By Thomas J. Ryan
Nike’s move to stop selling footwear and apparel directly through Amazon is apparently an admission that the art of policing Amazon’s third-party sellers is becoming more challenging as the marketplace continues to grow. But it also reinforces Nike’s ambition to directly connect with consumers.
The pilot had been ongoing since 2017.
In a statement, Nike said, “As part of Nike’s focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon retail. We will continue to invest in strong, distinctive partnerships for Nike with other retailers and platforms to seamlessly serve our consumers globally.”
In revealing the pilot in 2017, Mark Parker, Nike’s CEO, said Nike was “looking for ways to improve the Nike consumer experience on Amazon by elevating the way the brand is presented and increasing the quality of product storytelling.”
Elevating the experience on the Amazon platform was expected to include the quality of product information as well as providing a simple experience for the consumer.
Parker said, at the time, that Nike continually looks at improving segmenting and differentiating across all its channels, and each partner “ultimately requires a specific approach.” Nike noted that it had already been partnering online with TMall and Zalando to differentiate approaches. A “very tailored assortment” was expected to arrive on Amazon.com.
Yet many market observers believe the main reason Nike began selling directly to Amazon was to gain better control to remove fake Nike listings and unauthorized third-party sellers on the Amazon platform and had no requirement to hold MAP pricing. Many of those issues weren’t solved as part of the pilot.
“Nike entered into this pilot with the promise that Amazon would clean up the marketplace,” Matt Powell, a senior industry advisor at The NPD Group, told SGB Executive. “It was apparent early on that no change was happening in the marketplace.”
Powell noted that Nike all along had been taking a cautious approach with the pilot and he doesn’t believe exiting the relationship will cause impact to Nike. He said, “Nike kept the assortment sold to Amazon very mid-market. Few premium products were sold there.”
Shares of Nike closed at $91.29, up $1.79, Wednesday on the New York Stock Exchange.
Bloomberg’s report also indicated that Nike made little headway in controlling third-party sellers and potential counterfeits. The report stated, “Third-party sellers, whose listings were removed, simply popped up under a different name. Plus, the official Nike products had fewer reviews and therefore received worse positioning on the site.”
Soon after its Amazon pilot began, Nike also announced plans to streamline its wholesale base to focus primarily on about 40 partners in a shift away from “undifferentiated retail.” Aggressively building its own direct-to-consumer business was also part of that push.
The Wall Street Journal reported, at the time, that Amazon was one of those 40 that Nike intended to prioritize.
But Nike’s statement Tuesday indicated the brand is increasingly prioritizing its own DTC growth that, as well as wholesale partnerships, can yield “more direct, personal relationships” between the Nike brand and consumers.
An example is the Nordstrom x Nike partnership, first launched in 2015, that saw Nordstrom develop a separate “Nordstrom x Nike” shop on its website to keep browsers away from smaller competitors. At its new Manhattan store, an expansive Nordstrom x Nike women’s sneaker boutique on the ground floor features limited-edition products. The store opening featured a Jordan Air Latitude 720 sneaker with Swarovski crystals and the Nike by Olivia Kim capsule collection of sneakers and apparel.
Dick’s Sporting Goods has also invested with Nike in expansive in-store shops. Foot Locker partnered with the brand to open Nike and Jordan destination shops as well as with Nike’s SNKRS app.
On the company’s first-quarter conference call on September 24, Parker said Nike’s partnership with Amazon “has gone well. The business is performing well.” But he also emphasized the importance of authenticity and delivering strong customer experiences with its digital partners.
Parker said, “We continue to analyze that relationship and the other opportunities we have from a partnership standpoint. It’s critical that our platform partners are actually serving our members, or are serving our consumers, at the highest level possible so that means seamless interaction, frictionless experiences in terms of commerce, looking at an environment where they know that they’re buying authentic Nike products, and ultimately just to better know and serve our consumers. Those are the things that we expect from our digital platform partners. We feel good about our partners in Europe and in China, and also growing through the digital channels here in the United States with partners like Instagram, through social media, and we’re just getting going with Jet, so there are lots of opportunities ahead. This will be an important part of our growth going forward.”
He heralded the partnership with Tmall “one of our biggest, most successful partners” to indicate that Nike likely won’t be exiting China’s largest platform. The decision by Nike to end its deal with Amazon may raise questions about an agreement it signed with Walmart’s Jet.com in 2018.
The ending of the pilot with Amazon comes on the heels of last month’s announcement that former eBay CEO John Donahoe will take over as Nike’s CEO in January. The hiring is being seen by many as a sign that Nike intends to ramp up its consumer direct digital transformation strategy.
Nike, which generated about 15 percent of its sales from its own website and retailer partner sites last year, has previously said it sees that percentage rising to 30 percent by 2023. The company has said it eventually expects that online sales of its products would eventually surpass those sold in stores. Overall, DTC has grown to about 30 percent of Nike’s business.
Nike still plans to continue using Amazon’s cloud and web services “to power a suite of services” on Nike.com as well as within its ecosystem of apps, including the Nike flagship app, Nike Training Club, Nike Running Club, and its SNKRS platform.
Two sources told Bloomberg that Amazon has also been preparing for the move and has been recruiting third-party sellers with Nike products so Nike merchandise will still be broadly available on Amazon.com. The report also indicated that Amazon has been focusing more on reducing the flow of counterfeits on the site through various initiatives, including one project that lets brands put unique codes on their products to make it easier to identify fakes.
James Thomson, a former Amazon employee who now helps brands sell products online through Buy Box Experts, told Bloomberg that Nike will still have to deal with the same issues of policing counterfeits and unauthorized sellers undercutting prices as it did before the pilot began.
“Just because Nike walks away from Amazon doesn’t mean its products walk away from Amazon and it doesn’t mean its brand problems disappear,” Thomson said. “Even if every single Nike product isn’t on Amazon, there will be enough of a selection that someone looking for Nike on Amazon will find something to buy.”
But Nike’s departure could be a blow for Amazon, which is increasingly facing complaints about the amount of counterfeit merchandise found across its marketplace. More than half of all goods sold on Amazon come from independent merchants who pay Amazon a commission on each sale. For the first time ever, Amazon acknowledged that the sale of counterfeit products on its site was an issue in its most recent annual report.
The move led to speculation about whether other brands would follow Nike’s lead in exiting Amazon. In the active lifestyle space, only a few brands, including Birkenstock, have passed up the opportunity to sell on a platform the size of Amazon.
“Nike has enormous reach and its products are in demand, so it can afford to be selective about where its products are distributed because customers will come to find Nike where it is offered,” Neil Saunders, an analyst at GlobalData Retail, told Bloomberg. “I don’t think as many brands can be as selective as Nike.”
But other market observers believe Nike’s move may get other brands thinking about a similar step.
“Brands don’t need Amazon,” Jefferies analyst Randy Konik wrote Wednesday in a note. “Amazon had a delivery speed advantage, but that advantage has compressed. With Nike leaving the Amazon platform…it strengthens our view that retailers/brands won’t be displaced by Amazon.”
Brands have expressed frustration that Amazon doesn’t do enough to fight counterfeits. They also fear that giving Amazon too much control over prices will devalue their products. The site is also seen by many as more price-driven than many premium brands prefer and remains difficult to navigate, particularly for discovering new brands. Consumers also often don’t know if they’re purchasing directly from brands or from third-party sellers.
Finally, Amazon’s own aggressive moves into private label have frayed nerves.
“The move shows us that strong brands realize that traffic driven to their own site (e.g. NIKE.com) is self-sustaining, more profitable, and actually brand-enhancing, while traffic and incremental revenue from Amazon.com is less profitable but also less brand-enhancing,” Konik added. “We believe many strong apparel (and even non-apparel) brands will continue to avoid or curb their relationships with Amazon in the future.”
In recent years, Amazon has been able to bring in brands including Nike, PVH’s Calvin Klein, Chico’s, Sears, and J. Crew to sell direct and has elevated the experience to bring more prominence to bigger brands. In August, for instance, Amazon started labeling certain products “Top Brands” in an attempt to give big names the type of favorable positioning they get at physical retailers.
But Konik contends, “Amazon is just a traffic aggregator that reduces friction in consumption … it doesn’t build communities.”
The exit from Amazon should also be good news for Nike’s authorized sellers, including Foot Locker and Dick’s.
“The ‘Amazon threat’ has now been proven to be overblown,” Wells Fargo analyst Tom Nikic wrote in a note. The pressure on Foot Locker, where Nike makes up about two-thirds of sales, should be “alleviated.”
Photo courtesy Amazon/Nike