With Power Laces, the Future of Shoes Belongs to Nike

A classic movie about the future could give Nike a very popular product in 2015.

Feb 18, 2014 at 8:00PM

A movie from the 1980s could set the stage for Nike (NYSE:NKE) to dominate in 2015 and beyond. The shoe maker has a long history of technical and performance achievements in shoe design, under the lead of its famous designer Tinker Hatfield. By the 1980s the company had already been recognized as a technological leader in the shoe business, and as a result its shoes gained prominent placement in the hit movie Back to the Future. Universal Studios, which is owned by Comcast, distributed the film.

The futuristic self-lacing shoes that appeared in that movie have since become legendary, and as a result Nike released 1,500 shoes of a similar design in 2011. Although these shoes lacked the critical feature of self-lacing capability, they still became very valuable collectors' items. At the time of that launch, Nike hinted that the real thing, Nike MAG shoes with power laces, would show up in 2015 to match the timeline of Back to the Future. Now Brandon Richard of Sole Collector has spoken with Tinker Hatfield and reported that Nike will have power-lacing shoes available in 2015. 

The direct implications
The shoes themselves could become a high-margin, high-selling product. Nike chose to leave power laces off the 2011 MAG because this feature would have made the shoes too expensive; the remarks from Hatfield may indicate that Nike has been working on ways to reduce the cost of power laces or that the company has already developed cheaper designs. Nike has proven that it has a premium shoe brand that can command prices of hundreds of dollars on certain product lines.

One of these product lines carries the name of the famous basketball player Michael Jordan. Although Jordan himself no longer plays professionally, his shoes still sell very well for Nike. These shoes bring in more than $1 billion in revenue each year for Nike, and if other apparel products are included, the annual revenue from this brand could be as high as $1.75 billion.  Nike itself had $26.3 billion in trailing annual revenue last quarter, so revenue from Jordan-branded products may make up as much as 6.7% of the company's sales.

Even if power laces did take off, they'd still have a long way to go before achieving the sales of Air Jordans. Nevertheless, the Jordan brand shows how much revenue one shoe brand can provide for Nike if it takes off, and it also shows that this shoe company can maintain an older brand by revamping its style periodically so it serves as a long-term revenue source. Foolish investors look for companies like Nike that can create long-term revenue streams like this. The long-lasting appeal of Back to the Future also has positive implications for the lifespan of power-lacing Nike shoes.

Technological leadership
Nike could also reinforce its reputation for technical achievement with power-lacing shoes. While the shoe maker continues to come up with new technologies such as Flyknit, it now faces a rapidly growing challenger in the sports-apparel sector. Under Armour (NYSE:UA) CEO Kevin Plank thinks his company could hit $10 billion in sales, which could mean Under Armour taking a sizable number of customers from Nike. The two companies have extended their range of competition beyond traditional athletic clothing into newer markets such as wearable fitness monitors. 

Under Armour's threat to Nike became much more prominent with its latest quarterly release. This report sent Under Armour's shares from around $85 each to a price of more than $105 per share. The company reported that sales rose 27% for fiscal 2013 and confidently projected a further rise of 22%-23% for fiscal 2014. This announcement came on Jan. 30, at a time when many clothing sellers were reporting dismal holiday sales.

If this upstart does meet this projection, it could be bad news for Nike, even with its global reach. The shoe and apparel giant needed to respond, and now it has. With power-lacing shoes, Nike can grab the spotlight back from Under Armour and capture shoe buyers' attention once again.

The cable company
For Nike to release another Back to the Future-branded product, the company may require some cooperation from Comcast. The two companies have cooperated before and a deal could mean licensing revenue for Comcast as well, so this seems likely. Comcast recently announced that it will buy Time Warner, and the costs associated with this merger could make licensing revenue from Back to the Future shoes look very appealing.

Foolish takeaway
Nike now has a great opportunity to show up a rival that has recently been on a hot streak and strengthen its reputation even further in the shoe business. The news of self-lacing shoes alone caught customers' attention. Now Nike just has to follow through and release the shoes in 2015. Customers have high hopes now, so if the shoes don't show up, Nike could take a hit to its reputation. However, Hatfield has delivered for Nike before, and his remarks indicate that he'll deliver again with self-lacing shoes in 2015.

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Eric Novinson has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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