By Sara Germano
Nike Inc. this week begins selling a pricey sneaker with self-tying laces, a high-stakes test of the company's technology investments and efforts to sell more products directly to consumers.
Since its founding, Nike has predominantly been a wholesaler. But as shopping shifts online, Nike is moving to lessen its reliance on retailers. It wants to double its direct sales to consumers to $16 billion by 2020, particularly as rivals Adidas AG and Under Armour Inc. have become more competitive in recent years.
That is where the self-lacing $720 HyperAdapt sneakers play a role. The company is offering the shoes exclusively on its relaunched Nike+ app and at a new retail store in New York City, beginning on Thursday. The idea is to hook consumers into buying via its app or visiting Nike stores for limited-edition sneaker releases, which to date has been a near-weekly phenomenon at Foot Locker and other retailers.
The move could put the squeeze on an already consolidating sporting goods retail industry, analysts say. Nike currently is the single-largest vendor to big chains like Dick's Sporting Goods Inc., Foot Locker Inc. and Finish Line Inc., accounting for 20%, 72%, and 73% of merchandise purchased, respectively, according to regulatory filings.
"They have to be worried about it," said John Kernan, senior retail analyst for brokerage Cowen & Co. He pointed to recent efforts by Dick's to create some of its own products and provide more shelf space to Under Armour and Adidas. Dick's didn't respond to a request for comment.
Kasper Rorsted, the new chief executive of Adidas, said of the self-lacing shoes, "I don't know if that's a save-the-world product," but sales through mobile devices and apps will continue to grow within the industry.
Asked for his perspective on the HyperAdapt launch, Foot Locker CEO Dick Johnson said on a November earnings call that Nike has "very limited peers in the marketplace" and has the bandwidth to launch some of its product via its own retail channels.
The HyperAdapt release comes after a decade of changes within Nike to expand into technology and consumer services.
"There was a moment of realization, when Nike people looked around and saw everyone running around with an iPod, that was when we knocked on the door of Apple," said Roberto Tagliabue, who was a director of digital innovation at Nike from 2005 through 2009.
He oversaw the launch of the first Nike+ product, a sensor placed in running shoes that synced with early iPods. The idea was to keep customers communicating with Nike long after they left the store.
Beth Sasseen, a recruiter who worked at Nike from 2007 to 2009, said her focus was on finding tech-savvy talent who could help develop more personalized products and software to better engage with consumers. Nike "was trying to be ahead of the game," she said.
Nike's push into tech wasn't without its setbacks. The original Nike+ sensor evolved into a series of wristbands, including the FuelBand, first launched in 2012. But it was discontinued in 2014 when the company decided to scrap hardware development altogether and focus on software and apps.
Meanwhile, Under Armour purchased a suite of fitness-tracking apps between 2013 and 2015 to create a network of more than 190 million users to market more shirts and shoes. Another fitness app, Strava, is popular among Nike employees, who have recorded thousands of runs around their Beaverton, Ore.,campus, according to interviews with staffers and data from Strava's website.
Nike began upgrading training apps of its own, including Nike+ Run Club and Nike+ Training Club, which include coaching tips from star athletes like Serena Williams and Ashton Eaton. The company returned to the gadget market this fall with a swoosh-branded version of the Apple Watch.
Mr. Tagliabue, who has since started his own Silicon Valley design firm, said Nike operates differently than other tech firms. "They cannot bring to market products that are not perfect" and risk damaging the brand, he said. "At Nike, sometimes you can get frustrated because things go slow."
Nike's digital sport team has spent roughly $100 million on software products, including the new Nike + app, over the past four years, according to a person familiar with the matter. The department has also been hit by turnover, with some members departing for Under Armour, Alphabet Inc.'s Google and others, the person said.
Nike said it doesn't disclose spending figures. The company announced in February it was naming Adam Sussman as chief digital officer, shortly before the HyperAdapt shoes and new apps were unveiled. Development on self-lacing technology began over a decade ago, and today's HyperAdapts are intended to be the first version of what Nike calls "adaptive performance" products.
So far, some Nike aficionados are excited about the futuristic shoes, if not the price. Hunter Harpin of North Adams, Mass., said he buys a pair of custom Nikes every year but the HyperAdapts just aren't worth the extra cost.
"It takes me two seconds to tie my own shoes," he said, "so I think I'd have a $200 limit on self-lacingsneakers."
Write to Sara Germano at firstname.lastname@example.org
(END) Dow Jones Newswires
December 02, 2016 02:47 ET (07:47 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.