Will Nike’s Flyknit Revolutionize the Shoe Industry?

The latest Nike (NYSE:NKE) shoe isn’t just a spiffy addition to a runner’s uniform. It has the potential to turn the shoe manufacturing industry upside down.

The Flyknit, a lightweight shoe made from synthetic yarn, is built using proprietary technology on a machine that automatically knits the complete upper part of the shoe in a single piece before attaching it to the tongue and the sole. That basically means that the average 37 pieces that need to be put together to make a standard Nike running shoe are cut down to just two. The software, which Nike plans to patent, is also capable of altering the look and strength of the shoe.

The company says the computer-controlled weaving technology will cut labor costs and production time drastically. It could even result in shoe manufacturing moving back to the United States.

“This is a complete game-changer,” Nike president Charlie Denson told Bloomberg. The process cuts costs so much “that eventually we could make these shoes anywhere in the world.”

Currently, 96 percent of the Nike shoe manufacturing operations are based in Vietnam, China, and Indonesia. There, machines cut pieces of the shoe that are then assembled by low-cost workers. While this process is much cheaper, there are costs associated with shipping products back to the U.S. and the time it takes to do that.

While making shoes domestically would still be much more expensive, cutting down on shipping costs and time would be huge, experts say. “One of the critical issues our industry hasn’t figured out is how to get products to market more quickly,” SportsOneSource analyst Matt Powell told Bloomberg. “The biggest time in the life cycle of getting a shoe to the U.S. is the time it spends on a boat coming from Asia. If you could eliminate that, that’s a huge chunk out of the time line.”

The Flyknit shoe, inspired by a design of a sock placed over a rubber sole, will be launched in the U.S. in July and will cost $150. Lightweight shoes were responsible for all of the U.S. running shoe market’s 14 percent growth last year, making up 30 percent of the total $6.5 billion.

To contact the reporter on this story: Aabha Rathee at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com