A recent Morgan Stanley Research report suggests two of the world’s largest sportswear companies bear doubled down on a fresh initiative to speed up their supply lines in order to react to the ever-faster pace of current style and fashion cycles.
As the boom in ecommerce and global popularity of social media, where celebrities influence Millennial trends with a click of a button, drives snappy fashion to complete-time highs, American sportswear giant Nike Inc. (NKE) and its European rival Adidas AG (ADDYY) are racing to meet the market. In 2016, 80% of on-trend German brand Adidas’ sales came from products less than a year frail.
As Adidas saw its shares hit complete-time highs this year on better-than-expected results, both Nike and its beaten-down U.S. competitor Under Armour Inc. (UAA) bear experienced sell-offs due to disappointing quarterly reports and sentiment that the brands are losing out to other retro styles and athleisure alternatives. (See also: Adidas Stomps Nike in North America and China.)
Upside From Shorter Lead Times
Goldman suggests automation and digitalization can shorten lead times from conception to market from 12 to 18 months to four to six months, as Nike and Adidas are estimated to bear spent $2.5 billion on research and development (R&D) in the final five years.
Adidas is reportedly developing more robotic “Speedfactories” like its recently built center in Germany to shorten its sneakers’ time to market as it looks to create a more “flexible” supply chain, North American head note King told commerce, trade Insider. From 3D printing eliminating the need for physical prototypes to robots that paint a sneaker’s midsole, design and manufacturing changes aim to supply customers with more custom-made and less-expensive products.
As a result of sped up pipelines, the investment bank sees more upside in Nike and Adidas shares, driven by faster growth and a boost to revenues. “Innovation will align stock management with actual demand,” wrote the analysts.
The improvements will pressure smaller players such as Under Armour, who has seen its shares sink nearly 46% over the most recent 12-month period. (See also: Can Nike Pull Off $50 Billion in Sales by 2020?)