Nike Goes to the Net - Again

May 10 2000

Desperate to make a connection with the Web-savvy and gadget-hungry Generation Y crowd, Nike has entered a new business: consumer electronics.

The Beaverton, Ore., athletic goods manufacturer announced Wednesday that it will introduce a line of electronics products designed with the athlete and weekend warrior in mind. And to broaden the products' appeal to teens, they will be compatible with Nike's Web site. For example, Nike has plans to soup up Nike.com with music and training tips that can be downloaded onto a Nike-branded digital audio player that the company will introduce this summer.

The project is being orchestrated by the company's Nike.com division and its newly created Techlab division, which is responsible for the design of the products. Both parts of the company are relatively new at Nike, and were created by CEO Phil Knight to revive the brand with Generation Y consumers who have become increasingly disenchanted with the megabrand. Nike footwear and apparel sales hit a low point in 1997, coinciding with controversies about working conditions at the company's Asian factories. At the same time, fickle teens began turning to alternative brands such as Skechers and Vans and the so-called "brown footwear" phenomenon that brands such as Doc Marten brought into vogue.

The company is hopeful that a strong Net push and a reputation as a technology innovator will begin to restore the brand's appeal with teens, which has not been seen since the Air Jordan heyday of the late '80s and early '90s."The key point was to continue what's been a legacy and heritage of innovation for Nike, and really bring that to today's youth generation," says Clare Hamill, vice president of Nike Equipment.

The first of the five products, the Nike Personal Sport Audio, is a digital audio player that can play MP3. It will be available in stores this July. Four other products, including two new versions of the Nike Triax watch - one measures speed and distance for running workouts, the other monitors heart rate - a wrist compass/altimeter and a walkie-talkie, will be introduced in the fall. Each product will carry the Nike name and signature swoosh.

By intent, the products will be simplistic and sleek. In the case of the digital audio player, Nike technicians designed the model. The company teamed with S3 , maker of the Rio players, to manufacture the product. With help from S3, Nike will sell the product in some of the same consumer electronics chains that carry Rio, including Best Buy, Circuit City and Musicland. The products will also be sold in select sporting goods chains and on Nike.com.

Branching beyond footwear and apparel is not new for Nike. One short-lived effort included a co-development deal with Mead to produce notebooks. Consumer electronics won't be an easy gambit either. Nike is going head to head with Motorola , specifically with its Nike PSC Communicate walkie-talkie, and with Sony 's digital audio player. And consumer electronics is a notoriously cutthroat business, prone to discounts and low margins. Conversely, with footwear and apparel, Nike, the overwhelming market leader, enjoys margins of roughly 40 percent, says Dana Eisman Cohen, an analyst at Donaldson, Lufkin & Jenrette .

For that reason, analysts are skeptical about the prospect of consumer electronics having any impact on the company's bottom line. "Most of this company's business is footwear and apparel. It's going to be footwear and apparel for a really long time," Cohen says.

Still, Nike remains undaunted. Officials point to the fact that the nascent digital audio market is booming, citing industry estimates of a 500 percent growth this year. At the very least, the products will give consumers more reasons to return to Nike.com, whether to pick up workout tips or download MP3 tunes - a feature that is expected to be available in July, when Nike hopes to have deals with music labels.