Loading...

14 Dec 2024 14:30

Advertising & Marketing

The Nike and Amazon breakup

Given the colossal growth of Amazon in recent years, it is surprising to see a big brand like Nike moving away from it. Nike recently announced that, after a two-year period, they will cease wholesale trading directly with Amazon. The brand also announced that a new CEO is set to take helm in January.

Jon Donahoe comes from eBay, so this may have something to do with their aggressive ecommerce push. The departure from this online giant is part of a wider overhaul of Nike’s retail strategy, but there a number of other complex reasons for the split:

Lacklustre Amazon sales: According to Jumpshot data, Amazon only accounted for 17% of Nike’s online sales in the US, which is a much smaller percentage of their omni-channel sales.

Third party and counterfeit goods: As part of the pilot programme in 2017, Nike joined Amazon Brand Registry to tackle counterfeit goods and take control over who could sell their brand on Amazon. There were high hopes for the partnership, however, the results did not make enough of an impact to save the relationship.

High brand awareness: It’s clear Nike benefits from large organic awareness given that, according to Jumpshot data, only 1.4% of Nike product views are driving by Sponsored Ads results on Amazon. The brand’s loyal consumers are much more likely to convert on Nike.com despite the lower-than-average product costs on Amazon’s marketplace.

Revised retail strategy: In 2017, Nike overhauled their global retail strategy, which was designed to reduce the number of global retailers from 30,000 to a more intimate selection of around 40 partners as well as expand their ecommerce reach. In addition to optimising their distribution partners, Nike increased focus on their direct-to-consumer (DTC) solutions on Nike.com.

Whilst some brands and categories – like consumer package goods – are becoming increasingly reliant on Amazon as a sales channel, other brands are realising their own independence and strength, enabling them to move away from the retail giant. While this may work for Nike, many smaller brands cannot afford to take the same risk, here’s why: 

Brand experience

More than 50% of Amazon sales are via third-party sellers. Brands are starting to realise the limited control they have on Amazon’s platform with issues ranging from counterfeits to pricing. When Nike first partnered with Amazon, it only provided a limited range of products to be sold whereas the assortment and shopping experience is much more diverse on their own website.

Meaningful experiences with brands are becoming more important as they drive direct sales even when marketplaces are cheaper. In a company statement, Nike said: “As part of Nike’s focus on elevating consumer experiences through more direct, personal relationships, we have made the decision to complete our current pilot with Amazon Retail. We will continue to invest in strong, distinctive partnerships for Nike with other retailers and platforms to seamlessly serve our consumers globally.” Retailers who can carve out customised space for brands are more desirable over retailers that make them jump through hoops to sell products on their own listings.

Strong brand equity and demand

According to Statista, Nike is the market leader in the global sports footwear industry. Because of this, the brand has the freedom to make bold decisions. One analyst at GlobalData Retail said: “Nike has enormous reach and its products are in demand, so it can afford to be selective about where its products are distributed because customers will come find Nike where it is offered. I don’t think as many brands can be as selective as Nike.”

Functional products

Categories where purchase behaviour is frequent and less experience-based – like toilet paper – are more likely to flourish on Amazon from both a sales volume and conversion rate perspective. At the same time, Amazon continues to grow their private-label portfolio, furthering the complex relationships with brands.

A look ahead

Following the implementation of their new ecommerce strategy in 2018, Nike’s shares increased to their highest price in more than two years. After announcing their departure from Amazon, shares rose by another 1.4%, showing a positive response to their increased DTC focus.

Nike said they will continue to use Amazon’s Cloud computing unit, AWS, which is a considerable revenue driver for Amazon. And Amazon will still obtain high volumes of Nike stock as they move from wholesale to third-party sellers, so in theory, Nike sales volume could remain unchanged.

It will be interesting to see if other brands use Nike as a case study to reinforce the move away from Amazon in pursuit of increased D2C sales. While not all brands are in the same position as Nike, our recommendation for everyone brand is to consider Amazon within the entire distribution ecosystem and ensure you have the right agreements and partnerships in place to help manage the opportunity that Amazon brings.

 

Written by Victoria Delaney,Global Commerce Director at Zenith Media

NULL
(Visited 5 times, 1 visits today)
Top