For years, Nike Inc. was one of the biggest holdouts against Amazon.com Inc. refusing to provide its sneakers and athletic clothing for sale on the hulking e-commerce site. Its products were so cool, the company reasoned, it didn’t need or want the help.
Recently, Nike reversed course. Behind that decision lies a dramatic shift in the balance of power between brands and Amazon.
For decades, big consumer brands carefully controlled which retailers could sell their wares and at what prices. And for years, Amazon left the brands alone.
Lately, the explosion of third-party sellers on the site has led to authentic goods from companies such as Nike, Chanel, The North Face, Patagonia and Urban Decay being sold on Amazon even though they don’t authorize the sales, undercutting their grip on pricing and distribution.
Even though Nike didn’t send Amazon its products either directly or through approved wholesalers, Nike is the most purchased apparel brand on the site, according to a Morgan Stanley survey. A recent search for Nike products on Amazon turned up roughly 73,000 items.
These days, there are so many third-party resellers, who generally are allowed to resell goods they have lawfully acquired at whatever price they want, that companies see few ways to stop them.
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As traditional stores close and shopping moves online, Amazon’s dominance in retailing has grown, leaving even the most powerful brands unable to ignore it. Some companies disdain Amazon’s site design, which doesn’t conform to the tailored image they want to project, according to lawyers and consultants who work with them. They consider it a site that sells items, not one that builds brands.
One reason for their capitulation is the collapse of a retail distribution network they could better control, as malls flounder and chains like Sports Authority Holdings Inc. shutter.
A company’s power to dictate who could sell its products and how, penalizing retailers that step out of line by withholding inventory or other measures, has been a critical tool to preventing unwanted discounting, which damages the ability to sell at full price.
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Amazon, on the other hand, often gives third parties wide leeway on products sold on its site. Its goal is to offer the widest possible assortment of goods and bring down prices.
That has made it the first stop for e-commerce searches. Amazon pulled even with Foot Locker Inc. as the preferred U.S. retailer for buying sneakers in a spring consumer survey, according to retail analysts at Cowen & Co.
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Amazon is where the U.S. consumer is, said Adidas Chief Executive Kasper Rorsted, who estimates that nearly a fifth of the sporting-goods market is now online. “Amazon is the best, without any comparison, transaction platform in the world,” he said. “It might not be the best brand-building platform in the world, but that’s why we…separate crudely between transaction and brand-building.”
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Meanwhile, more and more of the sales of Nike and other goods on Amazon’s site were by third parties. The growth in the third-party segment had been fueled by rapid adoption by sellers and an offering in which Amazon warehouses and fulfills orders.
These days, analysts estimate third-party sales in total have surpassed Amazon’s own sales on the site, and the number of sellers has swelled to over two million. Amazon doesn’t report the value of sales by third-party sellers, but it confirms that about half of units sold on its site are from third-party sellers.
Third-party sales are generally more profitable to Amazon than its own, because it collects fees from the sellers without having to take on inventory risks. Amazon said its revenue from such sellers jumped 34% in the latest quarter from the previous year to $6.44 billion, nearly a fifth of total revenue.
The third-party sellers typically buy legitimate merchandise from distributors, big box stores such as Wal-Mart, or discount retailers such as T.J. Maxx, circumventing the retail networks companies have built up. The sellers then offer the items on Amazon at a slightly higher price than they bought them for, but typically lower than the suggested retail price, undermining companies’ control over pricing.
Two years ago, Mike “Reezy” Rezendes II started selling footwear on Amazon. Already a seasoned book reseller, the 33-year-old heard shoes were easy to get and profitable. So he and three full-time employees started scouring Marshall’s, Ross, Nike Outlets and even Nike.com.
“Nike is a large focus for us. We just keep sending them in and they keep selling,” he said. Nike makes up more than half of his current 2,500 pairs in stock. He said he makes an average of $20 per pair of shoes.
Nike has added controls to try to keep resellers away, limiting the amount a consumer could spend in one go, according to several resellers. Mr. Rezendes found ways around the restrictions. He pays other mall customers $20 apiece to make his transactions, and he places small online orders of about 10 pairs of shoes during sales on Nike.com to get around detection, since large orders are flagged.