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Nike (NKE) to Stop Selling Directly to Amazon (AMZN): What's Next?

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Nike (NKE - Free Report) is choosing to stop selling directly to e-commerce giant Amazon (AMZN - Free Report) in a push to sell more directly to customers. The abrupt halt to the partnership between the two companies will end the pilot test Nike entered with Amazon back in 2017.

Nike agreed to sell a limited product assortment directly to the digital commerce kingpin in exchange for stricter policing of counterfeits and restrictions on unsanctioned sales; this included product like athletic footwear, apparel, and accessories. Nike has been saving its highest-profile products and limited releases for its own SNKRS app or specialty stores that typically avoid heavy discounting.

In a statement Tuesday, Nike said it has decided to focus on its direct business, though it will continue to seek partnerships with other retailers and platforms. Nike officials were disappointed the deal with Amazon didn’t eliminate counterfeits and give the brand more control over gray-market goods that account for many of the Amazon listings. These items are typically purchased from retailers or distributors then resold on the site.

Potential Implications

Now that Nike decided it does not want to sell its merchandise directly to Amazon, it may open the door for other retailers to follow suit. The fear for many brands has always been that, by partnering with Amazon, a company loses control over how its brand is represented on the site.

The owner of Birkenstock pulled its products in 2016, saying Amazon wasn’t doing enough to police the gray market and counterfeit sellers. Other big brands in the apparel space like Adidas (ADDYY - Free Report) and Under Armour (UAA - Free Report) still sell directly to Amazon. Some think that it is only a matter of time before large brands realize that they don’t need Amazon.

Jefferies analyst Randy Konik said “The move shows us that strong brands realize that traffic driven to their own site is self-sustaining, more profitable, and actually brand enhancing, while traffic and incremental revenue from is less profitable but also less brand enhancing.”

Nike is choosing to focus on its direct to customer sales, which is one of the fastest growing parts of its business. In fiscal 2019, Nike Direct revenue jumped 16% on a currency-neutral basis, to $11.8 billion, driven by a 35% surge in e-commerce sales. Nike Direct currently represents about 30% of the company’s revenue, and the number is bound to grow as the firm ramps up its e-commerce presence. While partnering with Amazon can help Nike boost its e-commerce sales, the shoemaker would rather have complete unilateral control of its brand’s portrayal in the digital realm.

Amazon has been trying to expand its presence in the fashion space through partnerships with coveted apparel brands like Nike. But some believe that Amazon’s site is difficult to navigate and discover new brands. It’s also often difficult to determine if items are being sold by third parties or directly from the brands that make them. These difficulties may eventually lead to other big brands cutting ties with Amazon and deter any future business from other retailers.

Bottom Line

Nike is cutting ties with Amazon after feeling it’s better suited to pursue its e-commerce ambitions on its own. The move follows Nike’s announcement that outgoing CEO Mark Parker will be replaced by former eBay CEO, John Donahoe, in 2020. The new CEO’s background in e-commerce make him equipped to further Nike’s online aspirations as the company adjusts itself to the new digital era. If Amazon continues to fail at policing the gray market, then more brands may be enticed leave, significantly hindering Amazon’s fashion push. 

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