Nike (NKE) showed off several new products at its investor day on Wednesday, from iridescent shoes to tights with kinesiology tape-style elements that “reduce muscle vibration.” But a significant driver for the athleticwear company might not be what it makes, but how it makes them.
Its newly announced design and manufacturing center, 3D printing partnership with DreamWorks Animation (DWA), and manufacturing partnership with Flex are all part of Nike’s self-proclaimed manufacturing revolution, which aims to ramp up the process of creating and bringing new products to market.
“NKE continues to uncover opportunities to drive innovation via its category offense and improved segmentation, but we were most encouraged by its manufacturing initiatives,” wrote FBR analyst Susan Anderson in a Thursday note. FBR raised its price target to 126 from 120.
“It is combining product and manufacturing/supply chain development functions, which could be a powerful margin driver (accelerated product and automated manufacturing innovation),” she added.
The Manufacturing Revolution Will Be Digitized
Furthering its commitment to automation and 3D printing — already prevalent in its automatically knitted Flyknit shoe fabric — the company’s Advanced Production Creation Center will be a 125,000-square-foot hub at its Beaverton, Ore., headquarters for designers, engineers and material scientists to create new products.
“Nike’s gonna blow the socks off of automation,” Macquarie analyst Laurent Vasilescu told IBD.
Footwear and apparel manufacturing is one of the most highly labor-intensive industries, he noted, and “pretty archaic” compared with other more automated industries. Cutting back on labor needs would take some pressure off the company’s gross margin, he said.
In an upgrade from traditional cut-and-sew manufacturing, Nike said its budding 3D digital design system with DreamWorks will be capable of “nearly instantaneous digital print applications, photo-real 3D visualizations and ultra-rapid prototyping.”
Hopes are high for 3D printers from companies like ExOne (XONE), Stratasys (SSYS) and 3D Systems (DDD) to make a splash in the consumer market.
Stratasys and Adobe (ADBE) announced a partnership last week to allow Photoshop Creative Cloud users to use Stratasys’ self-service site to receive 3D-printed items within days. And 3D Systems makes a 3D photo booth, where users can make their own figurines.
Nike shares finished up 2.3% in the stock market today, hitting a record intraday high of 129.17. Shares of 3D Systems rose 3%, ExOne climbed 7.5% and Stratasys notched up 0.9%.
Saving $1 Billion In Costs
Aside from sounding very cool and futuristic, all of that 3D printing and automation technology has an additional purpose: to help save Nike money in leftover materials that don’t wind up in the final product. The company said Wednesday that reducing waste alone could produce $1 billion in cost savings.
Even achieving half of that target “represents about 200 bps of gross margin,” which could help Nike reach 50% in gross margin, said Vasilescu.
Focusing more on “speed to market and linking near-term trends with the product design process and a more rapid production cycle will increase the likelihood that Nike will continue to be viewed as an innovator in the marketplace,” wrote Credit Suisse analyst Christian Buss on Thursday.
Management, often mum about its patent portfolio, said Wednesday that it is the third largest design patent holder in the U.S.
“They probably hold more patents than all their competitors combined,” said Vasilescu. Nike is likely shedding some light on patents now to “clearly show that they’re building a competitive moat around this business.”
Follow Elaine Low on Twitter @IBD_ELow.
4 Top Takeaways From Nike’s Investor Day.
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