 2019, and just a few days earlier JP Morgan upped its price target on NKE stock from $81 to $85. According to the latter firm, “management sees product innovation accelerating across both performance and lifestyle with ‘distribution diversification’ in early innings today.”
Citi’s call may have been more than a little bit hyperbolic, but the point is well taken all the same. JP Morgan’s view on Nike stock was considerably more even-keeled. More importantly, the latter firm’s note underscores the idea that the company’s decision to rethink everything it does — and how it does it — is paying off for NKE and for owners of NKE stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.