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Nike Tests Customer Loyalty With $225 Kobe 9 Elite Shoes

5:20 AM, Dec 16, 2013   |    comments
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(MONEYWATCH) - Don't snort at the $225 price tag for Nike's new Kobe 9 Elite shoe. People will snap them up, analysts think, which could power the company to new heights in 2014.

When it comes to basketball shoes, Nike has a fan base that other companies can only drool over. Its buyers have no problem with price increases, according to UBS analyst Michael Binetti. How many other apparel makers have that kind of pricing luxury?

"When Nike pushed through prices in categories like basketball shoes, the consumer absorbed the price increases without hesitation," Binetti said in a new note reported by Forbes.

It's the classic strategy of cornering a market and then controlling pricing. Nike doesn't have the category completely sewn up, but it has an 86 percent market share and die-hard fans who will accept no other alternative.

 
The strange thing is that basketball shoes are already one of Nike's priciest products, Binetti added. "It just happens to be one where Nike has dominant market share and highly differentiated product to drive increases, even from prices that were elevated to start with."

So what do you get for a $225 shoe? The Kobe 9 Elite, named after Los Angles Lakers star Kobe Bryant, is crafted from Nike's Flyknit technology, which creates a one-piece shoe "upper" made from knitting single strands of yarn. The high-top shoe even has nine red horizontal "stitches" above the heel -- a nod to the sutures from surgery on Bryant's torn Achilles earlier this year.

Nike last raised prices on its shoes in 2011 with an across-the-board increase. Its margins were lagging, and many consumers were not in the buying mood as the recovery stumbled.

 
Earlier this year, it was common for the company to charge as much as $170 for an adult pair of Air Jordan Retros. Could the new Kobe 9 Elite, which hits stores on Feb. 8, signal a new tier of pricing? The company isn't commenting, with a spokesman citing a quiet period ahead of the company's quarterly earnings report on Dec. 19.

 
Binetti at UBS tells Forbes that sales of Nike's basketball shoes are actually shrinking, with total unit volume down 3 percent since 2009, according to Forbes. So the company clearly needs to raise prices to combat the dip in sales.

 
Shareholders seem pleased with Nike's performance. The company's stock price has risen 47 percent this year. Rising prices for the company's shoes could boost its stock price if Nike's bottom line sees a benefit.

By Kim Peterson  for MoneyWatch

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