Well, it took longer than we otherwise expected, but Nike is finally back in the watch/’timing’ business. Anyone watching the Apple extravaganza saw the co-branded Nike iWatch. We’d like to say that this matters as it relates to the investment thesis around Nike (which is still a bullish one), but it really does not.
This event should come as no surprise since Nike closed down its Nike Fuelband business over 2-years ago. Tim Cooke is on the Board of Nike, and with the advent of the iWatch – Nike would have been foolish to push forward and launch an inferior product at an identical ($400) price point. After all, Nike is a soft goods company, and Apple is a hardware/ecosystem company. No comparison as it relates to the ability to crank out a good watch (even though the last thing it’s used for is telling time).
And we should note our opinion that Nike’s ‘Nike Fuel’ idea – which was the core of its hardware business and online community -- is and was a horrible one in the context of the wearable market. After all, what is ‘Fuel’? It is a ridiculous, arbitrary statistic that measures steps, and maybe heartrate, without any reliable world-class geosynchenous (GPS) component.
But the biggest flaw we find in Nike’s ‘Fuel’ concept is the lack of any real ‘fitness management’ program. Nike is focused on community, which is great from a marketing perspective. It is great at driving interest in the gadgetry component of the product. It’s also focused on the commercial opportunity to drive the footwear hook-up which is the biggest piece the puzzle as it supports better pricing on premium Nike+ enabled product.
But it is lousy at providing a real dashboard for consumers to easily and seamlessly track everything from calories in, calories out, water, sleep, mood, heart-rate, activity monitor. Check out the FitBit dashboard and you’ll see why it has the dominant share in the space. With the lower priced FitBit Blaze (about half the price of the Nike/Apple iWatch) you can do all these things – and not look completely uncool while doing so. We’d argue in certain respects that FitBit is to the wearable market what Nike is to shoes.
But personal preference for fitness gadgets aside, these numbers are small. Nike only had about $33mm in sales associated with its FuelBand business, and maybe $25-$50mm in added footwear/apparel sales linked to the product. Apple sold about 12-13mm iWatches last year. Let’s say Nike helps grow that by 2-3%. We’re talking around 350-400k watches at a retail price point of $400. That’s $150mm. But it’s likely an even revenue split with Apple – so let’s say $75mm to Nike. And it’s a product that comes with either low margin, or low asset turns – one or the other. Let’s say this comes in at an incremental margin of 20%, which seems fair given what we know. That’s about $15mm pre-tax, or about half a penny per share, or about 0.2% earnings accretion.
Again, a nice splashy press event. But this lacks any and all investment significance to a story that we otherwise like very much.
- Costs $369-$399 (US) from apple.com, nike.com, Apple retail stores, select Nike retail stores
- Will be available to order on Apple site on Sept-9, unclear when available on Nike site
- Pairs exclusive Nike Sport Bands with Apple Watch Series 2
- Includes exclusive Siri commands and iconic Nike watch faces along with deep integration with the new Nike+ Run Club app
