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Nike Drops Amazon From Direct Sales Roster

Posted on Wednesday, November 13th, 2019 by Steve Anderson

If anyone out there has ever read “The Goal”, by Goldratt & Cox, it's an excellent piece for getting back to basic principles and understanding the nature of business. Its basic premise is that businesses are open to making money, and everything that a business does should be done with that goal in mind. Understanding that the goal of a business is to make money, it might make Nike's plans to stop selling its iconic line of shoes and various clothes direct to Amazon (NASDAQ:AMZN) look a bit flawed.

A Roster Move Led to Roster Moves

The plan to drop Amazon from the roster comes at an odd time for Nike (NYSE:NKE). It recently did some bench-clearing of its own and brought in a new CEO in John Donahoe. Donahoe was previously the CEO of eBay, which does present an interesting new perspective that could have led to changes in sales channel strategy.

In fact, some of the latest reports to emerge suggest that Nike's plan is to drop the middleman—though not necessarily drop it altogether—in favor of a strategy that takes its products direct to the consumer. This, in turn, is likely to mean a greater focus on e-commerce operations and attempts to improve customer value so as to get them in the door. Some anonymous reports suggest that Amazon was expecting such a move to occur at some point anyway, and had even been actively looking for third-party Nike sellers to keep at least some Nike presence on Amazon.

Nike's Amazon Connection Wasn't All That Strong Anyway

Nike and Amazon first got together back in 2017, with a pilot program that allowed Nike to sell its goods directly to Amazon, who would resell accordingly. This put Nike in, effectively, a wholesale position rather than acting as a retailer on Amazon.

Major brands, especially in clothing, aren't always excited to be on Amazon; Amazon's operations have been home to both unauthorized third-party sellers and knock-offs, which dilute the brand's effectiveness and potentially even hurt sales by producing inferior goods.  Nike was willing to test the waters with Amazon, in exchange for some concessions like tighter controls on both third-party Nike sellers and more aggressive pursuit of counterfeiters.

Back to the People

With Nike, at last report, bringing in about a third of its annual sales from direct-to-consumer operations, putting a little extra life into its consumer-facing operations is a smart enough idea. It also gets better access to consumer data, which in turn can be used to drive analytics projects.

For those not already familiar, analytics are tools that take customer data and analyze it, looking for patterns sometimes called “actionable data.” Actionable data is basically just data that can be acted upon, and companies can derive new strategies responding to the patterns generated from the data. For example, Nike can discover that certain shoes sell best on the weekend, and run promotions to drive numbers in weaker-selling weekdays.

With Nike focusing its sales efforts more directly on the consumer, it can better harvest and control that data for its own use. That's a point that may not have been so readily available with Amazon and could give Nike a leg up. It's not as though Nike doesn't have the resources to promote its own brand properly and reach people sufficiently to let them know that Nike is going elsewhere.

But Will It Run?

With third-party sellers said to be waiting in the wings, Amazon customers should still be able to get Nike on Amazon. This could be a problem for Nike going forward. Customers may not be willing to break their inertia and voluntarily depart Amazon for even Nike's own branded website. If customers can still get Nike on Amazon, while doing all their other shopping anyway, they may not be enthusiastic about leaving their credit card and other data on some other site when it's not purely necessary.

 

Companies Mentioned in This Article

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Nike (NKE)$97.77flat1.00%39.27Buy$98.86
Amazon.com (AMZN)$1,760.94flatN/A87.43Buy$2,192.08

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