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The biggest names in consumer goods use technology to advance products and amass loads of loyal customers. This type of innovation not only improves a products quality and functionality, but also makes production faster and less labor-intensive. Here's a look at two companies that are using product technology to improve profit margins and widen their competitive moats.
Get your kicks
Developing products that solve problems faced by athletes and sports enthusiasts worldwide has made Nike (NYSE: NKE ) the world's largest sporting-goods maker. In an industry where you can't survive without an ongoing commitment to innovation, Nike continues to set the trends. Known for its athletic footwear, apparel, and accessories, Nike has churned out dozens of cutting-edge products under its various brands such as Nike Pro, Air Jordan, Nike Air, and Nike+.
In 2006, Nike brought further innovation to the shoe industry by joining forces with Apple (Nasdaq: AAPL ) . Together, these two highly recognized brands revolutionized the running experience with the Nike+ iPod Sport Kit. The technology allowed runners' iPods to communicate with a tiny sensor under the inner sole of the Nike shoe, letting users hear occasional voice prompts over the music that would tell them their pace and the distance they had gone. Taking it one step further, the product also tracked a runner's data and made it uploadable to Nike's website, where they could then set goals, track progress, and engage with other Nike+ users.
Nike's collaboration with Apple was, well, a runaway success. The company's latest breakthrough is a shoe that has the fit and feel of a sock, a concept that plays on its lightweight Nike Free product, which is currently the top-selling running shoe in the country.
This comes at a time when lightweight running products are in high demand. The minimalistic footwear category accounted for 30% of the $6.5 billion in U.S. shoe sales last year, and that number should only continue to grow.
Nike's Flyknit sneaker should reinforce the company's strong position in the category, which is why I'm giving the stock a three-year outperform rating on my profile in Motley Fool CAPS. Unlike lightweight shoes made by competitors, Nike's Flyknit shoe is woven together by a specially engineered knitting machine outfitted with software that tells it how to alter a shoe's technical functions such as stability. Another advantage of the new product is that management expects the automated weaving process to cut costs associated with labor – thereby further boosting profit margins.
A step ahead of the competition
Rival sportswear company Under Armour (NYSE: UA ) has also stepped into the shoe category. Having conquered high-tech sports apparel, Under Armour is hoping to replicate that success in footwear. I don't see UA running away with the market anytime soon, but fortunately, its shoe business represented only 12% of the company's annual revenue last year. Therefore, if its shoe segment fails to gain traction in the future, Under Armour's other businesses should help the company recover costs. Meanwhile, Nike dominates the athletic shoe market, with more than a 43% share, according to data from SportScanInfo.
Another sporting-goods company using technology to advance its products is Columbia Sportswear (Nasdaq: COLM ) . Innovation runs across Columbia's entire product line-up. The company has developed more than 12 core technologies including Omni-Heat, Omni-Dry, Omni-Shade, and Insect Blocker. Garments made with its Omni-Heat thermal comfort feature help maintain body heat using nodes that reflect and retain warmth generated by your body.
Columbia's patented Insect Blocker apparel is another revolutionary product offering, which uses specially treated fabric to provide protection against bugs. Odorless and invisible bug repellant is closely integrated into the material and retains its effectiveness through 70 washes. Other product innovations from Columbia include its sun protection line, which is recognized by the Skin Cancer Foundation for its unique UV-absorbing technology.
Columbia's products deliver a new level of performance technology, making it hard for competitors to keep up. While Nike is technically a competitor, Columbia has more of an outdoor focus, so they're not really fighting for the same customers. Nevertheless, both stocks deserve an outperform CAPScall rating for their ability to continually bring product innovation to market.
A winning bet?
These companies are innovators, not imitators. They push technical limits, empower consumers, and engineer quality products. However, I don't think Under Armour is a good play right now as an investment. For a better investment opportunity, I invite you to view this special free report from The Motley Fool, which reveals "This Year's Smartest Stock Pick."