November 20, 2019

NKE, AMZN - Nike's Breakup with Amazon Probably Not Very Impactful

AMZN, DKS, JWN, NKE, TGT
By Lois Sakany
Nike's much-talked-about breakup with Amazon may not be much of a game changer for either company because the online platform has always maintained a large stable of third-party sellers offering prior-season merchandise, which has limited Nike's growth potential on the site.

Nike Inc. caused a stir last week when it announced it was ending its wholesale agreement with Amazon.com Inc., surprising news given the brand had listed the online retailer among its priority accounts at a recent investor conference. While the news was widely covered, OTR Global sources do not view the end of a direct relationship as a big game changer, in part because shoppers will continue to find Nike shoes on Amazon. At the same time, the bigger story for retailers remains Nike's wish to grow its direct sales while also pulling back on allocation to wholesale partners. 

While Nike and Amazon’s partnership started off well in 2017, the relationship grew more conflicted when the Beaverton-based brand balked at providing the online giant with allocation of its premium-priced shoes. In the Nov. 12 Bloomberg article that broke the story, a source said Amazon had already begun to recruit third-party vendors to fill in the gaps left by Nike’s departure. However, while it is true Amazon initially took down multiple third-party accounts selling Nike’s current-season shoes, per its agreement with Nike it continued to sell a large volume of prior-season shoes through third-party vendors. As such, Amazon if anything is likely seeking to recruit current-season vendors.

Still, less discerning shoppers are unlikely to notice a big difference because Nike third-party sales during the two years of the agreement were likely higher than Nike’s direct sales. “As far as annual sales volume, the resellers even without current product are doing a ton more Nike volume on Amazon than Nike ever did,” said a buyer, adding, “Since the Amazon Nike deal, the sellers I know have actually grown their Nike business on Amazon."

Sources mainly thought the end of Nike's direct relationship with Amazon would not add up to noteworthy share gains by any one retailer, though one source thought it provided a slight benefit to Dick's Sporting Goods Inc., followed by mid-tier department stores and family footwear retailers. 

One buyer praised Nike’s decision to leave Amazon, a site he described as a “flea market.” The source added, “I still saw tons of third-party sellers selling Nike’s all day long with broken sizes."

Another buyer whose stores receive allocation of Nike’s premium-priced shoes views resale platforms as an even bigger headache for Nike than Amazon’s third-party sellers. While platforms like 1661 Inc. dba GOAT and SoleTrade LLC's StockX arguably elevate Nike’s equity through resale of products featuring high markups, these platforms also sell brand-new, premium product at a discount with shoes sometimes showing up below retail on launch day.

Currently, StockX’s “below retail” tab features 25 pages of Nike shoes offered in sizes sold $2-$100 below retail. For example, current StockX listings include the Air Force 1 Low N7 Pendleton, which launched on Nov. 7. The shoe is now priced at its original price of $120 on nike.com while it is offered below retail in eight sizes on StockX.

While some reports have theorized Nike will open a relationship with Target Corp. to fill in lost Amazon sales, that seems unlikely given Nike's short-lived experiment with Payless ShoeSource Inc. that was first announced in February 2007 and managed to sputter within a year. Nike partnered with the chain through its then Exeter Brands Group LLC subsidiary, which it sold to Iconix Brand Group, Inc. in November 2007.

Highlighted by a $34.99 running shoe, the Nike-Payless partnership was first forged in October 2005 under the leadership of CEO William Perez. Just a few months later, Perez announced he was resigning as CEO because of disagreements with founder Phil Knight over how to run the company. Among their differences, the New York Times pointed out disagreement with Perez’s belief that Nike had become saturated at high-end retail accounts and needed to grow by opening value retailers. Several executives at the time viewed the strategy as cheapening the Nike brand.

In the years to follow, Nike has not wavered from a mission to grow its direct sales while reducing its wholesale footprint among independent and volume retailers whose stores it views as diminishing the brand’s equity. And in recent years when Nike has chosen to expand its wholesale footprint, it was with more prestigious retail accounts like Yoox Net-A-Porter Group SpA and Nordstrom Inc. rather than value retailers.

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