The footwear industry is a crowded field, but UBS (UBS) says 2019 is Nike’s “year of innovation.”
In a new report, the investment bank says Nike’s (NKE) new product lines and supply chain management are strengths that are unmatched anywhere else in the space.
“Nike has always been a very innovative company, but this year we are seeing it more than we ever have,” UBS softlines retail analyst Jay Sole tells Yahoo Finance’s The Ticker. “We’re seeing it not just in product but we are seeing it in the supply chain, in services, in digital, and it’s pretty impressive across the board. There isn’t a single company in the footwear industry that’s really even close to delivering this kind of innovation this year.”
This month, Nike tested a supply-chain-as-a-service method. The retailer selected 28 designers in New York City to create new sneakers. The “NYC By You” project leveraged Nike’s distribution channels to produce new designs in small quantities. UBS says its success on this scale shows Nike is getting closer to achieving personalization, which will set it apart.
“Nike has had a very big goal for decades,” Sole explains. “They’ve always been good at making one shoe twenty thousand times, but they’re not good at making twenty thousand shoes one time… [The “NYC By You” project is] something that companies can’t do very well because it’s all about scale- make one shoe many, many times so the cost can be very low and you make a lot of profit that way. But Nike is turning it all upside down and that’s something that no other footwear company can do.”
Nike takes on China tariffs
Nike has also situated itself to take on headwinds overseas. While other retailers have struggled amid ongoing trade tensions between the U.S. and China, UBS says Nike is uniquely positioned to withstand policy changes.
“Nike has been in China serving consumers for almost four decades,” says Sole. “It behaves in China not as an American brand in China but really as a Chinese brand with Chinese people coming up with new ideas, marketing designs for Chinese consumers. At the same time, only 20%-25% of all Nike shoes are made in China. Whereas the rest of the industry, 20%-25% of shoes are not made in China.”
The retailer also plans to open a new factory in Arizona, showing it is looking to further diversify supply chain in the long-term. And that drive to innovate is what UBS sees as its biggest strength of all, especially as trendy brands like Lululemon (LULU) compete in stores and online.
“One amazing thing about Nike is they’re never satisfied,” Sole says. “For as big as they are, they’re very aggressive. They act like athletes. They always want to win the next game. Nike is going to spend almost half a billion dollars this year on innovation and that’s more than every other company in the industry by a long shot.”
Meghan Fitzgerald is a producer with Yahoo Finance.