Nearly 20% of production for Nike Inc. and Adidas AG shoes will move to more automated factories by 2023 due to a “buy now/wear now” shopping environment forced by the shift to e-commerce, Morgan Stanley forecasted.
Many of these plants will likely be proprietary, cutting out the need to rely on outside manufacturing, and potentially giving the companies a leg up. A faster supply chain will help the athletic segment keep up with the what the industry also calls “fast-fashion” demand from shoppers.
By 2020, Adidas
forecasts that it will generate half of its sales from products made with help from technology that increases manufacturing speed, allowing stores to rotate inventory more quickly to keep up with demand trends. It already opened a “Speedfactory” in Germany in December 2015 that uses “intelligent robotic technology” to manufacture shoes. And in April, the company announced that it will make 5,000 of its Futurecraft 4D shoes with a 3D-printed midsole available by fall/winter 2017.
“This means existing suppliers using traditional manufacturing probably retain 90% of total industry production five years from now,” Morgan Stanley analysts wrote in a note. “However, beyond five years, the trend should continue when the big brands and rivals likely begin catching up.”
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Analysts forecast that the athletic wear industry will grow to $355 billion from $290 billion, with the segment grabbing market share from other areas like general apparel and handbags.
As for athletic footwear, it’s been made in much the same way for decades, Morgan Stanley said, and requires a number of steps from design to purchase.
Analysts believe future supply chains will be able to cut lead times by as much as 66% or more, which will make product available to consumers more quickly. It will also cut down on the number of drastic discounts that are used to clear old, unwanted inventory.
“We think this helps companies not just cut back on ‘bad’ inventory purchases, but also more importantly, capture sales upside on hot products in season,” Morgan Stanley wrote. “We think both factors add another 15% to top-line growth.”
In the future, the process could be cut from months to days and be more automated. Morgan Stanley quotes an International Federation of Robotics report that says 1.3 million new robots will be installed in factories over the next three years. Accordingly, the International Labor Organization says about 56% of Southeast Asian salaried employment is at risk of displacement by technology over the next 20 years.
The shift will have an impact beyond just how fast merchandise can be produced and how many people produce it. Retailers will see a shift in what they carry on their shelves.
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“We think enough brick-and-mortar demand will exist for premier athletic wear retailers, such as Foot Locker
, that those retailers will continue to thrive,” the note said. “Other retailers further down the Nike
and Adidas priority lists may not do as well in the category. In the future brands will have a differentiated product offering online and a comparable level of customer service. We think this negates many retailers’ value proposition.”
Companies like H&M Hennes and Mauritz
and Amazon.com Inc.
, with its two-day delivery and “endless aisle,” have given shoppers the freedom to expect affordable, trendy clothing and shoes that can be worn in season. The fashion calendar has been scrapped, and the old model where wholesale decisions were made months in advance of when they get to market is becoming obsolete.
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Speeding the supply chain will not only meet this new demand, it can also keep the Amazon onslaught at bay.
“As brands and their retail partners get faster, they basically can offer a service level similar to what Amazon has, so the brands won’t need Amazon as much as other vendors will,” Morgan Stanley wrote. “Plus brands will offer much better product on their own websites and with their best retail partners.”
It could also help brands and retailers establish stronger relationships with their customers.
Nike shares are up 4.6% for the year so far while Adidas shares have risen more than 14% for the period. The S&P 500 index
is up 8.5% for 2017 to date.