The Wall Street Journal-20080215-New Nike Sneaker Targets Jocks- Greens- Wall Street

Return to: The_Wall_Street_Journal-20080215

New Nike Sneaker Targets Jocks, Greens, Wall Street

Full Text (1055  words)

The target audience for the latest edition of Nike Inc.'s landmark Air Jordan shoe is probably more concerned with its sleek styling than its carbon footprint. So when the Air Jordan XX3 is unveiled at the NBA All-Star Game festivities this weekend, sneakerheads probably won't pay much attention to what really distinguishes the shoe from its predecessors: the near absence of chemical-based glues and an outsole made of recycled material.

The Beaverton, Ore., company's new sneaker is neither the first nor the only shoe in the industry to be touted as "green." For Nike, though, the Air Jordan XX3 is at the forefront of a broader effort that is intended to please not just environmentalists and jocks but also Wall Street. It represents a systemic shake-up of the company that is supposed to result in manufacturing operations that are both carbon neutral and cheaper. "It's right for the business," says Chief Executive Mark Parker about the shoe's recent design. It's about "how we can be more efficient."

The elaborately stitched Air Jordan XX3 is part of Nike's "Considered" program -- a broad plan to reduce greenhouse gases and trim factory inefficiency by making cleaner, more sustainable designs in Nike's own labs. Rather than monitor the use of facial masks by overseas workers handling toxic chemicals, Nike is teaching itself to design shoes that don't use them. It's the latest change in tack for the company under Mr. Parker, a former shoe designer who was tapped to lead the company two years ago. All footwear is scheduled to meet baseline requirements for the new program by 2011.

Mr. Parker has promised Wall Street that Nike will increase revenue to $23 billion over the next three years -- a bold pledge in an industry where sales remain soft. Last quarter, the company's basketball-shoe sales fell by low double digits, according to sports market-research firm Sports One Source. Though Nike remains the industry titan, Mr. Parker says he realizes its growth potential is not just contingent on outward expansion, but also on an inward retooling of "how we operate the supply chain."

To start, Nike has been experimenting with "lean" manufacturing, a system already implemented in the car industry that aims to reduce slowdowns at the factory. The idea is to have small teams build each item from start to finish, rather than passing it along an assembly line. The company now produces about 60% of its Nike branded footwear that way at an estimated savings of 15 cents a shoe. Nike is in the process of retraining its other overseas factories to produce goods with lean techniques, and by 2011, the company plans to up the figure to 90% using the new system.

The experiments present some risks. The Air Jordan -- which has generated an estimated $7 billion in sales since its launch in 1985 -- was built to appeal to young athletes looking to jump higher, land softly and most importantly look cool. How that consumer will respond to "green" products remains unclear.

Tinker Hatfield, the legendary Nike designer who has worked with Michael Jordan for two decades designing numerous shoes, says that even Mr. Jordan had his doubts when presented with the plan. "The first words out of his mouth were, 'It better work right,'" says Mr. Hatfield. "He was intrigued by it, but he had a warning for us."

Mr. Hatfield says a key challenge was to create a shoe that could withstand the rigors of the basketball court while reducing the use of chemical glues. So the team designed the elements of the shoe -- its outsole, midsole and upper sections -- to fit together like a jigsaw puzzle, reinforcing their fit. Most pieces were then stitched together, rather than relying on adhesives, using a "3-D" machine that could stitch the shoe upright rather than in flat sections. Parts that needed adhesives were cemented with water-based glues, though a small amount of chemical glue was used.

Equally dicey is a new Nike basketball shoe made largely from manufacturing waste. The so-called Nike Trash Talk features an upper portion made from leather salvaged from the Chinese factory where the shoe was made and attached to a sole molded out of reground material from other shoes. Nike promises the shoe will hold up on the court, and it signed Phoenix Suns All-Star guard Steve Nash to introduce the shoe last night in a game against the Dallas Mavericks. Though Nike has made the shoe only in limited quantities, its salvage manufacturing process is more than a vanity project for Mr. Parker, who says he is eager "to scale this and make this work" in other lines as well.

By the company's own admission, the speed at which it's seeking out these projects is a course change from a decade ago, when it fought criticism about abusive labor practices at its overseas factories, including allegations of excessive overtime and the employment of underage workers. Hannah Jones, who oversees the new design program as Nike's head of corporate responsibility, minces no words when she talks about Nike then as "defensive, aggressive and isolationist."

Now, approaching the issue of the environment, Ms. Jones says she is steering the company to anticipate the concerns of "environmentalists telling you how bad you are once you've done it." In taking steps now, the goal is to "design the future . . . as opposed to retrofit the past."

To accomplish this, the company says it's seeking out other avenues beyond footwear. A distribution facility in Laakdal, Belgium, for example, is now powered by six on-site windmills that generate 22 million kilowatt-hours of electricity annually. The move has reduced electricity costs for the facility, and excess power is transferred to the community's grid. At its European headquarters in the Netherlands, Nike has designed a groundwater storage system to eliminate the need for air conditioning.

Not all of the changes have contributed to net savings. After an early tally of its emissions, Nike began targeting its use of fluorinated gases, a greenhouse pollutant that was used in the Nike Air cushioning system. But phasing out the chemical proved laborious, requiring research and implementation costs that stretched out for more than a decade. "It's one of the biggest technical problems I think we've solved in the history of the company," Mr. Parker says.