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How Nike Capitulated to Amazon After Years of Resistance

28 June 2017

From The Wall Street Journal:

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.

. . . .

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.

. . . .

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.

. . . .

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.”

. . . .

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.

Link to the rest at The Wall Street Journal (Link may expire)

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7 Comments to “How Nike Capitulated to Amazon After Years of Resistance”

  1. 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 gouge customers.

    — which is what Nike is all about. “Brand Building” and “Brand control” is just another term for inflating the margin between what they pay to make shoes and what they charge for them.

    • When a consumer wants a brand plus the goods, he’s choosing to pay for the brand.

      If he really values having some superstar’s name on his shoes, and he’s willing to pay for that, it’s not gouging. It’s a difference in individual tastes and preferences.

      • Yep. Their problem (and that of other companies, from publishers to perfumers) – is that the typical consumer is becoming less and less willing to pay that premium. Building your “brand” on “expensive” is rapidly becoming a non-viable strategy. Which is a good thing, IMHO…

        Reminds me strongly of the opposition to “generics.” Actually, “generic” is a brand these days – one that people seek out.

  2. “They consider it a site that sells items, not one that builds brands.”

    Because they are in the end just items – just like books. It’s getting the right item where a possible buyer can see it that’s the trick.

    And they are building a brand.

    “Wow – where’d you get them shoes?”

    “Amazon.”

  3. Felix J. Torres

    Gotta love the headline.
    “Capitulated”.
    I wonder how long the siege lasted.
    Did they use catapults, artillery, or airstrikes?
    What kind of defense did Nike rely on?
    A maginot line of forts or just a moat?

    • “I wonder how long the siege lasted.”

      Till now it seems.

      “Did they use catapults, artillery, or airstrikes?”

      Something even more dangerous, Amazon just ignored them and let the cheaper third parties sell their gear.

      “What kind of defense did Nike rely on?”

      Nose in the air ‘We’re too good for Amazon.’ (as my grandmother would say ‘nose so up they’d drown if it rains’ – and it does seemed to have rained on Nike’s little parade.)

      “A maginot line of forts or just a moat?”

      Nike could have held out (or possibly gone under) if they didn’t sell to those third parties that then sold on Amazon. (Much as we’re seeing with the qig5 if you think about it. 😉 )

  4. Patricia Sierra

    A bit of brand building is possible in Amazon’s fashion marketing. Say I search for a blouse in Women’s Clothing. Up pops a page with several brands featured across the width of the page. The brand’s name is under an example of their offerings. Click on that item and you’re taken to pages of that brand’s offerings. I’ve also seen what appear to be storefronts within the Amazon environment. The last one I visited was Levi, I think. Instead of being taken to the usual listings of items by a certain brand, there’s the sense of entering that brand’s website.

    But Amazon is also trying out a new way of selling clothes and accessories where participating sellers are pitted against all the other participants. It’s called Amazon Prime Wardrobe. You pick out from five to fifteen items you want to try on. Amazon puts them in a box and sends them to you free. You pick out what you want to keep and send your rejects back to Amazon in the same box they arrived in. You slap on the return sticker, put the box on your porch and they pick it up. No shipping charge either way. If you keep items (you have a week to decide), that’s when you’re charged. You get a percentage off the purchase price for items above a certain number of items you decide to keep. To persuade you to keep more items, when you’re first presented with what your total will be if you keep everything, you’re also shown how much will be deducted from the cost. Amazon has also provided a filter that lets you search only within the group of participating sellers. The only problem with the program is that not all sizes or colors of a given item are included in the offer so it takes some clicking and exploring to see if they have your size and preference in the program. Right now Prime Wardrobe isn’t available to everyone; by invitation only while they beta test it.

    I suspect this program is designed to persuade shoppers to also buy the Echo Look which takes pictures and videos of you in outfits you try on, then it rates the various looks on your body type.

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