Cowen: Speed-To-Market Initiatives Are Emerging Catalysts For Nike, Adidas, While Kohl's Leads In Private Label

Two disruptive change agents in retail are under-appreciated: rapidly rising costs in the supply chain and technology that's enabling competition to scale at rapid rates, according to a Jan. 22 report from Cowen. 

With fashion trends changing faster than ever, aided by social media’s influence on viral fashion, Cowen analyst John Kernan said he views improved speed in the form of design time and supply chain as a catalyst to lead to less working capital risk, higher merchandise margins and higher valuations.

"We expect speed-to-market to be exceptionally important on a long-term basis as customers demand faster and faster receipt of product and as customers digest and pursue new product trends instantly through mobile phones and social media," the analyst said. 

Growing Gross Margin

With Adidas AG (ADR) ADDYY pursuing automation through its ‘"Speedfactory" and Nike Inc NKE pushing its ManRev initiative, both companies have an opportunity to grow their gross margin by 200-400 basis points, Kernan said. Speed to market derisks the rapid changes seen in fashion and improves forecast accuracy, he said. 

Adidas recently announced it's partnering with Foot Locker, Inc. FL to showcase its Speedfactory creations from local designers in its stores.  

“We’re working with Foot Locker to create incredible product for consumers and deliver it faster than ever before,” said Zion Armstrong, president of adidas North America. “With its cutting-edge technology, SPEEDFACTORY is enabling us to reach this shared ambition. We’re excited to kick off this first-of-its-kind partnership with Foot Locker and co-create the future together.”

Managing Supply And Demand

Cowen's Kernan said the expansion of emerging, disruptive brands and subscription services along with lower barriers to entry will continue as consumption and distribution are reshaped by mobile technology that allows smaller concepts to scale rapidly and introduce greater price comparability and competition.

“We don’t think this is the end of Nike’s manufacturing automation efforts. We could see potential for its overseas manufacturers looking to increase automation and near-shoring,” the analyst said. 

Kernan upgraded Nike from a Market Perform to an Outperform rating on Tuesday and raised the price target from $80 to $90.

The analyst said VF Corp VFC, Lululemon Athletica inc. LULU — and Kohl's Corporation KSS through its private label brands — will also lead in speed and growth, with tightly managed inventory relative to impressive top-line results since 2017.  

While great product, consumer engagement and innovation can win in retail, the managing of the supply-demand balance is increasingly critical, Kernan said, adding that Under Armour Inc UAA is the farthest along in correcting these issues.

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Photo courtesy of Nike.