Nike Channels Apple Using Apps to Hit $36 Billion Target

Nike Inc. (NKE) wants to be to fitness apps what Apple is to digital music and Amazon is to online books.

Two years after introducing the FuelBand bracelet, Nike is scaling back wearable hardware and instead angling to make its activity-tracking software the go-to app for gadgets made by other companies such as Samsung Electronics Co. In the same way Apple and Amazon use digital entertainment to get people to buy higher-margin electronics, Nike’s ultimate aim is to persuade its customers to buy more shoes, shirts and sweats.

“What Nike really wants is connectivity to customers,” said Paul Swinand, an analyst for Morningstar Inc. in Chicago. “That’s the holy grail.”

Nike is using the digital strategy to help meet ambitious sales goals. Last year the Beaverton, Oregon-based company forecast revenue to hit $36 billion by the finish of the fiscal year ending May 2017. That called for a compound annual growth rate of 9.2 percent. In the 12 months through February, Nike notched an 8.1 percent sales gain. Nike fell 0.5 percent to $72.64 at 10 a.m. in New York.

With the wearable gadget market getting crowded, it’s not hard to see why Nike is shifting focus. In February, Samsung Electronics unveiled a $200 fitness band of its own called Gear Fit. Apple is said to be entering the category, as well. Meanwhile, smartphone fitness apps are proliferating.

Photographer: Bebeto Matthews/AP Photo

Nike's FuelBand is demonstrated during a product release announcement in New York. Close

Nike's FuelBand is demonstrated during a product release announcement in New York.

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Photographer: Bebeto Matthews/AP Photo

Nike's FuelBand is demonstrated during a product release announcement in New York.

Nike recently cut or transferred most of the people who worked on the FuelBand. The company won’t confirm a CNET report last month that Nike plans to stop making the device, saying only that it will continue to “sell and support” the latest version, Nike+ FuelBand SE, for the “foreseeable future.”

Canny Move

The introduction of the FuelBand in 2012 was widely seen as a canny move into wearable technology, an emerging category being hyped as the Next Big Thing. Unveiled at a glizty Manhattan event hosted by Jimmy Fallon, the bracelet generated social-media heat and helped position Nike as an innovator.

Buyers of the $149 FuelBand got a rubber bracelet with a sleek digital display that captures their fitness data and uploads it via Bluetooth to Apple devices. FuelBand also was tightly meshed with Nike+, a social network for fitness fanatics who post performance metrics and compete amongst themselves. While Nike+ offers easy access to an online store, the site is mostly about getting folks to spend time with the Nike brand.

Executives won’t say how many FuelBand bracelets Nike has sold but it’s clear the gadgets helped drive people to Nike+. Since FuelBand was introduced, the site’s membership has more than quadrupled to 28 million. Nike aims to triple membership worldwide to 100 million people.

Fuel Points

So, take away the FuelBand bracelet and what’s left? Fuel, software that the company says does a better job measuring activity than counting burned calories. Wearers earn Fuel points, which are generated by an algorithm that figures out how much oxygen a user burned to complete a specific activity. Nike says the results are accurate whether you are old or young, male or female or overweight or fit.

If the company can turn Fuel into consumers’ preferred fitness app -- hey, honey, I racked up 1,000 Fuel points today - - Nike would have a captive audience for years to come.

Success will require the company to broaden Fuel’s appeal beyond serious runners. After all, Nike wouldn’t be the world’s largest maker of athletic gear without selling a lot of merchandise to couch potatoes. To that end, commercials have featured graffiti artists and short-order cooks amassing Fuel points as they go about their daily routines.

Caloric Intake

Nike isn’t alone in focusing on fitness apps to lure customers to a community. Under Armour Inc. (UA) considered making its own device last year and passed. Instead, in December, the company paid $150 million for software-maker MapMyFitness, whose 24 million members plot running routes, track their activity and log their caloric intake.

“The way we’re thinking about it is not building individual products, but more importantly building a platform with our own community that one day we envision to have that huge, huge scale and size,” Chief Executive Officer Kevin Plank said on an analysts’ call last month.

Meanwhile, last month Nike opened the Nike+ Fuel Lab. Located in San Francisco, the operation is partnering with tech companies to create products that use the Fuel algorithm. Initial co-creators are dieting tool MyFitnessPal and Strava and RunKeeper, which both use GPS to track running and cycling.

Athletes can already fire up the Nike+ Move app, which uses the newest iPhone’s sensors rack up Fuel points.

No FuelBand required.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editors responsible for this story: Nick Turner at nturner7@bloomberg.net; Robin Ajello at rajello@bloomberg.net; Kevin Orland at korland@bloomberg.net Robin Ajello, Kevin Orland

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