Nike raised an eyebrow or two earlier this month when Chief Executive Officer Mark Parker outlined a bold plan to increase the company's business to $23 billion in revenue by 2011 (see BusinessWeek.com, 02/07/07, "Can Nike Do It?"). "We'll get there by creating innovative products and consumer experiences," Parker said at the investor meeting held at Nike's headquarters in Beaverton, Ore., in early February. "When we're innovating, we're leading. And leading is what we do best."
It was a soundbite-worthy—and entirely unspecific—comment. But now, a mere two weeks later, Nike (NKE) has taken a concrete step by launching a new brand aimed squarely at a market segment not previously served by its core lines of athlete-focused footwear and apparel. Parker, it seems, wasn't making idle promises.
Produced by the wholly owned Nike subsidiary, Exeter Brand Group, Tailwind, as the new brand is called, is a fashion-conscious line of footwear, officially launching in three Payless stores in Manhattan and Brooklyn on Tuesday. Initially, the line will be available in 400 stores in select markets, though by December it will be stocked in pretty much all of the retailer's nearly 4,600 stores nationwide.
Bright and Sporty
The launch came with all the hoopla and sports-star endorsements you would expect from Nike. Soccer great Brandi Chastain was involved in Tailwind product development and design, and she, along with teammate Hope Solo and volleyball player Logan Tom, are the front-and-center faces of the brand.
The line aims at what Exeter President and CEO Clare Hamill describes as the "premium value" space. In other words, cheap shoes, in this case for women. For now, there are six styles, ranging in price from $19.99 to $34.99. Constructed from various materials, including mesh, leather, and synthetic suede, the shoes feature cheerfully bright colors and are certainly sporty looking. Each design features a Nike-developed technology called "G Zone," a honeycomb gel that sits in the heel of the shoe, intended to soften the impact of life on the wearer's foot.
"This woman has a very active, busy life and is looking for a product that will perform and look great," Hamill says of the ideal Tailwind consumer. "The designs are on-trend but not trendy. They're expressive and beautiful—but we were also looking to get some performance, too."
In fiscal 2006, the six Nike subsidiaries generated $2 billion in revenue. That's a drop in the bucket compared with the $8 billion growth the company projects over five years, but it's an area of the business that Nike is moving aggressively to expand—over the next five years, Parker predicts subsidiaries will contribute around 25% of Nike's revenue growth. He says the company is "bullish" on its subsidiary companies.
"We believe Nike's 'other' business—which is composed of Cole Haan, Nike Bauer Hockey, Hurley International, Nike Golf, Converse, and Exeter Brands—is a major driver of Nike's business," agrees Citigroup research analyst, Kate McShane, who describes the subsidiaries as Nike's fastest growing division and considers them one of its major growth drivers. "We estimate this category will generate around $2.3 billion in revenues, or grow 16.5% during Nike's fiscal year 2007," she says.
Tailwind gives Nike the opportunity to attract an entirely new audience at the lower end of the market, one previously alienated by the high prices and athletic focus of Nike's core brand offerings. "What this does is afford a big-name brand the ability to enter an even bigger market without diluting the core essence of its dominant brand," says NPD Group chief analyst Marshal Cohen. "Nike really has nothing to lose and a lot of volume to gain…. Consumers like the idea that Nike is behind [the new brand]—it seems like a good bargain."
Playing It Safe
There has been a lot of talk in recent months of the dangers of unchecked brand expansion. Perhaps the poster-brand for over-expansion, Gap (GPS), continues to sit back on its haunches after an already tumultuous year. It stands accused of cannibalizing its own market share with the introduction of labels such as Old Navy and Banana Republic that simply weren't different enough from the mother brand's core offering. Indeed, Gap just announced the closure of its concept, Forth&Towne, after the 18-month retail experiment failed to take off as anticipated.
In this instance, Nike's playing it safe—introducing a line with the cachet of the main brand association (executives are hardly keeping the introduction quiet, while the chosen athletes are already well-associated with Nike) without the risk of putting its own name on the line. "It's all a question of multi-tiering the brand to appeal to several different target audiences, to sell product at different price points," says Cohen. "That's the future."
"It's important that Tailwind stands alone as a brand," says Exeter's Hamill. "This is a new premise and a new position in the marketplace. Clearly, we wanted it to be a different space and a different opportunity." And with the success of introductions such as the Starbury One, a $14.98 pair of sneakers developed by New York Knicks point guard, Stephon Marbury, that's made and sold by the discount clothing chain, Steve & Barry's, Nike is showing it's not going to treat lightly any threat to its dominance within the footwear market (see BusinessWeek.com, 01/22/07, "Changing the Game on Nike").
Spreading the Word
"The athletic industry currently faces many changing dynamics across its value chain," adds Citigroup's McShane. "As a result of consolidation, fewer manufacturers are selling product to fewer retailers. Competition has intensified, and a lot of the control footwear manufacturers once had is now in the hands of the retailers. We rate Nike as Buy (1M) because of its flexibility to operate in this changing environment."
The products may be less expensive, but the value market is certainly lucrative—estimated to generate revenues of around $384 billion in annual sales industry-wide. "We saw a need to go in and create a premium experience in this value space," says Hamill. "There are other players and people, but we very specifically saw a need to bring a premium experience through innovation, messaging, and athletes. So we went for it."
And even though it's a new segment, the might of Nike's marketing machine will be brought to bear on the line's introduction. A standalone, e-commerce enabled Tailwind Web site with rich media content features the three stars expounding on the philosophy of the brand. An extensive print campaign will run in April issues of various magazines. And the new offering will have a prominent presence at Payless stores. Hamill refused to disclose details of the marketing budget, saying simply that it will be "more than adequate." Executives hope that will be the case with Tailwind's sales, too.