Nike (NYSE:NKE) doesn't seem to need much help growing its profit lately. Its sales and market share are increasing around the world, boosting the company's bottom line.
Yet Nike seems to keep finding ways to impress customers and shareholders, making Nike a winning long-term play. One more reason is a new service that allows consumers to create their own gear.
"Ultra Cool. Made for You." That's the slogan at Nike.com for NIKEiD, an online service that allows customers to create their own clothing by customizing the color, design, and even some of the performance features that allow them to get their gear exactly how they want it. Here's a new shoe I created on Nike's website. Ultra-cool, right?
I'm calling it the McNew15, and I'm sure it'll be a big hit.
OK, I should probably stick to valuing stocks instead of designing shoes, but for those who really want to get their shoes custom-built, they'll pay $170 for that option. Here's how NIKEiD is helping Nike take advantage of direct-to-consumer, or DTC, sales to win even more profit.
The NIKEiD push
Nike doesn't break down NIKEiD online sales outside of total DTC sales. However, in the company's 2013 investor meeting, Nike management pointed to NIKEiD as one of the company's points of focus in reaching its goal of $5 billion in online sales by the end of FY 2015.
The company, and investors, are happy with the rise in online sales as part of a broader DTC strategy. By selling shoes though a retailer, Nike is forced to sell products at a wholesale price, allowing the reseller to offer those products for a profit. By selling items direct to consumers, Nike can reap the entire retail price itself, cutting out the middleman and getting more revenue and more profit.
It's working. Nike reported that DTC sales were up to 22% of its total revenue in its most recent quarter, because of targeting "consumer-focused digital capabilities."
As the company's mix of product sales shifts more toward DTC sales, Nike's gross margin also climbs because of the higher per-item revenue. Nike's gross margin increased 1.4 percentage points year over year in its most recently reported quarter. Growing sales of the higher-priced custom NIKEiD products are supporting that positive trend.
Nike for the long-term win
Nike keeps proving how it can continue to grow its sales and profit, and how its dominant position doesn't mean the company has plateaued either in sales or innovation.
As offerings such as NIKEiD help to push Nike's overall online sales higher, both total sales and margins will improve, helping the company to become even more profitable. For investors, as well as for amateur shoe-designers like me, its easy to see why NIKEiD is ultra-cool.