Can Running Boost NIKE, Inc. (NKE)?

Page 1 of 2

Running is becoming increasingly popular all over the world. The equipment is relatively cheap: you put on your shoes, your pants, your shirt, and you are ready to go. You can run almost everywhere, all you need is a road of some kind. Running helps people feel good, lose weight, and build a beautiful body.

No wonder NIKE, Inc. (NYSE:NKE) is serious about running. In the most recent earnings call, the company stated that running revenue grew double digits for the thirteenth quarter in a row. Nike has also stated that it is serious about performance running. But does it have the products that would appeal to amateur athletes?

No more minimalism

NIKE Inc. (NKE)NIKE, Inc. (NYSE:NKE) is basing its success on Nike Free and Lunar shoes. Nike Free is a minimalist shoe. The minimalism trend in shoes appeared after the release of the book “Born to Run” by Christopher McDougall. The book argued for barefoot running, stating that it is the natural way to run. It has also argued against modern shoes that offer lots of suspension and control.

Running barefoot is too extreme for most people, so companies started to exploit this trend by offering shoes with minimal or no suspension. However, such shoes are not for everyone. They demand a lot from the runner. You must be lightweight and have a good running technique to feel comfortable in such a shoe after a long run. A lot of people are using running as a vehicle to lose weight. In addition to that, they do not have coaches and typically have poor running technique. These factors seriously increase the risk of injury.

According to one of the world’s most respected running magazines, Runner’s World, sales of minimalist shoes declined more than 10% in the first quarter of 2013. At the meantime, sales of motion control shoes increased by more than 25%, while sales of stability shoes increased by more than 10%. Runner’s World separates NIKE, Inc. (NYSE:NKE) Free from other minimalist models because a large percentage of Nike Free Sales are to people other than active runners. This is a very important point.

The most recent trend in running are shoes that are light and low to the ground. You can see this trend in Nike Lunar, as well as shoes offered by Under Armour Inc (NYSE:UA) and Skechers USA Inc (NYSE:SKX). The Runner’s World’s summer running shoe guide features Nike Free and Under Armour’s Micro G Toxic Six. Skechers does offer shoes for running, but they tend not to get industry reviews.

The real competition

Skechers USA Inc (NYSE:SKX) does not pose a threat to NIKE, Inc. (NYSE:NKE) on the running front. Under Armour Inc (NYSE:UA) has yet to become a big competitor, although its shoes look ambitious. The real competition comes from Japanese firms Asics and Mizuno, as well as New Balance, Adidas, Brooks and Saucony.

If NIKE, Inc. (NYSE:NKE) wants to battle on the performance front, it has to put more money into research and development (R&D). The reason why a lot of firms were glad when the minimalism trend appeared was the imbalance between their marketing and R&D efforts. Many fell behind the cushion technologies of Asics and Mizuno, and desperately needed this trend to get back in the game without having to spend a ton on R&D.

Page 1 of 2