Posted by Alex Jackson on November 23, 2019
Nike made an important decision this month about its future relationship with online retailer Amazon. After a two-year test program, Nike has decided it will no longer sell directly to Amazon. Now, why would any major apparel brand want to break ties with Amazon? It is the leading online retailer in the United States? Though this may seem like an unusual development, it was not totally unexpected. Nike initially made some significant demands of Amazon, including offering the platform a limited amount of products and making demands on how the goods were presented and priced. Nike dictating to Amazon how it sells its goods? It may sound crazy, but Nike did just do it.
Nike inhabits a very unique position in the retail environment. It’s one of the most recognized brands in the world, and they do not need to rely on a single retailer for generating sales. They can and do dictate just what and how their brand is sold, and they are in a position to walk away from any major retailer. Just how big of a hit to Nike’s bottom line this decision will be, no one can say at this point. What is certain is that the company plans to make up the loss in revenue by increasing direct to consumer sales. Nike feels that it can generate more profits and higher brand loyalty when a consumer purchases directly from Nike rather than via a third party. It all boils down to controlling the perception of the brand, and Nike knows a heck of a lot about building brand loyalty.
Who stands to gain in this situation? Nike obviously thinks is will, but also independent retailers stand to gain. With Nike cutting off the flow of goods to Amazon, this leaves a fairly significant gap in the marketplace at Amazon. Consumers may decide to still do their shopping on Amazon for their Nike needs and shop instead with third-party sellers. This means increased sales for Nike products with the possibility of better margins with less competition.
It’s a significant risk for any brand to divorce themselves from a major retailer like Amazon, but if anyone can do it successfully, its Nike.
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