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Aug 30, 2017

Sneakernomics: What the Nike Amazon Deal really means for the Sports Industry

Matt Powell, Vice President, Senior Industry Advisor ;

Sports

@NPDMattPowell

A lot has been written about the “pilot program” that Nike agreed to sell direct to Amazon, much of it filled with misconceptions and errors. Let’s try to set the record straight.

Probably the greatest false impression is that this deal will be incremental to both businesses. Nothing could be further from the truth. The NPD Group’s Consumer Tracking Service shows that Nike was already Amazon’s largest sneaker brand with hundreds of millions in sales, all through Marketplace.

Amazon Marketplace is a challenging business for brands. Since the sales are done by so many individual sellers, the brand has no control over their image, pricing or quality. Brands across the spectrum are trying to find a way to rein in marketplace.

Reports are that Nike’s deal calls for sellers on Marketplace to only be Nike authorized resellers, in exchange for Nike selling directly to Amazon. Cleaning up Marketplace is a huge win for Nike.

In exchange for this victory, Nike has given up price control and brand image to Amazon. Given how promotional Nike has become at retail, this could be a potential problem. How this plays out remains to be seen. It could cause a whole other set of challenges for Nike.

Given that this arrangement is a “pilot program” I expect that Nike will actually do less business through Amazon in year one than they did in their last year in Marketplace. Over time, assuming the program is successful, sales will grow but I do not think sales will be materially more than they were prior.

Another popular misconception is that somehow this deal is a negative for premium retailers like Footlocker and Dick’s Sporting Goods.  I do not believe these retailers will be affected by the deal. I expect the small “pilot” assortment to be very moderate, much like what Nike’s gives Zappos now. The products sold on marketplace were much more premium, so this deal should actually be for a benefit to the upscale retailers. I doubt if there will be much duplication in styles between Amazon and Nike premium wholesale partners.

Some of Nike’s smaller retailers could be casualties here. Likely much of the product on Marketplace came from small local retailers, which now may see this channel eliminated.

Of course, some of Nike’s decision to sell Amazon directly had to be driven by their stated strategy to grow their own direct to consumer business. While Nike grows its direct to consumer business aggressively, their sales to wholesale have suffered (as indicated by Nike’s reported results), holding back their overall outcome.

Nike, in published reports, has called out inventory issues, so a well-defined sales program like to Amazon will help relieve that pressure.

To truly be a force in athletic footwear, Amazon must improve its experience and convince brands to give them better product. Until this happens I do not see a major threat to Nike’s current major wholesale partners.



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