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Nike Launches a Subscription Shoe Service for Kids

By Motley Fool Staff – Updated Sep 2, 2019 at 1:44PM

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It could save parents money and it may be the basis for other offers.

Nike (NKE -0.99%) has launched a new subscription for service for younger kids -- roughly under age 10, but based on size. The service helps parents pick the right size by sending a magnetic sizing chart. The company has not said it plans to do this for adults, but it might be able to sell a similar service to sneakerheads at a premium price. That would help the company build a direct relationship with consumers -- something it needs, given how retail is changing.

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

This video was recorded on Aug. 13, 2019.

Lewis: The other company that we want to talk about today is Nike. A couple of news items coming out about them. One of the more interesting ones is that they're launching a kids' shoes subscription service. Dan, what are the details there?

Kline: This is a really interesting idea. When they say kids' shoes, they mean little kids, up to about 10 years old. And they're selling this as, the idea is to take stress out from parents. I actually found that the sneaker stress happens a little later, when what sneaker you wear is cool. I've had the fight with my son 100 times that "I'm not buying $200 sneakers until your feet stop growing."

Lewis: You're in a particularly unique position, though, because you have a sneakerhead 15 year old.

Kline: I do. He's actually moved away from that. But he's very conscious of what other kids are wearing, or what the cool kid sneaker is. We've strategized. I make him ask for gift cards for his birthday. But even then, I'm not letting him spend $200. It's too much.

But, this is a subscription program. You can join for $20 a month, $30 a month, $50 a month. And your child can literally get a new pair of sneakers three times a year, a new pair of sneakers four, or 12. I don't know what kid needs 12 new -- little kids aren't collecting sneakers. There's no value in those small sizes. Sneakers are dramatically cheaper for little kids. Even the trendy ones, when they start to get to be eight, nine, 10, there's a huge price break on the trendiest sneakers. Parents, depending what they pick, would save money with this, or would break even. The hardest part, and what Nike is trying to take out of it, is sizing. They actually send you a magnetic sizing chart that can go on the fridge for your kid.

I think this is a prototype. We've read about that they might do this for marathon runners who go through sneakers very quickly. I think this makes sense for adults. You're not a sneakerhead, I don't think.

Lewis: No.

Kline: All the sneakerheads I know, if I said to them, "You're going to pay a premium, you're going to pay 25% more, but you are going to get access to things that you used to have to wait in line for four times a year, and you're going to get a new pair of sneakers, and you'll have a range to pick from every month, and also, you'll have them a week before they're in stores," that's a home run. And this is Nike worrying about retail, and saying, "We have to have a direct relationship with our consumers because even places we sell are either seeing lower traffic," or, we've talked about Dick's Sporting Goods, which is leaning more on its own owned-and-operated brands. They've cut back on their Under Armour supply. Maybe they'll cut back on their Nike sneaker supply. That doesn't matter if Nike is communicating directly.

Lewis: I think, whether we're talking about the kids market here, the marathon market, maybe some ultra-premium sneakerhead-type service down the road, what we're really looking at is convenience and getting people into the regular purchasing decision of buying Nike.

Kline: Yeah. I've got to be honest, I go through sneakers really hard because I walk a lot. So, every three or four months, I go to the New Balance outlet and buy new sneakers. This time, I went to the fancy mall running store and got fitted for nice -- and they're silly looking, because the right ones were not the best color. But, if I could say: "Hey, this is the New Balance I wear. It's comfortable. I need a new one every four months, and boy, I'd like to have them not be purple, could I get black please," and I could do that as a subscription service, where I didn't have to go to the mall? That would be fabulous.

Lewis: I think Nike is doing something here where they are latching onto a concept that a lot of other retailers have been trying to push recently in getting that direct-to-consumer relationship. I am a huge fan of RXBARs. I don't know if you know those?

Kline: I do.

Lewis: So, I love them! The ingredients are printed on there. It's a very millennial-ish granola-bar brand. I order them through their site because you get bulk discounts and stuff like that. And what I've noticed recently is, they have focused on: "OK, you can buy this for $25.99, this pack of 12. Or you can buy it on a 30-day re-up and get a 5% discount." And they are not the only ones that are doing that.

Kline: Amazon does that. And the problem with Amazon is their program's not flexible. I think I've told you this story before. I take Prevacid for acid reflux. It's an over-the-counter medicine. For some reason, it's sold in either one-week supplies or three-week supplies. Amazon, whenever I buy the three-week supply, says, "Do you want to save 5% and subscribe?" And I say, "Yes, but then I'd only have three weeks, and I need a month." And there's no way to fix it. There are holes in it.

But, I am a Dollar Shave Club subscriber. I used to buy the very expensive razor company blades. I won't disparage the razor company.

Lewis: You're a true New Englander.

Kline: [laughs] They are very involved with the football team I support. But, it was an astronomical amount of money for four blades. I ordered Dollar Shave Club. The blades and razors are not quite as nice. I would say it's like 98% as much as I liked the old ones. But they show up every month! And it's four, so it's one a week, which is what I use. And every now and then, you can go into their system and be like: "I need a new handle. I want an extra four because I want to put them in my travel bag." And, a few months ago -- and this is cost management on them -- they came back to me and said, "Hey, would you mind if we just sent your once-a-month once a quarter?" I went, "I'll only have to go get the mail at the front desk once -- yeah, that's great, that works for me, too." And that's a relationship that I won't change. I buy Harry sometimes when I forgot my razor, and that's what's in my travel bag because they sell it at Target. But I'm not going to switch from Dollar Shave Club to Harry's. They already have my info. That's a lifetime relationship, as far as I'm concerned.

Lewis: And that's the beauty of it. Anyone that's seen the videos of our podcasts know that I am not someone who buys a lot of razors, but I think that's exactly what these businesses want: If you're in something that is a repeated consumer purchase, especially something like razors, or toothpaste, or the snacks that you have on a regular basis, that are part of your routine, they want that to be as mindless as possible, so that it just shows up and it's there.

Kline: And if they're smart -- they build a relationship with you. Dollar Shave Club does a really nice newsletter. It has really fun stories. And I'm not saying I wouldn't quit just to keep getting the newsletter. But there are some businesses -- if Nike sells a high-end sneaker concierge line, they should have a person who's Member Services who talks to you, who builds a relationship, who, if you leave, calls you up and is like, "Hey, Dylan, did we do something wrong?" and entices you back. That's where these things are going.

In my mind, I want to automate as much of my life as possible. I live in a building, it's difficult to bring things in and out. My parking space is not on the same floor as where I live. So, I get water delivered. It's automatic. They call me, and if I'm not home, I tell them to leave it outside, and I've left the empties outside the door, so I have to lug it in. But that's a lot better than, I have to lug it in from the curb. Kitty litter, all the heavy things in my life, I try to make sure I get automated. Sneakers, clothes? I think most people would do that.

Lewis: I wanted to talk about this Nike story in particular because, while I do think it's interesting for Nike, I think it is a representation of what we're seeing more and more in retail, and that is the automation, the subscriptionification --

Kline: It's the Dollar Shave Club of things that work like Dollar Shave Club. I've always been surprised that there's no monthly toilet paper delivery service. It's bulky. It's not a fun thing to pick up. It just makes shopping difficult. It fills up a lot of your cart. You probably can estimate how much you're going to need a month. Why can't that just show up?

Lewis: Somewhere, one of our listeners, Dan, just started a business based on your idea. [laughs]

Kline: The toothbrush one, that's in sold Target now --

Lewis: Quip.

Kline: I wasn't sure if we were going to mention the brand name.

Lewis: I'll throw the brand name in there.

Kline: They're a sometimes podcast advertiser. It's brilliant. It's telling you when you need to replace your toothbrush. It's just showing up. I would say, at some point in life, you've overused a toothbrush.

Lewis: Most certainly.

Kline: Or underused a toothbrush. I know that I bought 24 toothbrushes when I moved from Costco, and I haven't gone through them all. I've lived where I live for three years. But I've supplemented them by the free dentist ones, or forgetting I had them and buying them. I don't want to have to think about this stuff. A lot of the retail world is moving to that. Target is engineering some of its business around, even if they're not delivering it to you, the convenience of having things easy grab-and-go in those sections. I think retail convenience is something that's going to be, the next 10 years, a big piece of the story.

Daniel B. Kline has no position in any of the stocks mentioned. Dylan Lewis owns shares of Under Armour (A Shares) and Under Armour (C Shares). The Motley Fool owns shares of and recommends Nike, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has the following options: short January 2020 $180 calls on Costco Wholesale and long January 2020 $115 calls on Costco Wholesale. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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